Europe Faces an Old Conundrum: to Burn or Not the Gas Russia Has to Offer

The Nord Stream 2 pipeline being built between Russia and Germany is one of Europe’s most politically controversial projects. With opposition to it growing, the future of the pipeline is in doubt.

In this Nov. 11, 2018 file photo a ship works offshore in the Baltic Sea on the natural gas pipeline Nord Stream 2 from Russia to Germany. (Bernd Wuestneck/dpa via AP)

(CN) — European politics are heading toward a moment of reckoning and it all has to do with a 764-mile natural gas pipeline under the Baltic Sea that may or may not ever get used.

The Nord Stream 2 pipeline is one of the European Union’s most politically charged and explosive topics, forcing Europe to deal with clashing economic, environmental, social and political problems — all of them wrapped in very real concerns over Russia and a potential the gas line could escalate the conflict in Ukraine.

The pipeline, running between a remote bay on the border between Estonia and Russia and a coastal town in eastern Germany, is only about 90 miles from completion. It complements its twin sister, Nord Stream 1, a previous — and also controversial — gas line in the Baltic Sea that started pumping gas from Russia to Germany in 2012. 

Together, the two lines will be capable of delivering about 110 billion cubic meters of gas a year to Europe, which represents nearly a quarter of the roughly 470 billion cubic meters the EU consumes a year.

The $11.5 billion project is a joint venture between Gazprom, the state-controlled Russian gas giant, and several European energy corporations — France’s Engie, Austria’s OMV, Royal Dutch Shell, the British and Dutch giant and Germany’s Uniper and Wintershall DEA.

In theory, Russian gas could start flowing through Nord Stream 2 later this year and in turn open what some fear will be a Pandora’s box because the pipeline could unshackle Russia and give it new operating room to exert itself in Europe, especially in Ukraine.

To understand how a pipeline in the Baltic Sea could potentially lead to conflict in Ukraine and why it is causing so much political turmoil not just in Europe but also in the United States, a step back in history is in order.

Oil and gas production in the Soviet Union first developed at large scale in Ukraine because it possessed fossil fuel deposits. As Ukraine’s limited resources were exhausted, new gas fields were discovered farther east and eventually in Siberia. 

Nonetheless, Ukraine grew to become the center of Soviet Union’s oil and gas production because it was there where the U.S.S.R concentrated heavy industries that needed cheap gas to be competitive.

By the 1960s, the origins of today’s Nord Stream controversy can be seen starting.

With the discovery of massive oil and gas fields in the U.S.S.R, Western Europe saw a new opportunity. Countries like West Germany, France and Italy both wanted that energy for their own use and also profited mightily by supplying the Soviet Union with the steel and technologies it needed to extract, pump and export gas and oil to Western Europe.

By the early 1980s, the collaboration between Western European businesses and banks and the Soviet Union culminated with a plan to build a Trans-Siberian pipeline — the Urengoy-Pomary-Uzhgorod project — with its terminus in Ukraine. From Ukraine, Siberian gas was to be pumped into Western Europe.

Besides the economic benefits, Western European policymakers also viewed dependency on oil from the Middle East’s OPEC nations as perilous, especially following the 1973 oil embargo. 

Many Europeans also argued that doing business with the Soviets was a way to ease tensions — an approach known in German as Wandel durch Annäherung, or “change through rapprochement,” and championed by Social Democratic German Chancellor Willy Brandt, who famously kneeled in December 1970 in a gesture of reconciliation and penance at a Warsaw Ghetto Uprising monument dedicated to the victims of Nazism.

But the United States looked upon Western Europe’s cooperation with the U.S.S.R. on gas projects with alarm. In 1962, the U.S. Senate held secret hearings on the matter.

“The Soviets are dumping oil at bargain prices throughout the world. This is not dumping for economic reasons but for political and military reasons,” U.S. Sen. Kenneth Keating, a Republican from New York, exclaimed during the hearings. “They are using oil to buy valuable machinery and know-how from the West in order to produce and distribute oil at a rapidly accelerating rate.”

