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    Nord Stream 2 cannot be completed: here’s why

Summary

By sticking to gas market principles and the rule of law, the EU can prevent Russia from weaponizing gas supplies.

by: Myron Wasylyk, advisor to the CEO of Naftogaz

Posted in:

Complimentary, Natural Gas & LNG News, Europe, Top Stories, Global Gas Perspectives, Infrastructure, Pipelines, Nord Stream Pipeline, Nord Stream 2, News By Country, Russia, Ukraine

Nord Stream 2 cannot be completed: here’s why

Ukraine’s national state oil and gas company, Naftogaz, is at the epicentre of the country's energy security policies. It’s the largest producer of crude oil and natural gas in Ukraine, as well as an importer, transit provider and marketer of natural gas. Internationally, it’s a crucial and reliable gas trader and transporter of energy supply to Europe, which in turn is a critical contributor of revenue to the country’s domestic budget.

Yet today, despite the three decades-old proven reliability of Ukraine as a gas transporter, its crucial role in Europe’s energy system is under attack from Russia, literally. In 2014, Russian troops occupied Ukraine’s Crimean Peninsula and launched a bloody military conflict in Ukraine’s Eastern Donbas region, which has lasted for the past seven years and cost over 13,000 lives.

Naftogaz and Ukraine are unquestionably in the midst of a geopolitical conflict with its eastern neighbour: Russia. However, it would be wrong to assume that this is purely a Russia-Ukraine conflict. It is not. Increasingly, there is evidence that Russia is using energy as a weapon with which to press and blackmail Europe and which has the potential to leave a whole continent without adequate heat this upcoming winter.

A centrepiece of Russia’s use of energy as a weapon is the Nord Stream 2 pipeline, whose completion is being challenged by Ukraine, Poland, Lithuania, and other European states.

Ukraine’s record of success as an economically effective gas transit country with the potential of transporting 143bn m3 of gas is precisely the reason that Russia has chosen to build the Nord Stream 2 gas pipeline, an economically unviable, political pet project of Vladimir Putin that aims to circumvent gas transit through Ukraine and punish it as part of Russia’s hybrid war. Not only will the implementation of the gas pipeline be dangerous to the people of Ukraine and Europe (especially border allies), it will also be economically damaging to the nation as Gazprom, the company controlling Nord Stream 2, would have a near monopoly on gas transport to and within Europe.

Recent events have underscored the potential operation of Nord Stream 2 cannot be viewed solely as a Ukrainian problem. In fact, even as Nord Stream 2 awaits a decision about its future from German and European regulators, Russia — taking advantage of a global spike in energy prices has begun to use energy as a weapon against Europe, something the people of Ukraine have repeatedly warned the world against, for the last several years. Currently, Russia is withholding adequate supplies of gas to Europe, hoping that the continent buckles and approves the pipeline before all necessary certifications. Now, large swaths of Europe face the prospect of a gas supply crunch and the prospect of not having enough gas to adequately supply their citizens this winter. This alarming situation is not a supply chain or market problem. It is an artificially exploited crisis by Russia and Vladimir Putin. On the other hand, we see Gazprom rewarding loyal governments for their political loyalty with gas price discounts, as was the case recently in Serbia and Bulgaria.

During this century, Europe has evolved a doctrine that prevents energy monopolies. Nord Stream 2 goes against this doctrine.  For this reason alone, the EU and Germany cannot allow Gazprom’s natural gas monopoly to have its Nord Stream 2 operator certified. This would put all of Europe in danger including Ukraine. Like most upstanding business participants in the European energy system, we follow the rules of the EU that are designed to ensure commercial and market principles drive the energy market and its participants are treated equally. Russia, too, must be made to play by these European rules.

We are pleased that Naftogaz will be part of the certification process of Nord Stream 2, as we know Gazprom will continue to try to find loopholes in European law. Just recently, headlines blared across the world that Germany paused the certification of Nord Stream 2, but the articles missed the greater point. Germany paused the larger pipeline certification so that Gazprom can create a subsidiary for the small German portion of the pipeline. This makes a mockery of European law and this “technicality,” cannot stand.

As a European market player, Naftogaz is protecting its legal and commercial interests when it claims to the German regulatory authorities that the Nord Stream 2 operator must be bound by  European law. It bears repeating. All that Naftogaz is doing is following the rules of the game of the EU. Does Europe have the will to enforce its own energy rules? Germany and Europe may now have a weaker hand because they let the construction of the pipeline be completed notwithstanding the warning from market players in Ukraine, Poland, and three successive US presidents.

However, if the EU sticks to the gas market principles and the rule of law, it can win by forcing Gazprom to play by European rules. This means insisting on the principle of unbundling gas producers from pipeline owners, allowing third party access to the Nord Stream 2 pipeline, and a transparent market-based tariff policy. By enforcing these crucial gas market steps Europe can prevent Russia from using Nord Stream 2 to weaponize gas supplies, which are being used to push up European prices by a Kremlin whose goal is to divide and conquer Europe.

This op-ed is part of a series which NGW is hosting on the topics of Nord Stream 2 and the energy crisis unfolding in Europe. If you wish to have your say on these crucial issues, get in touch.

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.