Nord Stream II: Another Threat to the EU’s Fragile Unity

Despite commitments to solidarity under the Treaty of Lisbon, energy policy remains problematic for the EU regarding the primacy of national interests and preferences for bilateralism over multilateralism. Recent debates over Nord Stream II epitomise the challenges to solidarity between member states as well as posing a significant obstacle to the EU’s Energy Union strategy.

Nord Stream II is the proposed sub-sea pipeline to provide an additional route for Russian gas to be delivered to Germany via the Baltic Sea. If operationalised, it would be the second pipeline built by Russia’s Gazprom and Germany’s BASF and E.ON energy companies. Although primarily being a Russian-German collaboration, a number of other energy companies have partnered with Gazprom, to include Austria’s OMV, France’s Engie and Royal Dutch Shell. The pipeline is intended to run parallel to and double the volume of its successor, the Nord Stream pipeline, which was completed in 2011.

Not unlike its predecessor, Nord Stream II is a highly controversial project, which has brought to light a number of significant cleavages between EU member states in their support for its implementation. Countries such as Germany and companies in the group of Nord Stream II partners have argued that the project will mitigate the problem of declining indigenous European gas production, help meet Europe’s future consumption of natural gas (which will likely increase due to it being preferable to coal in realising climate change objectives), and alleviate the supposed supply risk by decreasing dependence on the Ukrainian transit route. The development of the pipeline is contested, however, by a number of European governments who believe that Nord Stream II lacks an economic rationale and is driven more by a political agenda with “potentially destabilising geopolitical consequences.”

Indeed, although the Nord Stream route would cost less for Gazprom to ship gas directly into North-Western Europe given that Russia’s new production base in Yamal is closer, a solely economic justification is questionable. The fact that Gazprom is seeking to expand capacity by constructing new pipelines, when half of the existing transit capacity from Russia to Europe is currently not utilised, brings to question the dominant motivation for the project. As such, it is argued that the primary logic for Nord Stream II is to bypass supposed “unreliable” transit routes (i.e. Ukraine) rather than diversifying sources or routes of supply.

In this regard, it is no surprise that the countries that have signed the letter objecting to Nord Stream II are largely composed of central and eastern European nations (the Visegrad Group, as well as Estonia, Latvia, Romania and Lithuania). As well as citing the absence of an economic justification for the project, these countries stipulate that there are a myriad of political and legal grounds for objection.

Contrary to the EU’s stated aims to diversify supply routes, Nord Stream II would arguably increase dependence on Russian gas. As Donald Tusk, President of the European Council, stated last December, Nord Stream II “would increase Europe’s dependence on one supplier and concentrate 80 percent of Russian gas imports on one route.” For example, in Germany, Gazprom’s market share would actually increase from 40% to 60%. Consequently, in addition to not furthering the objectives of the EU’s Energy Union regarding diversification, opponents have also cited that Nord Stream II would result in Gazprom holding too much power in the market as a single actor. Nord Stream II is not only incongruous with the commitment to diversify supply and decrease energy dependency, but the reliance on Russian shipments arguably undermines the EU’s sanctions on Russia introduced in 2014 in response to the country’s aggression in Ukraine. German support for the project is certainly extremely difficult to reconcile with Angela Merkel’s tough stance regarding Putin’s actions in Ukraine, with Italy’s Matteo Renzi accusing Germany of “double standards” in such an approach.

Moreover, legal concerns are salient in objections to the project. The signatories of the letter sent to Juncker last month requested that Nord Stream II’s compliance with existing energy laws be further scrutinised. Under the EU’s 2009 Gas Directive and its accompanying legislation, the Third Energy Package (TEP), gas suppliers to the EU must separate ownership and distribution assets. It was due to such legal restrictions that Gazprom abandoned the South Stream pipeline (which was intended to travel via the Black Sea). The intention to go-ahead with Nord Stream II after recently cancelling the construction of the South Stream pipeline has also fed into accusations that it is primarily a political rather than commercial project. Proponents of Nord Stream II, however, have argued that it is outside the scope of the principles of the Third Energy Package (TEP) as it is an offshore pipeline from a non-EU and non-European Economic Area country.

