USA and Germany will not be exerting more pressure on Russia in spite of the risk that Moscow may use gas for political ends already this winter. Instead they want to offer compensation for Nord Stream 2, which may be conditional and hinge on fostering values such as the rule of law in the European Union. Poland, the Three Seas Initiative and the Lublin Triangle should make Putin pay for the pipe and demand support for such projects as the construction of Polish nuclear power plants – writes Wojciech Jakóbik, editor in chief at BiznesAlert.pl.
The Nord Stream 2 stalemate
The meeting between Angela Merkel and Joe Biden in Washington did not solve the contentious Nord Stream 2 problem. However, it did reveal general details on the solutions that were negotiated by the two states with regard to the compensation for Central and Eastern Europe for the fact that the pipe will probably in the end be completed.
BiznesAlert.pl has reported that Americans and Germans “agreed they did not agree” on the Nord Stream 2 question. Here is a short summary of what has been agreed on in Washington:
- The USA believes that it “makes no sense” to introduce new sanctions against Nord Stream 2 when 90 percent of it is ready.
- Instead, the USA has decided that it was more efficient to talk to Germany on how to protect Ukraine against the Russian energy blackmail.
- Germany does not agree with the US position on Nord Stream 2, but it does agree that gas transit via Ukraine should be maintained after 2024 when the temporary transit agreement with Gazprom will expire.
- Germany claims that if necessary it will use EU sanctions against Russia, but failed to reveal any specific details. Berlin declares it is ready to use the sanctions if need be.
- The US and Germany will establish a Climate Partnership for Central Europe and Ukraine to promote green hydrogen, renewable energy sources and e-mobility.
- The US and Germany have signed the Washington Declaration to jointly protect values, including by fighting “false populism” in the European Union and candidate countries.
These decisions mean that the US and Germany will not stop the construction of Nord Stream 2, but they may subject gas transit via the pipe to political requirements that will pertain to Ukraine’s energy security and its security in general. They may demand that Ukraine and NATO states from the eastern flank receive compensation for the construction of Nord Stream 2. To achieve that, they may use the Climate Partnership, which potentially could tap into the available transmission routes in the European Union and/or the Three Seas Initiative. However, it has to be recognized that the declared fight against populism may lead to a situation where the support will be conditional and will hinge on abiding by the values held by the US and Germany, e.g. the rule of law.
Nord Stream 2 promoted in Berlin by Moscow’s man
The fact that the US and Germany decided not to continue fighting against Nord Stream 2 made it possible for Russians and their representatives in Europe to easily disseminate news about the pipe’s quick completion.
Right before Angela Merkel’s visit to Washington, Matthias Warnig the CEO of Nord Stream 2 AG that is completely owned by Gazprom, had made a number of declarations about the gas pipeline from Russia to Germany, which is to be ready by the end of 2021. He said that the construction could end in August 2021, because the second line was already 98 percent ready. The tests and certification are to take another three months, which means they may be done by November 2021 if no new obstacles crop up. According to Waring, Nord Stream 2 may be completely re-purposed to transmit hydrogen by 2030. In this context Warnig mentioned EU plans to achieve climate neutrality. It is worth reminding that Germany and Russia have been talking about transmitting hydrogen via Nord Stream 2 for a few years now. The talks reached their peak when Berlin declared it wanted to import green hydrogen from Russia. However, in reality Russians are capable only of providing blue hydrogen generated by the gas sector (one that produces emissions) and violet hydrogen produced by the nuclear sector (zero-emission). It is apparent that Russians have developed a narrative to promote Nord Stream 2 as a tool that could be used to facilitate the European climate policy. This carries the risk of the policy becoming dependant on Russia and replacing the reliance on Russian natural gas with reliance on Russian hydrogen.
The question is not whether, but how to commission Nord Stream 2
Signing an agreement with Germany in August would allow the US to make a decision about imposing the sanctions against Nord Stream 2 AG and its CEO Matthias Warnig. However, taking no action before the construction is finished will make it possible to easily complete the pipe before any decisions are made. It seems that this is why Berlin used delaying tactics all along. One could argue that Washington’s decision to postpone any actions that would go against Germany makes it inefficient, but the reasoning behind this strategy could be quite different. According to Joe Biden’s administration intelligence data confirm that new sanctions against Nord Stream 2 would probably not stop the construction, which Russians are now finalizing on their own after western companies left the project due to the US sanctions. This is how Biden’s words that “there was no point” in introducing new sanctions should be understood. However, the opinions about this are split, because the across-the-aisle alliance at Congress still demands that the sanctions suspended by Biden be reinstated during the talks with Berlin. Still, the game is increasingly about whether and on what conditions gas will be transmitted via the contentious Nord Stream 2, which at this point is delayed by almost two years, as opposed to the original completion date – end of 2019.
Certification of the pipe and the operator
The current US sanctions include companies that want to certify, i.e. put into operation the Nord Stream 2 gas pipeline. Norway’s DNV GL will not do this, but it has been indicated that Russians could bypass this problem by allegedly hiring engineers from that company to certify the pipe on their own. This issue may at least delay gas transmission via Nord Stream 2. Another problem is adapting the project to the regulations included in the EU gas directive and certifying Nord Stream 2 AG as the pipe’s operator by the Bundesnetzagentur, whose decision needs to be approved by the European Commission, but then can be taken to courts anyway. Poles have already suggested that they may do this, and the their victory over the European Commission in the dispute over the full usage of OPAL, an onshore Nord Stream 1 leg, is a precedence for another success on the basis of the energy solidarity principle. “This may be an important argument in the hands of opponents of privileged treatment of cross-border infrastructural projects implemented by some EU states with Russia. So, in practice this may be important in the context of the expected, upcoming attempts at exempting the Nord Stream 2 pipeline from the limitations that stem from the EU energy law,” Szymon Kardaś from the Center for Eastern Studies wrote. Nord Stream 2 AG had already filed an application for derogation from the third energy package, but it was rejected. The claim against the gas directive, which imposed limitations on the Nord Stream 2 pipe was also rejected. Whereas according to Bartosz Bieliszczuk from the Polish Institute of International Affairs, it may take up to four months before an initial decision on the certification of the operator is made, and up to two months before the final ruling is issued, that is provided Brussels gives a positive opinion.
