International Policy Digest

World News /17 Sep 2019

Nord Stream 2 Nearly Complete, but Controversies Remain

The controversial Nord Stream 2 (NS2) pipeline, which will carry Russian gas under the Baltic Sea to Germany, is now three-quarters complete, according to Austrian energy investor OMV, with the remainder of the project on schedule to hit its early 2020 deadline. OMV’s insistence that the project is on track for timely completion follows speculation that the project could face many more months of delay, thanks to Danish authorities’ reluctance to allow around 100 miles of pipeline to cross their territory in the Baltic Sea.

For Russian state-owned company Gazprom, the timing of the project is critical. With the contract for the main route for Russian gas exports – currently through neighbouring Ukraine – set to expire at the end of this year, the race is on to ensure that its replacement is up and running. Gazprom has previously lodged two route applications with Denmark and has recently been asked by the Danish government to submit a third for environmental reasons—a request that the Russian firm has labeled a “deliberate attempt to delay” completion of the pipeline as costs have spiraled over the original €9.5 billion budget.

Denmark’s hesitation is understandable, though, given the highly charged political row that’s raging between Germany on the one hand – which supports the installation of the pipeline – and, on the other, a number of eastern European states who strongly object to the project, fearing the long-term implications of deepening the European bloc’s reliance on Russian gas.

Caught between competing interests

Gerhard Schroeder, project chairman, and former German chancellor has argued that by withholding permission, Copenhagen is “putting Europe’s energy security at risk.” Schroeder’s comments are ironic, because it’s more likely that the implementation of NS2 will endanger Europe’s energy security—not to mention its geopolitical security— rather than bolster it.

While the new pipeline will effectively double the amount of gas being channeled through the Baltics to more than 100 billion cubic metres per year, many are rightly skeptical about its impact. Importantly, no ‘new’ gas supplies will be carried to Europe via NS2 as Russian supplies to Europe via Ukraine are already well established. This new route will merely empower Gazprom to bypass Ukraine, depriving Kyiv and others of billions of dollars in transit revenues. With East-West tensions rising, increased dependence on Russian commodities could even be seen as an existential threat to the common market and to the EU’s broader strategic interests.

In fact, some security experts have raised doubts about the wisdom of allowing NS2 workers free access to Swedish ports – including the Karlskrona naval base – that could offer Russia new intelligence and espionage opportunities. Poland’s foreign minister has also warned that the pipeline may provide Russia with an excuse to increase its military presence in the Baltic.

Ramping up tensions

What’s more, Russia hasn’t exactly shown itself to be the most reliable energy partner, especially in extremis. Moscow has a history of turning the taps off when it’s in the throes of a political dispute.

Throughout the early 2000s, Russia regularly interrupted supplies from its gas fields to Ukraine as part of a political stand-off between the two countries that also threatened to disrupt supplies to Western Europe. In 2014, when Russia annexed Crimea, it also axed Ukraine’s gas flow in the middle of winter, with knock-on effects for large swaths of the European Union. In a stress test carried out just five years ago, the EU warned that any prolonged disruption of Russia’s gas supply could leave private households, especially in Baltic countries, without adequate gas.

Ukraine, of course, will bear the brunt of the consequences of the new pipeline. Not only will Kyiv lose substantial revenue, but Moscow’s newfound ability to bypass Ukraine may make further military aggression more palatable to Moscow. Ukraine’s current ‘gatekeeper’ status affords the country some leverage but with a drastically reduced gas transit, the country’s GDP could plummet by 3 percent. Many fear that NS2 is part of a Kremlin strategy to further weaken and isolate Ukraine in order to press its own political advantage.

Time to reconsider?

Back in 2016, when NS2 was still in its planning stages, eight EU states wrote to the European Commission expressing their concerns over the “potentially destabilizing geopolitical consequences” of the project. Despite these worries, the new pipeline is inching towards completion.

NS2 will make it easier to move Russian gas to European customers but, in parallel, it will increase Moscow’s influence in the region. This will ratchet up Europe’s reliance on a historically unreliable partner and deprive Western-leaning countries in eastern Europe of much-needed revenues – and possibly some of their hard-won political independence. Denmark’s hesitation to hand out the necessary permits may have thrown a spanner in the works, but it’s not likely to stop the project from being completed. Still, it’s given Europe more time to ponder whether it’s really a good idea to hand over so much control of its winter heat to a neighbour with a reputation for blowing hot and cold.