Nord Stream 2: Politics or Markets

At an Atlantic Council event entitled Nord Stream 2: Is It a Threat to European Energy Security? several experts weighed in on the pro and contra arguments for building an extension of the Russian natural gas pipeline that traverses the Baltic Sea delivering gas to Germany.
 
On the more pro than contra side, Friedbert Pfluger Nonresident Senior Fellow, Global Energy Center Atlantic Council, said that if one looks at the overall gas consumption in Europe – 415bn m³/year – is mainly comprised of indigenous, Russian and Norwegian gas. 
 
He argued that Russia's contribution has halved in the last 2 decades.
 
Among Pfluger's pro Nord Stream 2 arguments, he said that Europe will need additional imports due to decreasing indigenous production, including liquefied natural gas imports from North America, and that Europe's consumption will likely go up because of climate change objectives that call for increased use of natural gas instead of coal.
 
To those who contend that building Nord Stream 2 is not a business case, he retorted: “Who decides this? Is it government? Politicians? Are we in a planned market society? Do we teach Gazprom and the Russians that we know better as politicians than companies what the future market share and consumption in certain fields are?
 
“No, we have a free market, and if companies without subsidies decide to go that way in my opinion we should welcome that,” said Pflüger.
 
Regarding the project being against Ukraine, he conceded there was an element but said that while it is important to stabilize the country, it's not the duty of the companies in the Nord Stream 2 consortium.
 
The timing of Nord Stream 2 is certainly not good, according to Tim Boersma, Acting Director of Energy Security and Climate Initiative and Fellow of Foreign Policy, The Brookings Institution, who pointed out the need to replace the 20 bcm produced in the Netherlands.
 
Also more pro Nord Stream 2 in his remarks, he said that the European Union's efforts at integration of the gas market had been a success. “A number of major analyses have confirmed that by increasing grid connectivity, reverse-flow options, storage options, LNG import capacity the European market is not nearly as vulnerable as it was when the last major supply disruption took place in 2009,” he said.
 
When the European Commission's projects of common interest are implemented by the end of the decade, Boersma cited an analysis according to which single source dependency will no longer be an issue throughout the EU.
 
As part of a free market with a strong regulatory framework, he said that companies are supposed to make investments in grid that are deemed necessary and which are profitable. “Let us keep in mind that five out of the six companies in this consortium are real companies with real balance sheets. They have to answer to shareholders when they make investment decisions.”
 
Moreover, he said because destination clauses are no longer allowed according to EU law. “What it essentially means is that wherever gas comes from once it's in the EU you can resell it.”
 
He said Germany had redelivered 30bn m³ in 2015, much of it going to central and eastern Europe. This showed that although a lot of that gas may have been Russian, it could be resold.
 
While he said he believes in supporting Ukraine, Boersma questioned maintaining the status quo for the transit of gas across the country.
 
In a passionate response to the previous speakers, Anders Aslund, Resident Senior Fellow, Dinu Patriciu Eurasia Center, Atlantic Council offered why he believes Nord Stream 2 is not necessary.
 
He began with the fact that in the last decade Europe's gas consumption has fallen by 21%, fully sufficient to address a decline in the continent's indigenous production. He conceded that only 25% of Europe's LNG capacity is used, only half of Gazprom's pipeline capacity to Europe is used. “Why do you build up more of something that is not used?” he queried. “Because this is a political strike against Ukraine and because this is an attempt to build a stronger oligopoly together with five big national champions in Europe together with Gazprom. This is a big blow against the marketization of Europe,” he said.
 
According to him, the European Commission's biggest project is the Energy Union because Russia had cut gas supplies to Europe twice, once in 2006 and again 2009. He added, “The Kremlin is the culprit; it runs Gazprom. It's not an independent enterprise.”
 
Noting that the company had recently been valued at $51bn while in May 2008 it had been worth $369bn. Anders commented: “This is the worst managed company in the world, from an economic point of view. Why? Because it doesn't have commercial objectives.”
 
He said Gazprom's two objectives are to enrich people in the Kremlin, while huge premiums are paid out to individuals and organisations against which the US has justifiable sanctions. “The US has not sanctioned Gazprom for one single reason: European countries oppose it.”
 
Asland said that Gazprom should be treated like an organised crime syndicate.
 
He alleged that Gazprom had cut supplies 16 times to various countries from 1991-2006.
 
Finally, he emphasised the weakness of the European Union. “The European Commission is too weak to check the big European energy giants and they are now colluding with Gazprom to build a completely unnecessary pipeline to beat Ukraine and get a cosier oligopoly with higher prices for European consumers,” concluded Aslund.
 
The founding director and chairman of the Atlantic Council's Global Energy Center, Richard Morningstar, opined that the commercial and political issues can not be separated regarding Nord Stream 2, and also recalled the opposition to the project expressed in a letter signed by numerous countries in central and eastern Europe. “With that kind of division on a project, it seems to me very difficult, ultimately, that it could be approved,” he commented.
 

Drew Leifheit