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September 15, 2019

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NORD STREAM TWO, A TWIST IN EU ENERGY MARKET?

November 1, 2015

On the last 4th September, a crucial event for the economic and political future of European Union took place.

 

At the Economic Forum in Vladivostok, the Russian leader in the energetic industry Gazprom signed an agreement with Germany and some Western Companies to reactivate the four-years old Nord Stream Two pipeline project.

The new gas pipeline will be parallel to the already existing Nord Stream One, lying on the seabed of the Baltic Sea and Nord Stream Two is going to be the world’s biggest natural gas transportation project in terms of length and capacity.

The construction plan was initially announced in 2011\2012 through non-binding agreements of intent, but the European economic downturn and the Ukrainian crisis forced the parties to shelve the project.

The agreement signed on September, however, is binding.

The main goal of such a project is to bypass Ukraine’s gas transit system, its continuation through Slovakian and Czech corridors and potentially Poland’s too, basically connecting Moscow directly with the “Old” European Union.

 

I think we should interpret this arrangement in the light of the recent reminders between the EU, some of its Member States and the Kremlin.

From this perspective, Nord Stream Two represent a success for Russia, accomplishing its strategic goal to maintain a sound economic relationship with Europe, despite its tumultuous relations with the EU and the Western sanctions regime consequent to the Crimean invasion.

Furthermore this project significantly strengthens Moscow’s bargaining power in its negotiations with Kiev, since it will allow Russia to consistently reduce the amount of gas transmitted through the Ukrainian pipelines (in view of a complete shutdown by 2020).

Moreover, Russia hopes that this new cooperation between Gazprom and the principal European energy companies will increase its lobbying capabilities within EU, gaining important political advantages.

 

From the German point of view, Nord Stream Two represents a real evolution in the role of Berlin in the European energy market. Germany is going to gain the status of “energy hub”, becoming the primary center for storage and distribution of Russian gas in the Western Europe.  All of this could not but provide new nourishment to German energy companies such as E.ON and RWE, which are experiencing hard times in adapting to the rapid expansion of the renewables on the German energy market.

 

However, the contracts signed by the European companies and Gazprom go against the aims of the EU’s policy on energy supply. The Community’s plan over the last year entails increasing diversification in gas supply, strengthening the economic cooperation with Ukraine and reducing dependence from Russian gas, as implied in the provisions of the European Commission’s strategic documents.

In this sense, the development of Nord Stream Two agreement is emblematic of European companies’ skepticism with respect to the EU policy and of their attempt to contribute in shaping it. Furthermore it demonstrates the lack of common interest and opinions within the EU with respect to the gas cooperation with Russia.

 

As a spokesperson for the European Commission’s concerns about the project, the vice-president for the Energy Union Maroš Šefčovič raised a bunch of questions: “Does Nord Stream correspond with the EU’s supply diversification strategy? What does it mean for Central and Eastern Europe? What conclusions should be drawn if this project aims to practically shut down Ukraine’s transit route? All projects of this magnitude would have to comply with EU legislation.”

Furthermore, the EU Energy Commissioner Miguel Arias Cañete stated that since Nord Stream Two does not comply with the EU supply diversification policy, it could not be considered a “priority”, thus diplomatically asserting that the project will not receive any EU funding.

 

On the one hand, Eastern Europe has taken a position against the project, sharing the same doubts of the Commission. Countries like Ukraine, Poland, Slovakia and Czech Republic argue that such an agreement would threaten their own status as conveyance States.

On the other hand, Western European countries and their principal firms support the agreement, contending that an increase in the input of Russian gas would be necessary to meet future demand.

This divergence of opinions finds its origin in the fact that the two European “blocks” have developed significantly different political and economic relationships with Russia during the history.

In my opinion, until the European natural gas market is fully integrated, the two parties will not be able to agree about the “right” quantity of gas Russia should supply to the Continent.

In the meantime, I think it will be very complicate for the opponents of Nord Stream Two to block the pipeline realization, since Germany and Austria already support it and Gazprom just needs the construction permits from the Scandinavian countries, that promptly backed the realization of Nord Stream One in the past.

 

 

 

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