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The Navalny case reignited the old dispute over the Nord Stream 2 natural gas pipeline. It is controversial whether pipes through the Baltic Sea are even necessary.
Workers in a containment pipe: the Navalny case rekindles the old dispute over the Nord Stream 2 gas pipeline.
Will the poisonous attack on Russian government critic Alexei Navalny achieve what neither US sanctions nor Eastern European resistance have achieved: the final shutdown of the Nord Stream 2 gas pipeline? In recent days, the previous position of the German government that the pipeline should be separated from political issues as a purely commercial project has been shaken. There is a contentious debate over whether the project should be banned or suspended, if necessary under EU sanctions, if Russia does not offer a hand to investigate the attack. But can the pipeline still be prevented? What would the consequences be?
Claims for compensation threaten
Nord Stream 2 runs parallel to the Nord Stream 1 gas pipeline, which was completed in 2012. Like this pipeline, it must carry Russian natural gas, bypassing Ukraine, through the Baltic Sea to Germany and, in some cases, from there to other European countries. Like the existing pipeline, Nord Stream 2 is expected to have an annual capacity of 55 billion m3 to have. The project company Nord Stream 2 AG, based in Zug, Switzerland, is a 100% subsidiary of the Russian state natural gas company Gazprom, but according to the company, five Western European energy companies, as financial investors or lenders, they assume half of the project costs estimated at 9.5 billion euros. each of them represents up to 950 million euros. These five partners are Engie (France), OMV (Austria), Shell (Netherlands / Great Britain), Uniper and Wintershall Dea (both Germany).
Less Russian natural gas through Ukraine
According to information from Nord Stream 2, 94% of the total 2,460 km (two 1,230 km lines) have been laid. The laying works of the remaining 160 km have been suspended since the contracted specialist company Allseas stopped working at the end of 2019 due to US sanctions. Meanwhile, a continuation of work with Russian special ships is planned, but they threaten more US sanctions. In Europe, however, according to the company, all the necessary permits have been obtained for its completion.
Therefore, it should not be legally easy for Germany to stop the completion of the project without causing massive claims for damages from the companies concerned. According to the chairman of the Eastern Committee for the German Economy, Oliver Hermes, it is currently not possible to say which claims would result from a possible ban on completion. This would have to be clarified in court in the event of a case, it states on the committee’s website. According to the Eastern Committee, more than 670 companies from 25 countries are involved in the construction and maintenance of the pipeline.
How big is the dependency?
It is also controversial to what extent Germany and the EU depend on Nord Stream 2. According to Arbeitsgemeinschaft Energiebilanzen, natural gas covered around 25% of German primary energy consumption in 2019. This made it the second most important energy source after the mineral oil. 94% of gas consumption came from imports. The exact origin of these has not been broken down in official statistics for several years, but Russia is by far the most important supplier.
The entire EU also depends on Russian gas, although to a lesser extent: in 2017, the then EU-28 (including Great Britain) covered 74% of natural gas needs from imports, according to Eurostat; the most important supplier was Russia with a 39% share.
Therefore, Germany and the EU will continue to depend on Russian gas with and without Nord Stream 2 for the foreseeable future. If Nord Stream 2 is not completed, larger amounts of Russian natural gas will have to be transported west through the existing Ukrainian pipeline system, and more liquefied natural gas (LNG) will likely have to be imported. This comes from various sources, but Russia also plays an important role as a supplier of LNG. However, the dependence is mutual: Russia also needs large customers, Germany and the EU.
The experts give the go-ahead
The effects of not using Nord Stream 2 in Germany and the EU will depend on the assumptions made about the future development of supply and demand. Complex movements are taking place here, sometimes opposite. Proponents of Nord Stream 2 like to point out that domestic production within the EU is shrinking and that the simultaneous phase-out of coal and nuclear power in Germany will at least temporarily support demand for natural gas. Gas-fired power plants are required as “bridge technology” until sufficient amounts of renewable energy are available.
However, new connecting pipelines and LNG terminals have improved Europe’s security of supply in recent years. Energy experts have given the go-ahead in recent days. This was explained by the energy economist Marc Oliver Bettzüge (University of Cologne) compared to the “Frankfurter Allgemeine demonstration” that the existing import capacity would be “sufficient to cover the foreseeable gas demand in the EU even without the Nord Stream 2 pipeline”. However, the new pipeline could reduce gas prices in the EU “notably, although not dramatically”, because each additional import capacity would increase redundancy and thus improve the relative position of the importing region vis-à-vis supplier countries.
Claudia Kemfert from the German Institute for Economic Research (DIW) told RBB Inforadio that the pipeline could be dispensed with. There are enough existing structures, including under-utilized LNG terminals and an over-supply of gas in international markets. Kemfert is the author of a DIW study published in 2018, which has already reached similar conclusions and also stated that Nord Stream 2 is also highly questionable from a business point of view, as it is not a profitable investment project.
Geopolitics catches up with Merkel
Neither of these arguments is new. Nord Stream 2 has divided people’s minds from the very beginning. The project was criticized, for example, in Poland and the Baltic states, by the EU Commission and the United States. Critics pointed to the geopolitical intentions of the Russians: the two pipelines Nord Stream in the north and Turkstream in the south allowed Gazprom to bypass, at least partially, Ukraine, through which important transit lines pass. This would mean that significant transit revenue would be lost and Russia would have a means of putting pressure on the country, whose orientation to the West is a thorn in its side. Within the EU, the argument was added that the project undermined the common goals of climate policy (move away from fossil fuels) and energy policy (diversification of energy providers).
Merkel’s government has always been deaf to such arguments, pointing out that Nord Stream 2 is a purely economic project. In doing so, it has offended its EU partners and is now forced to rethink its position during the last kilometers of the pipeline. A heading correction would be much more expensive, even if it would barely jeopardize the power supply.
You can contact the Berlin business correspondent René Höltschi Twitter Consequences.
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