Nord Stream 2's future and the new era of US-Russia competition

OMID SHOKRI KALEHSAR
Published 27.09.2019 02:31
U.S. President Donald Trump waves after a joint news conference with Russian President Vladimir Putin (R), Helsinki, July 16, 2018.
U.S. President Donald Trump waves after a joint news conference with Russian President Vladimir Putin (R), Helsinki, July 16, 2018.

By exporting liquefied natural gas (LNG) to some European countries, Washington seeks to reduce their dependence on Russian gas

The shale gas revolution and the U.S. becoming an exporter of energy have changed the geopolitics of energy. The U.S.' entry into energy exports has intensified competition among traditional energy exporters. Some EU members' over-dependence on Russian gas contradicts with the EU's energy policy that diversifying energy security should be a central pillar of all energy-consuming countries.

Using a special rebate policy with some European countries, Gazprom may in the future continue to depend on these countries to increase gas prices in favorable terms for itself, and this is something that European countries sometimes neglect. The United States uses energy exports to increase the level of economic and political ties with its allies. By exporting liquefied natural gas (LNG) to some European countries, the United States seeks to reduce their dependence on Russian gas.

Nord Stream 2 pipeline

The Nord Stream II pipeline project, a 5 billion euro ($5.5 billion) investment, is expected to transport Russian gas from the Baltic Sea to the European energy market. If completed by the end of next year, the project could deliver up to 5 billion cubic meters of gas to Europe annually. Some major European companies, such as OMV in Austria, Wintershall and Uniper in Germany, Royal Dutch Shell and ENGIE in France, along with Gazprom, are shareholders in the project, though the Russian company's share in the project is just 2%.

Russia is by no means willing to reduce its share of the European gas market. For this reason, it has two projects to stream simultaneously and Nord Stream 2. The Stream Leave project is expected to be operational by the end of this year. The capacity of the pipeline will be 5 billion cubic meters, of which 4 billion will be consumed in the Turkish market and the rest will go to the European market via Greece.

Russia's basic policy of building the above two projects is to diversify access routes to the European market. It currently supplies gas to the European Union in three different ways: via Ukraine, the "North Stream," which is directly connected to Germany by sea, through Belarus and finally via the Baltic States. A major client of the Nord Stream II project, Germany, intends to reduce its dependence on coal and nuclear energy by completing the project.

Following tensions in Russia-Ukraine relations, the country plans to halt or reduce the sale of gas to Europe through Ukraine for another two years, by building Nord Stream 2. Ukraine utilizes Russia's right to transit Russian gas to various countries to improve economic conditions, which, in turn, increases the geopolitical importance of Ukraine. Hence, with the construction of this pipeline, Ukraine can be considered one of the main losers of the project.

About 5% of all Russian gas exported to the European Union came from Ukraine. This brought Ukraine several billion dollars in economic profits. That same year, about 4% of Russian gas was exported directly to Germany via Nord Stream 1, and the rest went to the European market through Belarus and the Baltic states.

Possible Sanctions against Nord Stream 2

U.S. officials have repeatedly opposed the construction of Nord Stream II. In the meantime, it is interesting to see several Democratic and Republican delegates opposing the project. In December, the U.S. Congress passed a resolution opposing the construction of the Stream-2 gas pipeline and the need to impose sanctions against it last year.

According to former U.S. Secretary of State Rex Tillerson, Poland, Ukraine and the Baltic states become concerned about the European Union's increased dependence on Russian gas after the construction of the Nord Stream 2 pipeline, and the U.S. agrees. In the same year in April, the U.S. ambassador to Berlin once again threatened to ban the German companies' involvement in the Nord Stream II project. "From the American point of view, this pipeline not only provides gas but also increases the risk of sanctions," said U.S. Ambassador to Germany Richard Grenell. In June, U.S. Secretary of Energy Rick Perry said he expected the U.S. would soon pass sanctions on companies involved in the Russia-Russia Stream 2 pipeline project.

German officials have repeatedly voiced support for the project, while most energy experts regard the completion of the project as a means for an increase in German and European's dependence on Russia. Berlin's dependence on Russia is not on the rise. In December last year, members of the European Parliament approved a resolution calling for a moratorium on the Nord Stream II project. Meanwhile, according to a U.S. State Department spokesman, Washington wants its European allies to fully support Ukraine by fully implementing the Russian sanctions and revising plans to participate in the Streaming II pipeline project. U.S. President Donald Trump has always emphasized U.S. dominance over the global energy market and has been a staunch opponent of the Nord Stream II project. Trump previously criticized Berlin for its support of the Nord Stream Pipeline and described Berlin as a Russian captive because of Moscow's dependence on the energy sector.

U.S. efforts to boycott the project were met with Russian reaction. Vladimir Jabbarov, first deputy chairman of the Russian Federation Council's International Affairs Committee, said Moscow was ready to face U.S. sanctions on the Nord Stream. The United States has expressed its support for European countries to build LNG facilities. Poland is one of the major U.S. LNG customers among European countries and has recently signed a 20-year contract for LNG imports from the United States. Poland has invested heavily in its energy infrastructure.

The U.S. effort will continue to increase its share of the global energy market, and it appears that the Trump administration will use all available options to halt the project. The U.S. effort to increase LNG exports to Poland and Turkey can be seen as a measure of its efforts to reduce its allies' dependence on Russian energy resources.

Russia is determined to implement the Nord Stream project, and with several projects running simultaneously, it is unwilling to reduce its share in the European market. The sanctions against the companies active in the Nord Stream II project could be the last U.S. push to stop the project. This will certainly be opposed by Germany. One has to see which of the two countries will choose between Russia and the U.S. It should be noted that if the U.S. imposes sanctions on the project, it would force contractors to leave the project. Under these circumstances, the start of the pipeline may be delayed and force Russia to continue using Ukraine's transit route.

Nord Stream 2 runs through the waters of Denmark, Finland, Sweden and Germany, and its executors have committed themselves to comply with all environmental and legal requirements. The Germans, as the Russian gas partner, believe that the European Commission's decision on the project is not necessary and that all the essential permits have already been obtained. However, over one-third of Europe's gas is supplied by Russia, and a change in Russians' current share is not easy.

The Kremlin is trying to increase its market share by building a Nord Stream 4 pipeline. However, this strategy has faced opposition from a number of Green continental governments. They cite the continuation of Moscow's interventionist measures in Ukraine and Syria as the main reason for their opposition.

German leaders, on the other hand, consider the EU's approach to be based on political motives. At the same time as U.S. LNG is exported to European gas terminals, project executives believe the Americans have launched a gas trade war to conquer the European market with their shale gas. At a recent Group 2 meeting in Hamburg, Donald Trump met with Warsaw to discuss LNG exports to Poland. Leaders of Eastern European governments are staunchly opposed to the project, as many of their gas transit revenue will be lost. In addition, they believe that the price of gas sold to the Germans is lower than the rate set for them.

* Visiting research scholar in the Schar School of Policy and Government at George Mason University

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