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    Nord Stream 2: Trojan Horse or Guarantee of Security

Summary

Calling Nord Stream 2 a “test of the European energy union,” the president of Lithuania, Dalia Grybauskaite, has joined seven other heads of governments of Baltic and central European countries in writing a letter to the president of the European Commission (EC) Jean-Claude Juncker.

by: Linas Jegelevicius

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Nord Stream 2: Trojan Horse or Guarantee of Security

Calling Nord Stream 2 a “test of the European energy union,” the president of Lithuania, Dalia Grybauskaite, has joined seven other heads of governments of Baltic and central European countries in writing a letter to the president of the European Commission (EC) Jean-Claude Juncker.

“It is highly regrettable that our big partners (in Europe) are trying to explain to the EU member states that it (Nord Stream 2) is only a private commercial project. We all are very well aware that all energy projects of this scale are geopolitical, and their goals are precisely geopolitical. Therefore, such a letter was signed [last week] by eight leaders, including myself,” Grybauskaite explained in an interview to national broadcaster LRT.

A staunch supporter of Ukraine, Grybauskaite is said to have spearheaded the letter aiming to derail the Russian-led project, although success would come at the expense of Germany, Lithuania’s pivotal partner in Europe and a backer of the line.

The letter has been signed by the prime ministers of Estonia, Latvia, the Czech Republic, Poland, Hungary, Romania and Slovakia.

According to Grybauskaite, the original Nord Stream pipeline has not been used at its full capacity, therefore the Nord Stream 2 has no other purpose than the geopolitical: to bypass Ukraine and several eastern EU countries. Nord Stream 2 could cost Ukraine around $2bn/yr from gas transportation.

Russia’s gas export plans have become more political because of the standoff between Russia and Ukraine over the Crimea and Russia’s alleged aggression in eastern Ukraine.

War-torn Ukraine is the main transit route for about half of Gazprom's gas which it sells to the European Union and therefore it transports around a sixth of EU gas demand.

Although most Baltic policy makers and experts have embraced the letter, some cautioned that the politicians need to find other means to help Ukraine.

Impact of line 'hard to assess'

Juris Ozolins, an independent energy expert from Latvia, insists that the commercial viability of Nord Stream 2, for outsiders, not partners of the shareholder agreement, is “quite difficult to assess”.

“It is long-term and strategic for the participants, but the success depends upon access to funding and vision of European, not only EU, market development,” he emphasized to NGE. There are quite a few key questions to be answered before measuring up the project, he says. For example, “is natural gas fuel (really effective) for a transition to low carbon economy? What might happen to carbon pricing – taxation or intensification of the European emission trading scheme and so on?”

He points out that EU gas extraction is falling, although most participants (of the market) still believe that there will be need for additional volumes in the near future, even if prospects for Ukrainian gas transit remain gloomy.

Asked who will be Europe’s winners with the Nord Stream 2 in operation, Ozolins insisted there is no a single answer to that.

“There is much controversy surrounding the project. I reckon it is bad news for Slovak, Czech and Ukrainian gas transmission operators and customers, first of all. But it will beneficial for German and French gas markets,” Ozolins said.

In his words, if diplomats and politicians are “serious about international security” and if they seek to cope with the Russian aggressiveness in Europe and beyond, making Russia and Ukraine interdependent in gas business is a “high value target.”

“It works in the Balkans with electricity, for instance. But the gas industry alone cannot solve the political problems. Diplomats should not be just signing the letters, but helping Ukraine to become a reliable gas transport system. It ought to be done using the existing EU external resources for consolidation of will and actions,” he said, concluding: “If Nord Stream 2 becomes operational, the affect on the gas systems of Ukraine and the so-called Visegrad countries’ gas systems will be tangibly negative, but not catastrophic.”

Russia: Nord Stream 2 is Europe’s energy security warranty

If carried out, Nord Stream 2 natural gas pipeline will stretch for some 1,200 km across the Baltic Sea from Russia’s Baltic coast to the German coast near Greifswald. As with the Nord Stream 1 pipeline, each pipeline will have a design capacity of 27.5bn m³/yr. It will not start from Vyborg but from further south down the coast, but most of the route will be the same.

