December 28, 2021 2:47:50 pm
Germany’s new chancellor, Olaf Scholz, did not have to wait long after taking office to be asked about Nord Stream 2. An undersea Russia-to-Germany gas pipeline, the project has inflamed anger in Washington and European capitals at a time when tensions with Moscow are running high.
Scholz’s coalition government includes the Green Party, whose members are sharp critics of Nord Stream 2. He surprised many by taking the same stance as his immediate predecessor, Angela Merkel, who championed the pipeline as a business venture essential for the success of Germany’s industrial base.
“Nord Stream 2 is a private-sector project,” the new German chancellor told reporters. The ultimate decision over approval of the pipeline, he said, will be made by “an agency in Germany, completely nonpolitically.”
But it’s not that simple. With thousands of Russian troops massing on the border with Ukraine and a threat of possible U.S. sanctions against the pipeline, the future of Nord Stream 2 remains anything but certain.
Adding to the problem are natural gas prices in Europe, which have broken records in recent weeks because supplies are tight. These prices are soaring while half of Germany’s six remaining nuclear reactors are being taken offline and winter is settling in, driving up demand. Nord Stream 2 was initiated in 2015 to help avoid such energy crunches — now it appears to be exacerbating them instead.
Then there are the pressures within Scholz’s own government, where leaders from the Greens have made remarks that support the European and U.S. push for Germany to use the pipeline as leverage against President Vladimir Putin of Russia.
Despite all of the conflicts, observers believe the $11 billion pipeline, designed to deliver Russian gas while bypassing countries in Russia’s former sphere of influence, will come online once it passes a final bureaucratic hurdle — certification from the German regulator.
“I think that ultimately it will be certified, but there could be conditions attached to it related to continued transit access across Ukraine,” said Katja Yafimava, a senior research fellow at the Oxford Institute for Energy Studies. “I think that politics will play a role, potentially quite a big role.”
As its name indicates, Nord Stream 2 runs alongside the original Nord Stream pipeline, which began operation in 2012. Unlike the older line, Nord Stream 2 is wholly owned by Gazprom, Russia’s giant state-owned energy company.
Germany’s European partners are most concerned about a potential loss of billions in annual transit fees for Ukraine and other countries with pipelines once Nord Stream 2 goes online. The United States views the project as a threat to European security, handing Putin an easy way to exert influence over a part of the world where Americans enjoy strategic partnerships.
“The United States sees the Nord Stream 2 pipeline as a Russian geopolitical project that undermines the energy security and the national security of a significant part of the Euro-Atlantic community,” Karen Donfried, the assistant secretary of state for Europe, recently told reporters.
Critics in Washington, led by Sen. Ted Cruz, R-Texas, have repeatedly sought to penalize companies involved in the pipeline project to prevent it from coming online. The Senate recently agreed to hold a vote in January over Nord Stream sanctions in return for Cruz’s agreeing not to obstruct the approval of dozens of President Joe Biden’s nominees to State Department and Treasury Department posts.
Russia is Europe’s chief supplier of natural gas, but this year import volumes remain lower than average. Analysts said Russia had been meeting the volumes of gas agreed to in contracts, but appeared reluctant to offer European customers any further supplies. This is a critical problem because Europe needs the gas. Storage facilities entered the winter with unusually low levels of the fuel — partly because of increased global demand and a cold snap earlier in the year — and prices have soared.
“Russia has been saying that it is delivering everything according to its contracts, which looks correct,” said James Waddell, head of the European gas division at Energy Aspects in London. “But what they are not doing is selling supplementary gas in volumes that we have seen in previous years.”
Russia may be motivated by its animosity toward Ukraine’s leadership. For years Soviet-era pipelines in Ukraine have served as the main corridor into Europe for Russian gas, generating billions in transit fee revenue for the government in Kyiv. If Nord Stream 2 were up and running, with its capacity of 55 billion cubic meters of gas a year, Gazprom would be able to sell additional gas to European customers without paying transit fees to Ukraine.
For German businesses, the pipeline is needed to ensure a reliable energy flow, as the country prepares to take its last three nuclear power generators offline. The matter also became more urgent for Germany after the new government announced its intention to bring forward the date to exit coal by eight years, to 2030.
The need is especially acute in the southern German states, home to industrial giants like BASF chemicals, automaker Daimler and conglomerate Siemens. Renewable energy from wind turbines is plentiful in the north, and the government has pledged to speed up construction of high-voltage power lines to carry that power to the south, but resistance from the public has hampered progress.
“We need a secure supply of gas security, despite all of the clear political differences with Russia,” said Siegfried Russwurm, president of the Federation of German Industries. He urged the new government not to mix business with politics, pointing out that Russia began supplying West Germany with natural gas during the Cold War, when the two countries sat on opposite sides of the Iron Curtain.
“There are issues we can approach together; there are issues where we can work together despite points of difference; and there are points where we disagree,” Russwurm said, adding that energy supply belonged in the first category.
For now, the company that owns the pipeline, which is based in Switzerland but wholly owned by Gazprom, is busy setting up a subsidiary in Germany, as demanded by the German regulator to bring the pipeline in line with European Union law. Jochen Homann, the president of the Federal Network Agency, said this month that he did not expect his agency to grant approval before the second half of 2022.
After that, the ball will be passed to Brussels, where officials at the European Commission then have two months — which can be extended by an additional two months — to reach their own opinion on the pipeline. Although the commission’s decision is nonbinding, the German regulator is expected to take it into account, which could add several months.
The idea of Nord Stream 2 is that it act as an insurance policy in times of high gas prices or an energy crunch, said Jacopo Maria Pepe, a researcher in energy and climate infrastructure at the German Institute for International and Security Affairs.
But he warned that while stopping the pipeline would send a clear diplomatic message to Russia, it could risk Germany’s position as the strongest power in Europe. It could also cost Berlin the respect it needs from Moscow as the Germans support Ukraine with diplomatic efforts and economic investment, which was worth $49 billion in 2020.
“If we will still need gas, we still need Russia,” Pepe said. “There is no way to escape this reality.”
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