March 8, 2018
In late January, the Nord Stream 2 pipeline project received permission for construction and operation where it would make landfall in Germany. Nord Stream 2, like its first iteration, seeks to transit 55 billion cubic meters (bcm) of Russian natural gas annually—by the Baltic Sea instead of through Ukraine. By redirecting gas flows, the Kremlin aims to simultaneously undermine European unity and the Ukrainian economy.
If it were to be built, the Nord Stream 2 would undermine not just Ukraine, but the whole of Europe. Russian President Vladimir Putin has advertised the project as a complement rather than alternative to the Ukrainian transit route. Even in Germany where support for the pipeline is high, ultimate approval may depend on Putin’s credibility on this fact— Chancellor Angela Merkel’s spokesman, affirmed that it is “in the interest of Germany and Europe that Ukraine continues to play a role as a transit country for Russian gas.”
However, Nord Stream 2 will not operate as President Putin advertised. EU demand for natural gas is projected to stagnate over the next two decades. Germany’s particular need for additional Russian supplies stems from premature nuclear shutdowns after the Fukushima nuclear disaster, an outcome other European nations can avoid. Simply put, European countries will likely not consume more natural gas than they do today.
Nord Stream 2 would do little to strengthen European energy security. The Ukrainian transit system has reliably delivered Russian gas to Europe for decades. The real threat to Europe stems from relying too heavily on Russian gas. Moscow itself caused the system’s only disruption when it halted gas flows through Ukraine in 2009. Moscow has since cut supplies and raised prices elsewhere like Poland and Slovakia as political retribution.
Europe can instead displace falling domestic production with supplies from Azerbaijan via pipeline or the United States and Qatar via liquefied natural gas (LNG) terminals at the right price. Faster renewables deployment would also assuage the demand for Russian gas.
Furthermore, supporting Nord Stream’s expansion undermines the EU’s support for Ukraine. The EU has heavily invested in Ukraine’s economic stability, providing roughly $3.24 billion in macro-financial assistance since the Revolution of Dignity. In comparison, Nord Stream could deprive Ukraine is as much as $2 billion annually in transit revenue.
EU support for Ukraine’s economic progress is not a charity act. The country is a growing economy that is becoming an increasingly viable market for U.S. and EU investment and exports. Favoring Nord Stream’s construction would neutralize the benefits of any financial assistance and limit Ukraine’s potential as an emerging market.
To be sure, the Ukrainian government could more to prove itself as a good faith energy partner to EU member-states. To this end, Ukraine should invest in modernizing its gas transportation system to ensure reliability for decades to come. At least $3 billion will be needed to keep the system running into 2030. Moreover, Ukraine should follow through on Naftogaz’s unbundling to align its energy sector with EU rules under the Third Energy Package.
The reasons that European nations have to support Nord Stream 2’s construction are short-sighted. From the United Kingdom to Ukraine, Russia has undermined European alliances as part of its campaign to “distract, divide, and, demoralize.” Although European nations are increasingly taking Moscow to task on its disinformation campaign, they risk ceding vital ground to Moscow in the energy sector.
Countries like Germany cannot carve out special exceptions for energy projects like Nord Stream 2 as long as EU members are vulnerable to political leverage under Russia’s gas monopoly.
Nord Stream 2’s latest approval from Germany marks another step forward for the Russian-led project that the Kremlin would like to project as inevitable. However, European nations still have an array of policy tools at their disposal to halt the project. Late last year, Denmark’s parliament passed a law that could block Nord Stream 2 on national security grounds. Germany too would do well to reverse its position in favor of the project. As long as the pipeline remains in play, European unity, sovereignty, and democracy are on the line.
Author: Sagatom Saha, Visiting Fellow, DiXi Group (Kyiv, Ukraine)Author : Ukrainian Liaison Office in Brussels