When the Urengoy-Pomary-Uzhgorod project began, U.S. President Ronald Reagan urged European allies to boycott the project and his administration imposed sanctions to stop U.S. companies and technology from assisting the pipeline. 

The sanctions — and Reagan’s new aggressive stance against the Kremlin — caused a deep rift to open up in the Transatlantic relationship. The project went ahead anyway. Americans argued that Western Europe was being played by the Kremlin, leaving itself dependent on Soviet energy and susceptible to communist political pressure.

In brief, that’s the Cold War history of Europe’s long reliance on Russian oil and gas. But a new dynamic emerged after the fall of the Soviet Union in 1991 and the independence of Ukraine.

To get its oil and gas to the lucrative Western European markets, Russia still had to rely on the old Soviet-era pipelines and infrastructure in Ukraine. Ukraine, in turn, charged Russia hefty fees for the use of its pipelines and also got cheap gas out of the deal. Angering Russia even more, Ukraine faltered at times to pay Russia for the cheap gas it got. Combined with other clashes between the two neighbors, Russia came up with a solution: It would bypass Ukraine as a route for its gas exports.

“The Russian economy became dependent on exporting gas to Europe and so they began to get worried about the stability of transit via Ukraine and they started to look for ways to circumvent Ukraine,” said Jack Sharples, a research fellow at the Oxford Institute for Energy Studies in the United Kingdom and an expert on the European and Russian energy sector, in a telephone interview.

In this April 9, 2010 file photo a Russian construction worker speaks on a mobile phone in Portovaya Bay north-west from St. Petersburg, Russia, during a ceremony marking the start of Nord Stream pipeline construction. (AP Photo/Dmitry Lovetsky)

By 1997, Siberian gas from the Yamal Peninsula was arriving through a new pipeline that went through Belarus and Poland. Then, with the help of Italian energy companies, Russia built a new pipeline — the Blue Stream — across the Black Sea to reach Turkey, again bypassing Ukraine. Next came Nord Stream 1, built, once again, with the help of European companies and banks.

Russia’s grand plan to bypass Ukraine was not over: By 2020, gas was flowing in another line across the Black Sea, the TurkStream, to feed Turkey and Balkan nations such as Bulgaria.

“So, you can line up all of those pipelines and say they are all part of a multi-decade effort to reduce dependence on transit via Ukraine for Russian gas exports,” Sharples said. “That is the context to see Nord Stream 2 in. This isn’t just a stand-alone thing; this is the culmination of a long-running trend.”

For some, Nord Stream 2 is seen as the knock-out punch that will leave Ukraine as a bit player in Russia’s energy empire. Ukraine, already struggling economically, faces losing billions of dollars in revenues from transit fees each year if Russia diverts its gas away. Sharples said once Nord Stream 2 is up and running, Russian gas through Ukraine could drop from 40 billion cubic meters a year to 10 billion cubic meters.

At that point, Russia could begin squeezing Ukraine in other ways too, for instance by exerting itself more forcefully in Ukrainian politics, perhaps even militarily.

With so much at stake, it’s an open question whether Nord Stream 2 will ever deliver any gas. Powerful forces for and against the pipeline are engaged in a multifaceted end game over the pipeline’s future.

The U.S. — openly viewing a Russia led by the Putin regime as a global threat not unlike the Soviets — is using its muscle to stop the project. In December 2019, the White House imposed sanctions on all companies working on Nord Stream 2. 

Many European politicians, particularly German Chancellor Angela Merkel, were incensed by U.S. sanctions and accused Washington of unfairly meddling in European affairs and damaging its commercial interests.

The sanctions worked. Allseas, a Swiss-Dutch company laying the pipeline, suspended its work. Nord Stream 2 sat unfinished for more than a year. Finally, in late January, a Russian pipe-laying ship — undaunted by U.S. sanctions — resumed work to complete the final stretch.

But that’s hardly the end of the matter. U.S. sanctions are seen as potentially scaring off insurers and entities that can certify the pipeline.

Inside Europe, there is a heated debate over the pipeline and many European capitals are against it and see Nord Stream 2 as proof that Germany is really only interested in its own economic well-being.

