Germany, US reach Nord Stream 2 deal

Germany and the US have agreed a deal that will allow the Nord Stream 2 project to go ahead, the two countries announced late on July 21, while vowing to punish Russia if it uses the pipeline as a political weapon.

As the main beneficiary of Nord Stream 2, Germany's support for the project has been unwavering despite political tensions with Russia in recent years. Two of the five equal financing companies are German. The US, on the other hand, has warned that the pipeline poses a threat to European energy security and could be used as a tool for Moscow to exert greater influence in the continent.

Washington introduced sanctions against the project in December 2019, forcing Swiss contractor Allseas to abandon its pipelaying work. These measures caused delays, but Russia brought in its own pipelaying vessels to finish the job. Nord Stream 2 is now 98% finished and its operator expects full completion in August.

The agreement between Berlin and Washington follows talks between US president Joe Biden and German chancellor Angela Merkel on July 15. The two leaders spoke then of assurances that Ukraine would remain a transit route for Russian gas in spite of Nord Stream 2.

In a joint statement on July 21, Germany and the US said they were "steadfast in their support for Ukraine's sovereignty, territorial integrity, independence and chosen European path," and were "united in their determination to hold Russia to account for its aggression and malign activities by imposing costs via sanctions and other tools."

If there is such aggression, Germany will take steps to limit Russia's energy exports both at national and EU levels, "to ensure that Russia will not misuse any pipeline, including Nord Stream 2, to achieve aggressive political ends by using energy as a weapon."

Critically, Germany said it would ensure that Nord Stream 2 abides "by both the letter and the spirit of the Third Energy Package." This could mean Russia's Gazprom has to divest the pipeline and offer up its capacity to third parties. Under Russian law, Gazprom is the only supplier permitted to export gas via pipeline.

The two countries also stressed that gas transit via Ukraine should continue beyond the expiry of the country's current gas transit contract with Gazprom at the end of 2024. 

"In line with this belief, Germany commits to utilise all available leverage to facilitate an extension of up to 10 years to Ukraine's gas transit agreement with Russia, including appointing a special envoy to support those negotiations, to begin as soon as possible and no later than September 1," the statement read. "The United States commits to fully support these efforts."

Germany will also support joint energy projects with Ukraine, with a special focus on renewables and energy efficiency, as well as transitioning away from coal. It will appoint a special envoy with $70mn of dedicated funding towards this end. It said it was also prepared to launch a Ukrainian Resilience Package to support the country's energy security.

"This will include efforts to safeguard and increase the capacity for reverse flows of gas to Ukraine, with the aim of shielding Ukraine completely from potential future attempts by Russia to cut gas supplies to the country," the countries stated. "It will also include technical assistance for Ukraine's integration into the European electricity grid, building on and in coordination with the ongoing work by the EU and the US Agency for International Development."

Germany will also work towards including Ukraine in its Cyber Capacity Building Facility, and help Ukraine reform its energy sector and modernise its power grid. 

Germany and the US also expressed support for the Three Seas Initiative. Involving 12 EU states in east Europe, the initiative was set up in 2015 largely to counter these countries' economic reliance on Russia. The initiative helps fund investments in gas as well as transport and communications infrastructure. The current roster of projects it supports includes a gas link being built between Poland and Lithuania and the Ionic Adriatic Pipeline (IAP), slated to run through the Balkans.

Germany said it would look to fund projects included in the initiative.