Nord Stream 2: A pipeline under Scepticism

At the beginning of September 2021, the last pipes of Nord Stream 2 were welded into the pipeline string and lowered to the Baltic seabed in German waters, after a construction delay for more than a year due to the threat of US sanctions, in December 2019, against contractors and financial investors in this project. Consequently, this project still needs to be certified by Germany’s regulator to start its services, a process that could take up to four months, especially because of the elections for the new Chancellor. In this regard, this paper tackles the dynamics behind the construction of Nord stream 2 through demonstrating the opportunities and challenges posed by it as well as its repercussions on parallel Gas projects in the region.

A Ruso-German deal?

Russia declared in 2016 that it would initiate the construction of a underwater new twin pipeline that would transport natural gas from its territories to Germany, to be known as Nord Stream 2. It passes through the waters of five Baltic Sea nations: Russia, Finland, Sweden, Denmark, and Germany and bypassing Poland and Ukraine. 

The New pipeline extends approximately for 1,230 kilometres long, and running largely parallel to the existing Nord Stream pipeline underneath the Baltic Sea. While the original Nord Stream 1 has an annual capacity of 55 billion cubic metres (bcm) per year, the new Nord Stream 2 has also the same capacity transmission, in this way the two pipeline system’s total capacity is doubled to reach 110 bcm.

Construction of Nord Stream 2 began in 2016 with the production of the steel pipes and continued with the digging of a trench on the seabed in May 2018. Before the end of 2019, it was completed in Russian, Finnish and Swedish waters, with much of the work, also finished in German and Danish waters. As Denmark was the last country to grant a permit for construction in its waters, most of the remaining work had to be done there.

Thus, Chancellor Angela Merkel supported the establishment of Nord Stream 2 by justifying it as part of a broader policy of engagement with Russia and China on trade. Supporters of the pipeline in her party say that Russia is more dependent on natural gas revenues than Germany is on gas supplies. Hence, the German perspective revolves around an assumption that Russia will be more careful about its behaviour to avoid new sanctions and that Germany can have a relative privilege before Russia. However, various analysts have demonstrated that Russia might disregard any future sanctions that may be posed, and that both Russia and Germany will have in way or another the control of Gas distribution to Europe.

In addition, from an economic point of view, Nord Stream 2 is a strategic project for German for two reasons; (1) Decarbonizing Economy, as the German economy is highly dependent on natural gas, especially in the context of the decarbonisation of the economy, which the German authorities have been promoting for years. In this sense, natural gas is essential both for electricity generation and for Germany’s powerful industry. (2) European Hub, because much of the additional gas coming to Germany would not be consumed domestically, but re-exported to other EU countries. Therefore, what this additional capacity would really do is turning Germany into a European hub for the distribution of Russian gas.

Besides, the Kremlin’s goal for the new pipeline is twofold; in the first place, Russia will accordingly reduce its transit dependence on Eastern European countries, especially Ukraine. This would strengthen Russia’s ability to pursue its foreign policy of political influence and territorial control over its western border. In the second place, Nord Stream 2 would increase Germany’s dependence on Russian gas and improve its market position in the western countries of the EU, which would also strengthen its ability to exert political influence over these countries.

Thus, Nord Stream 2 amounts to a mutual benefit to both Germany and Russia, which has been also supported by economics propagandists by providing some economic opportunities to European countries; as (1) the construction of this pipeline helps to meet the current demand for gas as current European production capacities are declining and can no longer meet all demands, and that (2) Nord Stream 2 helps to lower gas prices in the EU, (3) key pipelines in Ukraine are reaching the end of their useful life and there is a lack of viable alternatives. For all these opportunities, Austria have emerged as the main advocates of the project, while other Western European countries, like France and the Netherlands, appear to agree to it as well due to the involvement of domestic corporate interests. However, these economic based leverages hold political aspects behind the construction of the pipeline, which faces rejection by eastern European countries and US, putting the Ruso-German deal under question.

Countering Russian consolidation

While it is true that Germany, Austria, Netherlands and France have supported the Nord Stream 2 project, it is also true that there are countries, such as Ukraine, the United States and Eastern European countries, that have never been in favour of the pipeline.