The fiercest opponents are EU nations close to Russia, such as Poland and Lithuania, which see Nord Stream 2 as dangerously strengthening the Kremlin’s hand and setting the stage for Russian aggression in Ukraine and elsewhere in the Russian borderlands.

Opposition to the pipeline — and Russia — has broadened too in recent years in the wake of Russian dirty tricks and alleged assassination programs. 

Backed by strong evidence, Europe has accused Russian agents of attempting to poison a former Russian spy in Salisbury, England, in 2018; assassinating a Chechen military commander in Berlin in 2019; and attempting to poison Russian opposition leader Alexei Navalny last August. 

Navalny’s recent jailing upon his return to Russia has further galvanized opponents to Nord Stream 2 and even caused Merkel, a driving force behind the pipeline, to waver in her support.

In January, the European Parliament overwhelmingly voted 9-to-1 in favor of a resolution calling for the pipeline to not be completed. The European Commission, the EU’s executive branch, has opposed Nord Stream 2 too.

Inside Germany, opinions are split. But the country’s ruling parties — Merkel’s center-right Christian Democratic Union/Christian Social Union and the center-left Social Democrats — see the gas line as good for Germany and Europe. They argue that Germany will need Russian gas for years to come as it phases out its nuclear power and coal-fired plants as part of plans to reduce greenhouse gas emissions.

Germany’s Greens, though, are opposed both for environmental and geopolitical reasons. The Greens are poised to do very well in Germany’s national elections this fall and they have a good chance of becoming part of a ruling coalition.

“It’s a mistake. To say it simply: it’s a big mistake,” said Reinhard Hans Bütikofer, a German Green member in the European Parliament, in a telephone interview. “Nord Stream 2 is certainly not the future. Or at least it’s not a good future. And I think we should stop the project.”

He said natural gas cannot be viewed as a clean source of energy. Also, the pipeline further damages the Baltic Sea’s ecosystem, he said.

In this May 8, 2017 photo steel pipes for the North Stream 2 pipeline are stacked in Mukran harbor in Sassnitz, Germany. (Stefan Sauer/dpa via AP)

In addition, he said gas consumption in Europe is projected to decrease, making the pipeline unnecessary.

That argument, though, is likely only partially correct. While gas consumption in Europe may decline, Europe is expected to rely ever more heavily on gas imports as production declines in the North Sea.

Sharples said the companies involved in Nord Stream 2 obviously think the pipeline makes commercial sense even considering the high building costs. He said Gazprom figures it can save money in the long run not only by cutting out Ukraine’s transit fees but also because Nord Stream 2 is a shorter route from Russia’s gas fields in Siberia to Germany. After arriving in Germany, Nord Stream 2 gas will end up getting pumped outside Germany to places such as Austria and Italy.

Bütikofer said the pipeline will “lock in fossil fuel energy infrastructure” and compel Europe to use it “just in order to pay the bills for the investment.”

This gas line, like other major gas lines the EU has backed to import gas from the Caucasus and the eastern Mediterranean Sea, is viewed by many as hypocritical and undermining the EU’s core principle to radically shift away from fossil fuels.

“Climate wise, it makes no sense,” he said.

The German government, though, sees it differently. As part of its goal to cut greenhouse gas emissions, Germany and others in Europe are counting on a steady supply of gas to keep homes warm and industry running while nuclear power and coal-fired plants are shut down. Germany aims to phase out its nuclear plants by next year and its coal plants by 2038. A third of Germany’s electricity is generated through coal.

“The natural outcome for Germany is not only an increase in the use of renewables, but an increase in the use of gas,” Sharples said. “In the longer term, as more and more renewables come online, it is a question of having gas available to generate power for the days when the wind doesn’t blow so strongly and to generate power in hours of darkness.”

Besides being bad environmentally, Bütikofer said the pipeline will dangerously strengthen Russian President Vladimir Putin’s hand.

