Nord Stream 2: 'Driving a Wedge' through the EU

Tensions between different European Union member states were brought to the fore at a conference in Brussels on Nord Stream 2, as Moscow – and by implication Gazprom's project partners – were accused of using gas to drive a wedge between east and west.

Opening the April 6 conference in the European Parliament, Maros Sefcovic, the commissioner for the energy union, said the pipeline could not be built in a legal vacuum or be operated solely under Russian law. He also said that it would, even as offshore infrastructure, be bound by the EU rules of energy, environmental protection and public procurement.

So far though there has been no declaration from the EC that the line would be illegal.

The concept of the energy union was created by Polish prime minister Donald Tusk “as an answer to the challenges that Russia poses to the European Union,” in the words of the chair of the second panel session, Rebecca Harms of the Greens/European Free Alliance. She said the gap between the east and west of the EU would be widened if the line went ahead and she asked, “why, when we are trying to strengthen a country [Ukraine] would we want to weaken it?”

She also said that Nord Stream 2 was in conflict with the EU goals to decarbonise and it represented “more of the same” rather than technological innovation.

Another former Polish prime minister Jerzy Buzek, chair of the parliamentary committee on trade and energy, closing the conference said that Nord Stream 2 and the energy union could not co-exist.

It would isolate Ukraine, leave it weaker financially and leave some regions of Europe exposed to higher prices, speakers at the conference argued.

Some also argued that Nord Stream 2 would conflict with existing EU competition law and others said that it was anyway unnecessary from a gas supply view point as there was already more than enough capacity for Russia to meet its export obligations.

But that last matter will be a question for the shareholders in the project, rather than for analysts to decide.

And there was no call for a boycott on Russian gas. Quite the contrary: Ukraine, which longer includes Crimea and is being destabilised by a Russian-backed civil war in the east, wants to continue to earn $2bn/year from its former master in transit fees. It is the choice of route, not what it is carrying, that is the focus of attention.

Nord Stream fields a small team

The two panel sessions were unbalanced as there was just one representative of Nord Stream AG: the official spokesman Ulrich Lissek, battle-hardened from experience in the Germans telecoms industry.

Aside from correcting the error regarding the actual load-factor of Nord Stream 1 which is typically nearer 80%, not the often-quoted 50%, his main role was to explain that the company would follow the same strategy it had taken with the first Nord Stream line: dialogue with whoever wanted it; open lines of communication and discussion of all the critical issues: chiefly, competition, energy and environment law.

Nord Stream 1, which has different shareholders, spent €100mn on finding the best route across the hazardous floor of the Baltic Sea; and the second line is expected to have different departure and landing points owing to difficulties with the seabed at Vyborg and Greifswald.

But he also set out the business case for the line. Projecting a ‘mid-range’ supply shortfall of 140bn m³/yr as Dutch, UK and eventually Norwegian output fall, the €8bn line will fill some of that gap, with other suppliers also needed.

If the COP21 talks in Paris late last year feed through into business practice there will be less coal used in power generation. And the future of nuclear power is also uncertain. These are both big opportunities for gas to help the EU meet its climate goals, he said.

He also pointed out that market has changed a lot in recent years with the building of interconnectors allowing gas to flow from anywhere to anywhere.

The first session was otherwise dominated by Ukrainian speakers. Ihor Didenko of the energy ministry said that Ukraine could carry 146bn m³/yr across its territory compared with supplies of 182bn m³, so building more capacity would be wasted.  “There is enough capacity today,” he said. And that was without considering the arrival of LNG from North America and Asia.

The CEO of state Naftogaz Ukrainy Andriy Kobolev said he was biased about Nord Stream 2: “This project is bad for us,” he said. “It is a hybrid weapon. It looks nice, it seems to be commercial, but what will the impact on the market be?”

Among the consequences will be a lot of gas arriving in Germany, causing bottlenecks there and higher prices in southern Europe after transportation.

Companies that suffer from a high price will be offered reductions in exchange for “geopolitical advantage” for Russia, he said. “Now that we [Ukraine] can source gas from elsewhere we can avoid blackmail.”

He said that all companies that supplied gas to Ukraine in 2014 and 2015 had their nominations cut. However that was hard to prove in every case: for example one such company, French Engie, won tenders to supply gas but never reported any reduction in its flows. Despite the tensions in Ukraine and the consequent sanctions on Russia, Engie is also a shareholder in Nord Stream 2, showing the blurred lines that often exist between politics and trade.

Law matters

Professor Alan Riley made the legal case against the pipeline, saying that for at least 100 km the line passed through EU waters, and there was no EC case law for treating pipelines that are offshore differently from those that are on dry ground. Exclusive economic zones are where EU law may be applied, he said.

In another argument he said that United Nations law prohibited countries from facilitating acts of aggression by others, which was what maritime states were doing by allowing Nord Stream through their waters and so hitting Ukraine’s revenues.

And he said there was legally no comparison between other pipelines from non-EU countries to the EU such as Algeria because they all pre-dated the third energy package which now makes Nord Stream questionable. He also asked what were the western parties thinking of when they agreed to become involved in the project? There are questions of reputation, he said.

Lissek responded that on the contrary, Nord Stream 2 did not enter the EU internal market, and that Russia was not banned from trading with the EU. Economic exchange with Russia was continuing, and it is unfair to project political views and to focus on conflict when discussing Nord Stream 2. “We are trying to depoliticise the project. Its only target is to have a business case,” he said. “This is not the Kremlin.”

William Powell