Problematic Pipeline

For Germans, Nord Stream 2 is no longer just a commercial interest

Nordstream1800
Too big to handle. Source: DPA

Not too long ago, the Nord Stream 2 pipeline – a €9.5 billion ($11.4 billion) project funded by the Russian state-controlled gas producer Gazprom and Western companies – was a standard “commercial project,” as the German government put it. Yet after critics upped their attacks on the Russia-to-Germany gas pipeline, Angela Merkel’s cabinet had second thoughts.

“The German government is aware of the political dimensions and is taking the reservations of partner countries seriously,” was the official response to questions posed by Germany’s Green party. This difference is striking, the Green party’s chairwoman, Annalena Baerbock, told Handelsblatt.

The statement closely echoes Chancellor Merkel’s sentiments when she attempted to placate Ukrainian President Petro Poroshenko at a joint press conference in April. “I made very clear that a Nord Stream 2 project is not possible without clarity on the future transit role of Ukraine,” Ms. Merkel said. “So you can see that it is not just an economic issue. There are also political considerations.”

“Without transit through Ukrainian territory, the likelihood of a large-scale conflict between Russia and Ukraine increases.”

Juri Witrenko, managing director, Naftogaz

Mr. Poroshenko is concerned that the pipeline, which would circumvent land-based pipelines in Ukraine and instead run underneath the Baltic Sea, completely removes Ukraine from the equation, costing his country billions in lost gas-transit fees. In an interview with Handelsblatt, Mr. Poroshenko went as far as to say that Nord Stream 2 is a “bribe for loyalty,” from Russia to Germany. In February, Polish Prime Minister Mateusz Morawiecki expressed similar concerns about the pipeline, which would start delivering gas in 2020 to around 26 million households.

For months, politicians and executive have been wrestling with how to handle the problematic pipeline, which would double the capacity of the existing Nord Stream 1. The EU is trying to obstruct the project, arguing that it increases Europe’s dependence on Russian gas. Maros Sefcovic, Vice President of the EU Commission, even accuses Russia of attempting to deal a blow to Ukraine’s economy.

Juri Witrenko, managing director of the Ukrainian energy company Naftogaz, expects even worse. “Without transit through Ukrainian territory, the likelihood of a large-scale conflict between Russia and Ukraine increases,” he warns.

As criticisms pile up, gas company Gazprom (which interestingly, established Nord Stream 2’s headquarters in Switzerland) wants to bolster support for the pipeline. From Gazprom’s perspective, maintaining the current transit contract with Ukraine is not an option. “Under no circumstances [would the contract] be extended. Not even if the sun and moon trade places,” said Alexander Medvedev, Gazprom’s deputy chairman. However, a new contract with reduced operational times and limited flow volume might be feasible.

25 Nord Stream Pipeline-01

While the German government said it welcomes Russia’s readiness to renegotiate Ukraine transit contracts due to expire in 2019, it isn’t keen on the EU’s attempts to exert more influence on Nord Stream 2. The project is co-funded by German companies Wintershall and Uniper, the Anglo-Dutch oil company Shell, French energy company Engie, and Austrian oil company OMV.

Germany argues the EU’s plans to amend an international gas-market directive would contradict demands of the UN Convention on the Law of the Sea, which dictates how public entities should interact in nautical matters – relevant because Nord Stream 2 would double the number of underwater pipelines delivering gas from Russia to Germany.

Despite the discord, Gazprom is committed to realizing the project and is already dreaming of a Nord Stream 3 to meet the EU’s gas needs when demand peaks around 2025, according to Mr. Medvedev. They also have plans to build a €17 billion chemical plant near the Baltic Sea that would purify the gas delivered by Nord Stream 2.

André Ballin writes for Handelsblatt from Moscow, Russia. Silke Kersting reports on consumer protection, construction, environmental policy and climate change. Klaus Stratmann covers energy policy and politics. To contact the authors: kersting@handelsblatt.comstratmann@handelsblatt.comballin@handelsblatt.com

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