Moratorium, exemption, new deal and investments
Initially the deal between the US and Germany was to include a solution that would make gas transition via Nord Stream 2 dependant on Russia’s conduct. One of the measures on the table was a moratorium on the construction until the talks are over, a solution called for by experts. However, it was rejected by Germany’s leading decision makers, bar a few notable exceptions from Berlin, led by the local expert community. The other solution is the so-called snapback/shutdown mechanism, which would make it possible to stop deliveries via Nord Stream 2 in case of issues with Russia. This idea was more welcome in Germany, even by the pro-Russian SPD. However, according to unofficial reports before the meeting with Biden, Merkel’s administration did not move an inch, disappointing the White House. The latest solution that is now being discussed involves the extension of the temporary agreement on gas transit via Ukraine between Naftogaz and Gazprom. Russians are to pay for booking at least 60 bcm in 2020 and 40 bcm a year until 2024. Ukrainians have already said they expected between 45 and 50 bcm of gas a year to be booked for 15 years in total. Germans and Russians are not in favor of this solution. This is another proof that Nord Stream 2 is to replace, not complement the existing gas routes to Europe. Probably this is the reason why Germans would rather talk about investing in Ukraine in modernizing the local gas sector, and about supplying hydrogen to the European Union. These solutions are in line with German interests, and do not undermine the profitability of Nord Stream 2, but at the same time they also find a new purpose for the biggest gas transmission system in Europe, which is located by the Dnieper. This approach has taken over even the most pro-Atlantic circles in Germany, which is evidenced by the engagement of Norbert Roettgen, a ferocious critic of Nord Stream 2, in preparing the Merkel-Biden talks. The statements made by Merkel in Washington suggest that Berlin is ready to find a new solution, but it is not clear whether it will involve the extension of the transit agreement with Ukraine beyond 2024. The Climate Partnership between the US and Germany is to promote green hydrogen, renewable energy sources, and e-mobility by the Dnieper, all of which Berlin is doing anyway. Therefore, Americans will be entangled in the plans to promote an energy transition that follows a model designed by Germany. Poland could expect the US to add to this partnership a different outlook on the energy transition – nuclear power, which is supported by both Washington and Warsaw.
The role of Poland and other CEE countries
The Climate Partnership is a carrot for the Central and Eastern European states The investments made by the US and Germany in an innovative energy industry, could facilitate the energy transition of the region in order to decrease its dependence on hydrocarbons from Russia. Both countries have declared they were ready to take action in case of Russia becoming hostile. However, they do not want to exert any additional pressure at this point, despite the tangible risk of Gazprom using the rising gas prices in Europe to push the Kremlin’s foreign agenda. The US and Germany are not responsible for this risk, but they have ensured they would take action in case of problems. These issues are lurking on the horizon and Poland, together with other CEE states should ring the alarm bells immediately.
The compensation for Nord Stream 2, i.e. the Climate Partnership, should involve the co-financing of projects that enhance the energy security of Central and Eastern Europe. This could involve, for instance, bankrolling the Three Seas Initiative and other endeavors that facilitate the energy transition, as well as subsidizing new power generation capacities, including nuclear power plants. The least Poland should expect is that Germany will abandon its de-nuclearization plans for Europe, while its maximum demand should be that its nuclear power plans, built in cooperation with the US, will be supported as a way to decrease the dependency on hydrocarbons from Russia. However, it should be stressed that Washington did not mention nuclear power. Nevertheless, there is a number of projects for green hydrogen, renewables and e-mobility in Poland and other Three Seas Initiative states, which the US and Germany can support as well.
This solution could be derailed by the stick that is emerging from the statement made by Biden and Merkel. The Washington Declaration says that both states will protect values by, among others, fighting with “false populism” in the European Union and countries that want to join it. This may pertain to issues such as protecting the rule of law, fight against corruption and other actions Berlin and Washington had previously pursued separately, but will now join forces on. The states that are in the crosshairs when it comes to the rule of law, Poland included, or those that are plagued with corruption and lack of transparency when it comes to business, may be encouraged by the US and Germany to make changes, and their help as part of the Climate Partnership may be conditional. It is worth noticing that the US and Germany want to fight against populism and corruption in the European Union and in its vicinity, but fail to mention that these pathologies are present in Russia.
Will Russia again use gas to further its political agenda already in the upcoming winter?
To recapitulate, the fact that the US and Germany are not going to pressure Russia is Vladimir Putin’s victory. In view of the rising gas prices in Europe, Gazprom may limit the supply, enabling Putin to use the fuel for his political agenda in Europe already in the upcoming heating season. The compensation for finishing Nord Stream 2 may be an opportunity to acquire co-financing for projects important for Central and Eastern Europe, but it may be conditional. Whereas the green light for Nord Stream 2, which undermines the region’s security should make the compensation non-conditional and immediate. This is why Poland and Ukraine as well as other states of the region should use all formats: the EU, the Three Seas and the Lublin Triangle to articulate clear expectations about their postulates as part of the Climate Partnership. Whether they will be successful or not may partially depend on abiding by the values in the Washington Declaration.