“It has been not even a secret, it’s been openly said from Moscow several times over the years that they want to shut down that Ukrainian pipeline for very clear and explicit geopolitical reasons,” he said. “Putin and his regime want to deprive Ukraine not only of a revenue of more than 3 billion euros per year, but also deprive Ukraine of the implied security that comes with this pipeline.”

He added: “If they can continue supplying Western Europe with their gas, but cut it off from the Ukrainian connection, that Russian leverage vis-à-vis the Ukrainian independence will increase.

“It is well known that Putin has not really accepted the fact that there is an independent Ukraine. He has called the dissolvement of the Soviet Union the greatest geopolitical tragedy of the 20th century, a sentence that you should consider what it implies.”

He said helping Putin build the Nord Stream 2 pipeline only furthers his ambitions in Ukraine. “We want to defend the independence and the security of that country.”

Legally, the pipeline faces challenges too. Under EU regulations designed to prevent monopolies, the same company can’t both supply gas and own the pipeline transporting that gas. Opponents argue Nord Stream 2 violates the EU’s energy laws because Gazprom will supply the gas and also serve as a majority shareholder in the pipeline. 

Legal fights are ongoing.

Another legal grey area is whether the gas line violates EU energy rules that say an energy project can be challenged if an EU member state deems it to undermine their national security. A Polish court slapped Gazprom with a $7.6 billion fine for antitrust violations. Gazprom has appealed that ruling.

Conservation groups, meanwhile, are pursuing their own legal fights against the pipeline and, in theory, it could still be halted in the courts that way. The Nature and Biodiversity Conservation Union, a large German nature association, is challenging the pipeline, arguing it damages marine reserves in the Baltic.

For now, though, the U.S. sanctions are the most effective saboteurs of the pipeline. There is little prospect that U.S. President Joe Biden will lift the sanctions imposed by Trump.

“Sanctions will bite,” Bütikofer said.

With so much opposition to it, Sharples said it remains to be seen whether the pipeline will become operational.

“It’s remarkable that we find ourselves in a situation where a pipeline, where each string is over 1,200 kilometers long, and there’s only 150 kilometers left to build, and yet it might not come into operation,” he said.

He said the U.S. sanctions may make it impossible, for example, to insure the pipeline and certify it is safe to operate. In January, DNV GL, a Norway-based company hired by Nord Stream to verify the safety and technical integrity of the pipeline system, said it was backing away from the work due to sanctions.

“Even if the physical pipeline is completed, it can’t be launched until it’s been certified and presumably until it’s been insured as well,” Sharples said. One solution might be for the Russian government and Russian banks to underwrite it, he said.

“If American sanctions do indeed stop the project, there will be no cost at all to the United States,” Sharples said. “If anything, if Europe is limited in how much Russian gas it can import, then it’s good news for American exporters of liquefied natural gas.”

For now, despite the blowback and legal hurdles, the pipeline is moving ahead and Germany’s leading politicians are standing by it.

“In the language of Donald Trump, you would probably say this is a ‘Germany First’ project,” Bütikofer said. “And that does not behoove the single most important player in the context of European nations.”

In Germany, Bütikofer said those backing the project are skeptical about the EU’s goals to move away from fossil fuels.

“Some people that do not trust the transformation agenda that we have set out to accomplish. They believe they need to have this fallback infrastructure for continued fossil policy,” he said. “There are also some industrial interests that don’t want to allow the transformation.”

He also said there are also those who still “believe in the gospel of Wandel durch Annäherung.” But he said that political philosophy doesn’t work with Putin.

“It is an old paradigm from the Cold War,” he said. “I would argue that the Soviets were much more reliable with regard to energy supply than the Russians have been since the end of the Soviet Union.”

He added: “Whatever the reasons are, I think it’s led Germany into a dead end.”

In initially backing the project, Sharples said the German government likely saw it as a necessity to build the pipeline.

“The German government probably looked at the situation and said: ‘We think we can convince everybody that it is a purely commercial project, we think we can win people over. And even if we can’t, well, it’s our responsibility to make sure everybody’s home stays warm and that the lights stay on.’”

Courthouse News reporter Cain Burdeau is based in the European Union.

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