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    [GGP] The (Yet?) Non-existent Pipeline that Already Divides Europe

Summary

In October 2012 in Portovaya Bay, Russia, a gathering of heads of state and top industry leaders from Russia, Germany, France, and the Netherlands celebrated the commissioning of the second string of Nord Stream 1.

by: Kleinman Center for Energy Policy at the University of Pennsylvania | Anna Mikulska

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Global Gas Perspectives

[GGP] The (Yet?) Non-existent Pipeline that Already Divides Europe

In October 2012 in Portovaya Bay, Russia, a gathering of heads of state and top industry leaders from Russia, Germany, France, and the Netherlands celebrated the commissioning of the second string of Nord Stream 1. Approximately three years later, a shareholder agreement was signed between Gazprom and Western European firms: E.ON, BASF/Wintershall, OMV, Engie, and Royal Dutch Shell to form a new consortium that would execute the plan and complete Nord Stream 2 (NS2) by the end of 2019. Once completed, NS2 would allow Gazprom to sharply reduce—if not eliminate completely—Ukrainian transit where disagreements had resulted in multiple shutoffs of Russian gas flows to Europe.

Following successful completion of the first two strings of the Nord Stream pipeline, it is unlikely that those in attendance at either event anticipated the difficult work ahead of them. Nord Stream 2 (NS2) would become arguably one of the most divisive and contested projects in European natural gas infrastructure.

The project has been subject to deep disagreements, particularly between the countries of Western Europe and their Central and Eastern European (CEE) counterparts. As I have written here before, both sides display dramatically different views of NS2. The West shares Gazprom’s official perspective that underscores unreliability of Ukrainian transit. On the other hand, CEE countries argue that the company is an instrument of the Russian state and would use the new pipeline to perpetuate Russian gas domination and potential influence, especially in CEE. According to this perspective, the new delivery route could also discourage investment in other infrastructure projects in CEE and/or Europe that otherwise would be pursued and provide greater diversification of natural gas supply and energy security.

As often happens, there are merits to the positions of both sides.

To begin, Western utilities have worked with Gazprom for decades, even during the Cold War. The relationship has been based on market rather than political considerations. This resulted in strong commercial ties and a level of trust between the companies that influences their support for NS2 and informs their governments’ positions. On the other hand, the CEE experience has been diametrically different, with Gazprom often using CEE’s heavy dependence on its gas to further Russia’s political goals. Thus, it should not come as a surprise that a new pipeline promising to expand Russian natural gas delivery to Europe has ruffled feathers and raised serious concerns.

The two EU sides are adamant about their positions, engaging in lobbying activities to further their interests. But both sides seem also to be unwilling to consider the basis of each other’s arguments. The West is too fast in dismissing CEE concerns, unwilling to look deeper into the issues and use of Russian gas supplies to further Russia’s influence in that region. At the same time, CEE countries have not fully acknowledged that the increasing liquidity and depth of the global natural gas market combined with ongoing infrastructure additions in the region are likely to prevent the type of influence Gazprom was able to yield in the past.

In effect, parties are talking past each other. The disagreement has created a rift that runs directly against the common interest of both groups, weakening the EU and creating the possibility that the conflict could spill into other areas in a tit-for-tat fashion. This should give a pause to all EU members. EU's strength is in its unity and this particularly related to the power to withstand any type of political or economic pressure from outside forces.

NS2 has unearthed important issues that divide the “old and new Europe” but should become an opportunity to “work out” the differences and increase understanding between the member states. Instead it has become a political lightning rod that can significantly weaken the EU. If the latter is Russia's goal then NS2 does not need to ever be completed for Russia to "divide and conquer."

On the other hand, if EU members can build understanding—recognizing their different experiences with Russian gas delivery—they could design energy strategies that promote true diversification and security. Whether the pipeline is built or not, the continent could take better advantage of the deepening global natural gas market and make it less vulnerable to pressure from any one supplier, including Russia.

This blog post by Anna Mikulska was originally published by the Kleinman Center for Energy Policy at the University of Pennsylvania.

The statements, opinions and data contained in the content published in Global Gas Perspectives are solely those of the individual authors and contributors and not of the publisher and the editor(s) of Natural Gas World.