The counter argument of Nord Stream 2 is based on articulating three main challenges: first, Nord Stream 2 does not diversify energy supply, neither from an energy source perspective nor from a route perspective, but rather increases dependence on Russia that is already the main supplier of Europe. Second, European infrastructure is already sufficient to import gas even in highly demand future scenarios, thus showing no need to build a new pipeline to be added to the overcapacity infrastructure already existent, finally, it undermines the economic sanctions against Russia.  

Ukraine has always opposed the project and the United States has done the same because they consider the Nord Stream 2 as a threat to the EU’s security and diversity of supply. Also because Nord Stream 2 will increase Europe’s energy dependence on Russia and Ukraine will lose the transit fees that will hit the economy in a very hard way.

In fact, the United States has been taking measures since the beginning of the work, issuing sanctions against Russia, which were only lifted on 21 June 2021, after US President Joe Biden reached an agreement with German Chancellor Angela Merkel to suspend the sanctions and complete the pipeline, a policy that Biden seeks to reconcile its relations with Germany. In addition, the agreement stipulates that Germany will monitor the situation in the region and intervene by proposing EU sanctions if Russia “uses energy as a weapon or commits further aggressive acts against Ukraine”. Germany and US also pledged to invest in Ukraine’s green energy infrastructure with a fund of at least one billion dollars and will aim to ensure Russian gas flow through Ukraine to continue beyond 2024. 

The United States has always thought that Nord Stream 2 will not only transport gas but will be the vehicle for greater Russian influence on Europe. The US hostility to Nord Stream 2 can be explained by two other reasons: (1) Economic: the increase of Russian gas flows (at affordable prices) to Germany and Europe is an obstacle to American exports of liquefied natural gas to the Old Continent. (2) Geopolitical: the US does not want Germany and Russia to get closer politically than on energy. 

Also, Poland, the Baltic States, Romania, and Slovakia have consistently opposed the project. Their strategic opposition tends to be explained by a number of factors including, the need to diversify energy imports away from Russia, and concerns about being bypassed by the main flows of East-West energy trade.

Furthermore, EU institutions have taken different stances toward Nord Stream 2. In fact, the European Commission opposed the project. In June 2017, it requested a mandate from the Council of the EU to negotiate an agreement with Russia concerning the operation of Nord Stream 2, debating that it was necessary to define a legal framework. Nevertheless, the Legal Service of the Council concluded that there was no legal basis for an EU-Russia deal concerning the project.

Future scenarios

It’s essential to emphasise that European dependence on foreign Gas suppliers are unequivocal. The Italian Periodical Il Fatto Quotidiano mentioned that in 2020, the EU imported more than 320 billion cubic metres of natural gas of which 48% came from Russia, 24% from Norway, 9% from Algeria, and 1% from Libya. Germany is one of the most import-dependent countries, accounting for about 90% of its domestic natural gas consumption. Accordingly, several scenarios can be deduced from the establishment of Nord Stream 2. 

On one side, some attempts over the years to differentiate import routes have been made by Brussels. For example, the Trans Adriatic Pipeline (TAP) that currently has a maximum capacity ranging between 10 – 20 bcm per year, from Azerbaijan to Italy via Georgia, Turkey, Greece and the Adriatic Sea. Also there is the Organization of East Mediterranean Gas Forum (EMGF). So, amid the increasing demand on Gas, several Gas projects are established in the region and ranging from central Asian countries to southern Europe as an alternative Gas projects to the dominant Russian one. However, the pipelines to be made have not been constructed fully, with not defined due date to their operation, with the exception of TAP which entered operation in 2020.

Thus, Nord Stream 2 might face alternative competing projects, yet it is considered with the highest capacity integrated with Nord Stream 1, an establishment that may emphasis the Russian consolidation on the region as long as Europeans need gas.

On the other side, account must be taken of the decline in natural gas consumption in Europe as prognostics shows a declining tendency by 20-25% via decarbonizing economies and boosting a more green and renewable energy economy, that might depend on electricity in the medium and long terms. In such a case, the feasibility of vain-network of pipelines and Nord Stream 2 might not exceed the medium terms, letting Europeans with a non-operating overcapacity infrastructure, while at the same time there increases the need to replace it with the renewable energy infrastructure.

In conclusion, though Nord Stream 2 has economic and political feasibility in short-term policies, yet or might pose some challenges towards the near future plans towards green economies. Furthermore, Russia seems to assert its consolidation in the region amid various competing projects, yet the cost of establishing new project of its own may have proved to be less costly than reintegrating itself in the parallel power dynamics in southern and eastern Europe as well as the Middle East.