In addition, given the geographic location of the proposed pipeline, a number of governments have cited the uneven economic repercussions of its construction. German Vice-Chancellor Sigmar Gabriel has sought to assuage concerns by stating that Nord Stream II will only proceed if gas flows through Ukraine continue after its transit contract with Russia expires in 2019. By reducing both dependence on and use of the Ukrainian transit route, however, Nord Stream II is set to greatly damage Ukrainian revenues which are currently worth more than $2 billion a year. Moreover, given that energy supply is largely tethered to geography, decreasing dependence on Ukraine as a route of supply would not only cause an economic blow to the country, but would also greatly inhibit its geostrategic leverage with both the EU and Russia. Furthermore, the Czech Republic, Hungary and Slovakia would also be set to lose out economically due to the billions lost in transit fees.

As these objections demonstrate, the debates over the construction of Nord Stream II has divided the EU, with a number of countries arguing that it not only ignores the objectives of the Energy Union framework, but serves individual (namely German) national interest at the expense of a unified response that takes into account Central and Eastern European concerns. As Romas Svedas, an independent Lithuanian energy expert at Vilnius University, has commented:

“By creating additional gas transportation capacities, Russia benefits from the gas exports to Western Europe, but, at the same time – note, with Europe’s nodding – retains the geopolitical grip on eastern and central Europe”

By maintaining gas flows to “core EU states,” a number of Central and Eastern European countries fear that Russia will be able to more readily use its energy resources as a means to exert political pressure. As the CEO of Ukraine’s state oil firm Naftogaz commented this month, Nord Stream II is seen as a “Trojan Horse” rather than a commercial project that would not only damage Ukraine economically, but be used as “geopolitical blackmail.” Indeed, given Russia’s explicit commitment to utilise ‘great energy resources as an instrument of…internal and external policy’ in the Energy Strategy of 2003, as well as Russia’s track record of utilising this tool against Ukraine and the subsequent spill-over effect into the EU, such fears are not without foundation.

There exists, therefore, a kind of “internal dichotomy” between EU member states due to different levels of energy dependence and risk, economic repercussions due to geographic location, as well as different historical experiences with and perceptions of Russia as an energy partner which, for many Central and Eastern European countries, are premised on suspicion of Russia’s use of energy supply as a foreign policy tool. Indeed, geopolitical arguments and Nord Stream II’s claimed incompatibility with the EU’s Energy Union framework have come to the fore in opponents’ objections to the project. In this regard, the notion of doubling the supply from one source along one route is said to be clearly politically motivated by undermining the aims of diversifying supply, increasing dependence on Russia at a time when policy vis-à-vis Russia is paramount given the conflict in Ukraine, and deliberately side-stepping and jeopardising the position of Central and Eastern European countries. In contrast, proponents have highlighted Nord Stream II’s commerciality and downplayed claims of geopolitical manoeuvring. As Alex Barnes, the head of regulatory affairs for Gazprom Marketing and Trading, has argued, the “idea that bringing gas into Germany isolates Eastern Europe or Poland is not true [for the] European internal market is no longer about point-to-point pipeline routes.”

As such, it is evident that hopes for solidarity in the EU is once again under severe pressure. At a time when a trusted and diplomatic Germany is greatly needed in the EU, the strong support for Nord Stream II has been heavily criticised by Central and Eastern European countries, as well as Southern member states such as Italy, who were invested in the South Stream project. Therefore, whatever the final decision may be following the European Commission’s investigation on Nord Stream II’s compliance with EU rules, it is clear that Nord Stream II will continue to act as a divider between EU member states, thus posing an additional challenge to the EU’s fragile unity which is already beset by the refugee crisis and the looming possibility of Brexit.

***

Born in Singapore but raised in Britain, Fiona Wong completed her Bachelor of Science in Politics with International Relations at the University of Bath, before recently finishing her M.A. in European Politics, Policy and Society at the University of Bath, Univerzita Karlova v Praze and Università degli Studi di Siena. She currently lives and works in Tuscany, and is seeking an opportunity to further explore identity politics, immigration, and asylum policy. Her Twitter is @caipirinha27.

Photo by Pjotr Mahhonin / CC BY-SA 4.0 (photo cropped)

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s