Why the World Worries About Russia’s Nord Stream 2 Pipeline
(Bloomberg) -- A natural gas pipeline built under the Baltic Sea from Russia to the German coast is shaking up geopolitics. Nord Stream 2, as it’s called, has fueled worries in the U.S. and beyond that the Kremlin’s leverage over Europe and its energy market will increase once the twin pipeline is operational. Championed by former German Chancellor Angela Merkel but viewed more cautiously by the government of her successor Olaf Scholz, it was completed in September after the U.S. and Germany reached a deal on the project.
1. What is Nord Stream 2?
It’s a 1,230-kilometer (764-mile) pipeline that doubles the capacity of the existing undersea route from Russian gas fields to Europe -- the original Nord Stream -- which opened in 2011 and can handle 55 billion cubic meters per year. Russia’s Gazprom PJSC owns the project operator, with other investors contributing half of the 9.5 billion-euro ($10.8 billion) cost.
2. When is it opening?
While Nord Stream 2 must clear political hurdles before it starts operating, it is also entangled in bureaucracy. The link to Germany under the Baltic Sea, one of the world’s most contentious, was completed Sept. 10, but the start of actual flows into Europe’s grid will depend on the German regulator. Initially expected to come online in 2019, the project was delayed first by U.S. sanctions and more recently by the requirements of German energy watchdog BNetzA and EU law, which are forcing Gazprom’s Swiss-based project operator to set up a German unit. Once that’s done, the German regulator still has some two months to reach a preliminary conclusion and the EU, which has a more advisory role, can take another two to four months to express its opinion. BNetzA then has two more months to make a final decision.
3. Why is it important?
Nord Stream 2 could help Europe secure a relatively low-cost supply of gas at a time when the continent’s own producers are reducing output. It’s also part of Gazprom’s decades-long effort to diversify its exports to Europe as the region moves away from nuclear and coal. Before the first Nord Stream opened, Russia was sending about two-thirds of its gas exports to Europe through pipelines in Ukraine. The two countries’ troubled relations since the Soviet Union collapsed left Gazprom exposed to disruptions: For 13 days in 2009 a pricing dispute halted gas flows through Ukraine. Since then, ties between Russia and Ukraine have worsened, culminating in the Ukrainian popular revolt that kicked out the country’s pro-Russian president and led to Russia seizing the Crimean Peninsula in 2014. In late 2021 there were increasing numbers of Russian troops and military equipment deployed near Ukraine’s border, sparking U.S. warnings of invasion plans. Russian President Vladimir Putin has denied any intention to invade.
4. Who’s opposed to Nord Stream 2?
Critics include Ukraine, Poland and Slovakia -- countries between Russia and Germany that collect transit fees on gas flowing through their territories. Their concerns were partially alleviated after Gazprom reached a deal to continue gas transits via Ukraine through at least 2024. Scholz promised in December that his government would “do everything” to ensure that natural gas continued to flow through Ukraine and prevent Russia from using its Nord Stream 2 pipeline to cripple the former Soviet republic’s economy. His predecessor, Merkel, had come under pressure from German lawmakers to drop the project after the 2020 poisoning of Russian opposition politician Alexey Navalny, but took the view that policy on the pipeline shouldn’t be linked to “individual cases.”
5. Why is the U.S. involved?
The U.S., under both Biden and his predecessor Donald Trump, has asserted that the new export route would make its allies in Europe overly dependent on Russian energy supplies. Yet it’s also clear that the U.S. has been keen to increase its own sales to Europe of what the Trump administration called “freedom gas.” The Washington authorities were committed for many years to stopping the gas link, or at least putting significant hurdles in its way. One of those challenging them is Germany’s biggest Nord Stream 2 backer, Gerhard Schroeder of Scholz’s own SPD, who was Germany’s chancellor before the Merkel era. Today, Schroeder holds key posts at Russian state oil company Rosneft PJSC and Nord Stream AG and is a personal friend of Putin. He has defended Nord Stream 2 in TV interviews and praised Scholz for his “patience and determination.”
6. What does the U.S. accord with Germany cover?
Under the agreement, if Russia attempted to use energy as an economic weapon or commit aggression against Ukraine, Germany would take action itself while also pressing for measures at the European level, including sanctions to limit Russia’s energy exports. The U.S. and Germany will also seek to promote investments of at least $1 billion in a so-called Green Fund to help Ukraine’s transition to cleaner sources of energy. Germany has committed to an initial $175 million investment in the fund. Germany would also appoint a special envoy -- with $70 million in funding -- to support bilateral energy projects with Ukraine.
7. Is Europe really captive to Russian gas?
The European gas market has become more competitive as liquefied natural gas, or LNG, vies to replace declining local production from the North Sea and the Netherlands. Gazprom has estimated that in 2020 its share of the European market was around 33%. Its domestic rival, Novatek PJSC, is also expanding LNG sales in Europe. But not all countries are equally dependent on Russian imports. Gazprom remains a traditional key supplier for some eastern and central European countries, while western Europe gets gas from sources including Norway, Qatar, African nations and Trinidad. The likes of Poland, Lithuania and Croatia have built LNG import facilities to diversify their supply sources.
8. Will the U.S. sell more gas to Europe?
The U.S. supplies tanker-borne gas to Europe, but it must be chilled into a liquid form and shipped at great cost. Russia transports gas mostly through the world’s largest network of pipelines that have been in place for decades. Availability of U.S. LNG in Europe depends on prices there and on appetite in Asia. While U.S. suppliers have had some success securing deals with Poland, they have also had setbacks from Ireland to France on environmental grounds.
The Reference Shelf
- Bloomberg Opinion writer Andreas Kluth says Nord Stream 2 will be a stain on Merkel’s legacy.
- A Bloomberg article on the completion of pipeline construction, and a story on the U.S.-German accord.
- A U.S. report to Congress on entities involved in Nord Stream 2 construction.
- A BNEF analysis on the outlook for LNG through 2025.
- A link to the Nord Stream 2 website.
- A QuickTake explainer on how Russia’s grip on gas shapes Europe’s energy politics.
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