Nord Stream 2 – Still the Right Option for EU’s Energy Needs?

At the recent Munich security conference, Angela Merkel once again reiterated her backing for the controversial Nord Stream 2 project. Nord Stream 2 is a pipeline under the Baltic Sea which provides a direct route for Russian gas supplies to Germany. The €9.5 billion project is strongly opposed by several Eastern European countries, and by the United States, with Vice President Mike Pence declaring that, “we cannot strengthen the West by becoming dependent on the East.” Pence and the East Europeans are right – it is a significant geopolitical mistake for the EU, and Germany in particular, to increase European dependence on President Putin’s Russia.

Image courtesy of Samuel Bailey via Wikimedia, © 2009, some rights reserved.

The rationale behind Nord Stream 2 is to increase the capacity of Russian gas flows into the EU, given depleting gas reserves in Europe – gas is an affordable, (relatively) low carbon energy solution which meets both the needs of consumers and the EU’s ambitious climate change targets. Its critics would say that therein lies the problem –allowing Gazprom to supply gas direct to Western Europe, while bypassing Ukraine would deprive Kiev of gas transfer fees and raise the possibility of the Russia’s interrupting Ukraine’s energy supply. At a time when the EU should be supporting Ukraine, in both the reforms it needs to make to stamp out corruption and in countering Russian aggression, it seems perverse that the EU’s energy policy is harming Ukraine.

Germany’s allies, including Britain, Poland and the United States are against Nord Stream 2 on political and security grounds. The American Ambassador in Berlin recently threatened sanctions against European businesses involved in the project. Donald Trump claimed that Germany would be “captive” to Russian interests if the project went ahead. Indeed, there are fears in Washington that Russia seeks to use the pipeline to spy in the Baltic Sea. Even French President Emmanuel Macron sees the project as a threat to European security; an issue which has added problems to the Paris-Berlin axis which dominates the EU.

For Germany’s part, it had long maintained that Nord Stream 2 was a purely commercial venture; however, given that Russian state-owned Gazprom controls the project, that claim does not stack up. Nord Stream 2 is a political project, and one which places all the power in the hands of Mr. Putin, not the leaders of the EU. The project’s chairman, Gerhard Schröder, who as Merkel’s predecessor as German chancellor was instrumental in developing the idea for the Nord Stream pipelines while in government. Indeed, it is Merkel’s Social Democratic allies, the party to who Schröder belonged, who are most strongly in favour of the project; the chancellor is reported to being privately sceptical.

Moreover, its all very well to claim that European gas reserves are dwindling; so too is European demand for gas. European gas demand declined sharply from 2010 to 2013, thanks to low population growth, high prices and heavy manufacturing relocating to other regions of the world. The Europeans also have other options for gas supplies. The shale gas revolution in the United States has transformed the global energy market, and the Americans want Europe to import Liquified Natural Gas (LNG) from the US, a point that Pence was keen to stress when he was in Munich. Also, there is the potential for the EU to import gas from across the Mediterranean from Algeria or Libya. Such an initiative might help in the economic development of these nations, and stem the flow of refugees into Europe.

In the long run, the EU ought to be gradually weaning itself off Russian gas and oil, if the current political tensions continue. In 2017, across the EU as a whole, 37 per cent of demand for gas came from Russia. However, this masks large disparities across the member states of the EU. Britain receives virtually no gas from Russia but countries in central Europe such as Hungary, Slovakia and the Czech Republic are all highly dependent on Russian gas. In 2015, the Czech Republic imported 99 per cent of its natural gas from Russia. Germany itself receives 55 billion cubic meters of gas from the existing Nord Stream pipeline, enough for eight per cent of its electricity consumption.  The EU has struggled to reduce its dependency on Russia for its energy needs; with Nord Stream 2, this is likely to worsen. The project is a political one that advantages Russia at the expense of the EU and its ally Ukraine. It seems likely that Nord Stream 2 will be completed this year, but the EU would be better off – and more secure – without it.

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