[Premium] EC Struggles with Gazprom's Baltic Pipe Plan

The European Commission (EC) is struggling to make a case for its potential intervention in Nord Stream 2 (NS2) negotiations, as there is no EU-wide consensus on the matter.

After the legal service of the European Council rejected the EC's claim that the project would develop in a “legal void”, the EC has plans to amend European legislation so that it will apply to the project, said NS2 representative Sebastian Sass at the Brussels Energy Club on October 25.

But as politics continue to drive the debate on NS2, proponents of the pipeline insist on its economic and diversification benefits for European consumers overall. Two recent studies were presented at the above-mentioned discussion by Harald Hecking from think tank ewi ER&S and by  Annette Berkhahn from consultancy Arthur D Little.

Hecking is the co-writer of a study on NS2 impacts on the EU gas market, which was commissioned by NS2 itself. While renewable energy costs keep falling, he argues that it only represents 13% of Germany’s primary energy consumption (or 15% according to another source), which points to natural gas playing a key role until 2050 in order to meet the aim of cutting emissions by 5% compared with 1990.

As such, he sees natural gas demand in Germany increasing slightly every year before peaking in 2035, with the rest of Europe following a similar trend. NS2 would have a capacity of 55bn m³/year, which translates to around 15% of the current global market for LNG (280mn metric tons), set to grow to 314mn mt/yr by 2020. 

Berkhahn participated in a study that NS2 also commissioned and which focused on the positive economic impacts (direct and indirect) already generated by NS2 based on committed funds to date (€4.4bn/$5.1bn). Unsurprisingly, Russia and Germany are among the beneficiaries of  the project, which also include The Netherlands, Switzerland, and to a lesser degree, Finland, Sweden, Austria, the UK, and Italy. However, countries in eastern Europe are absent.

As these studies reflect, NS2 may generate benefits for western Europe, but has failed to bring eastern European countries on board, possibly because it represents a risk for their own pipelines – such as those pipelines in Poland, Slovakia and the Czech Republic – and the disruption of traditional gas routes.

It is not a completely “win-win” situation. There is a lack of assessments on whether NS2 will have negative economic impacts on eastern European countries in particular, but according to a study by REKK (a research centre at the Corvinus University of Budapest), which Hecking referred to in his presentation, NS2 would increase the price difference in natural gas wholesale prices between western and eastern Europe, reducing prices for the former and increasing them for the latter.

This is an issue that may have to be further explored and tackled if the EU wants to develop a positive dynamic between its own member states as well as Russia. However the purpose of hubs and competitive markets, which the EC promotes, is to erode such differences through trade; and there is plenty of capacity being built, some at public expense, to allow gas to flow from the cheaper to the higher-priced markets and so flatten prices out overall. 

Sara Varga