In late 2015, nine central and eastern European countries, spearheaded by Poland and Slovakia, sent a similar letter to European Council President Donald Tusk asking him to block the Nord Stream 2 construction due to energy security concerns. The EC replied that its stance on the gas pipeline remained positive.

Russia has always insisted that the project is exclusively commercial and aimed at guaranteeing Europe’s energy supply security.

Lithuanian expert: three dimensions of contentious project

Romas Svedas, an independent Lithuanian energy expert and lecturer at the Institute of International Relations and Politics at Vilnius University, told NGE he saw “three dimensions” of the contentious Russian gas project.

“First, the project should be assessed from the legal standpoint. Second, in terms of the economy and, third, from the prospect of European values,” Svedas said.

“As the EU is an entity based on the non-discriminatory principles, the EC, the governing body, ought to scrutinize the project from the point of view of the EU energy legislation and see if it is consistent with it,” he said. “Especially if it is in line with the EU’s third energy package envisioning the split-up of gas supply, transmission and distribution networks.”

The package requirements, he says, has to be applied not only to EU commercial entities but to those having business with the European Union, too.

Economically, since the EU has long said it wants to decrease reliability on Russian energy sources, it has to pursue the task consistently and tenaciously, emphasized Svedas.

“The project, alas, increases the dependency rather curtails it,” he pointed out. “So from that perspective, EU remains inconsistent with the intentions and goals it has publicly declared.”

And lastly, from the point of European values, Europe ought to bear in mind who really controls Gazprom, he said. "Literally speaking, buying the gas from Gazprom is tantamount to buying it from the Kremlin itself and moreover: supporting its policies, which now are hostile to Europe and its interests,” he said.

The Lithuanian analyst paid attention to the fact that South Stream and North Stream gas pipelines bypass eastern and central European nations.

“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,” Svedas noted. “So, again, embargo-plagued Russia benefits from it both economically and geopolitically.”

On the other hand, he says, whatever the fate of the Nord Stream 2 project is, eastern and central European countries should be “grateful” to Russia, whose adverse energy policies have spurred the former satellites of the defunct Soviet Union to gain energy independence from the sole gas supplier, Gazprom.

“That we today operate a liquefied natural gas terminal in Klaipeda, which is deemed a regional LNG hub, we owe to the Russian gas monopoly. So, to answer your question, economically, there are neither obvious winners nor losers, except the only benefactor, Russia, from the project. But, value-wise, all the EU member states have to be clear whether they defend the European values or support Russia through the gas project,” Svedas underlined.  He added: “If the tensions between western and eastern and central Europe arise (over the project), they will all be about the values, not the economy of the project.”

US analyst: Nord Stream 2 creates long-term ties between EU and Russia

Meanwhile, Agnia Grigas, PhD Non-resident Senior Fellow at the Atlantic Council, noted that, with Germany being Russia’s biggest gas market, looking for direct access to this market via Nord Stream 1 and now Nord Stream 2 does have “commercial rationale.”

“However, in the current conditions of the global energy markets that are marked by a gas glut and low prices and considering the slowing European demand for gas, especially Russian gas, makes this sizable investment project like Nord Stream 2 seem more motivated for Moscow politics than by commerce,” Grigas said.

According to her, while most EU countries realize that they need to diversify their gas imports away from Russian sources, they still seek secure access to Russian gas and tensions between Ukraine and Russia via gas halts of 2006, 2009 and the conflict since 2014 raise concerns about the stability of gas transit via Ukraine.

“In contrast, the Baltic States are not dependent on gas transit via Ukraine and receive gas via other pipelines including through Belarus and now via the new LNG terminal,” Grigas said.

Like Svedas, she says Nord Stream 2 is against the long-term declared interests and strategy of the EU that seeks diversification of its gas imports, increased energy efficiency and increased reliance on renewables.

“The Nord Stream 2 project creates long-term ties between EU and Russian gas. Moreover, with Russian gas imports follows Moscow’s political influence and leverage and thus Nord Stream will have long term geopolitical consequences for Europe and its allies,” she told NGE.

 

Linas Jegelevicius