GAS Nord Stream 2 29 May, 2018 11:00 am   

Nord Stream 2 is a challenge for EU energy policy

Although the fate of the disputed Nord Stream 2 project is still at stake, the intra-EU dispute in this matter is influenced by Germany’s policy, which seems to be playing solo on the matter. On Friday, Chancellor Angela Merkel will visit Russia. We are talking about it with Agata Łoskot-Strachota from the Centre for Eastern Studies. Is the fate of Nord Stream 2 a foregone conclusion?

Agata Łoskot-Strachota: The situation with the Nord Stream 2 Project is very dynamic and not entirely obvious at many levels. On the one hand, we can see that the project is becoming more and more advanced, that it is being gradually financed by those involved, and that other works are being carried out or begun to prepare for the construction of the route.

On the other hand, a number of issues are still unresolved or unfinished – e.g. there are still no consents given for the construction of the gas pipeline in the economic zones of Sweden and Denmark neither the Danish consent for the construction in its territorial sea, the construction of NS2 is complained about by environmental organisations, the question about the impact of US sanctions and the activities of the Polish antitrust regulator on the future of the gas pipeline (including the involvement of EU companies and its financing) remains open and the whole legal context (including the fate of the Gas Directive) is not obvious. Therefore, it is not a foregone conclusion whether, and above all when, the actual construction of the gas pipeline will begin and in what legal environment it will operate.

The development of supplies through Nord Stream 2 is to take place at the expense of the Ukrainian route. What level of gas supply through Ukraine guarantees the stability of the transmission system and, consequently, its economy?

This is probably not very clearly defined. Recently, the Minister of Energy of Ukraine spoke about approx. 40 billion cubic meters per year. But let us remember that this (substantial decrease in transit volumes) means turning off some of the gas pipelines or substantial costs – if one of the parties (EU, Russia, Ukraine) would think that keeping them functional would be desired to have them as the so-called swing capacities – for example, to supply more gas in winter at a time of unexpected, short-term growth in demand in Europe. And this type of capacity may be needed in connection with, among other things, falling production from Groningen, which was EU’s key swing – producing field for the time of the greatest demand.

Moreover, apart from the specific figures, there is a question of who and how will finance the maintenance and the possible transformation and modernisation of the Ukrainian gas transmission system (GTS) and how. This includes a question about the final formula of involvement of western investors, which has not yet been resolved due to the de facto suspension of implementation of ownership unbundling in Ukraine. Finally, apart from the questions about how much gas should flow through the Ukrainian GTS, there is also There are not currently sufficient investmemnts in these route (unlike the Russian infrastructure supplying the route through the Baltic Sea) and according to Gazprom’s earlier announcements, some of them are to be closed.

Germany has long sought to exchange consent for NS2 in exchange for minimum supply guarantees from Ukraine. Where did the format of the talks on this subject between Germany and Russia and Ukraine come from, instead of the natural EC-Ukraine-Russia?

Since 2014, talks on the rules for gas transit through Ukraine have been conducted in the EU-Ukraine-Russia trilateral format. The EU, represented by the European Commission, was de facto a mediator, but also an interested party (stable and predictable gas supplies from Russia via Ukraine). The EC also discussed the Nord Stream 2 project with Russia and Ukraine.

The recent change of government in Berlin and in Germany’s official rhetoric on Nord Stream 2 project (which still maintained that Nord Stream 2 was a commercial project, but also began to admit that it had a political dimension, primarily related to Ukraine and Ukrainian transit) was very positively received, among others, by the European Commission. The European Commission has proposed that Germany could be involved in – the trilateral up to now – negotiations on Ukrainian transit. At the same time, there are no signs that after this proposal there were any formal discussions about changing the format and Germany joining it, nor about it’s role in this negotiations or how should Berlin best represent the interests of the EU as a whole – which by the way is not obvious in the case of both Nord Stream 2 and Ukrainian transit.

As a result, the current diplomatic activity of Germany, i.e. the visits of the German Minister of Foreign Affairs and Minister of Economy and Energy to Moscow and Kiev, and the visit of Chancellor Merkel to Sochi, appear to be a solo action of Germany, not an action of the entire EU. The existing differences of interests and opinions as to how the EU as a whole should act, Germany’s avoidance of discussing Nord Stream 2 (and indirectly the future of gas transit through Ukraine) with other Member States in any formal EU context, as well as Germany’s clear and specific interests in the construction of the projected gas pipeline – all of that raises some questions. First of all that raises doubts about Germany’s exact role in the process and the meaning of potentially worked out solutions, then such activity may hinder and not facilitate future actions of the Commission or the European Union in this area. However, it is still possible that some informal discussions regarding the role and form of Germany’s involvement in the EU’s dialogue with Russia and Ukraine have taken place or are taking place right now, and that a format of quadripartite negotiations (or negotiations in any other format) on the future of transit through Ukraine and Nord Stream 2 is being developed. This was somehow suggested by Maros Sefcovic in his remarks on Friday 25th of May (during CEE as a Gas Gateway event).

What is the significance of Chancellor Merkel’s declaration that the NS2 has political aspects, followed by the statement by Foreign Minister Heiko Maas that it is only business?

The change is in the official rhetoric and emphasis. Merkel and other representatives of the German government now clearly acknowledge that Nord Stream 2 has political consequences in addition to commercial character of the project and that these consequences are primarily related to Ukraine and gas transit through its territory. Let us remember, however, that Sigmar Gabriel also spoke of the need to maintain transit through Ukraine. The key question is what actions this slightly different rhetoric will translate into. We can already see that Germany has officially started to engage in political talks about Nord Stream 2 and the future of transit through Ukraine – these were among key topics of all three German visits to Moscow.

We can also see that although there haven’t still been any discussions on this subject on the forum of all EU Member States, Berlin is talking about it with its EU partners – among others, with the heads of the Baltic States Foreign Ministers (meeting with Heiko Maas). Finally, there appear German statements which acknowledge that the issue of Nord Stream 2 and transit through Ukraine is the domain of the EU’s energy policy. These all are positive signs. The question is whether and how this will translate into the development of a common EU goal and toolbox on these, still highly controversial, issues. Here, too, there are challenges and questions about German interests. How can we start discussing common goals and instruments at the EU level if Berlin has already started negotiations with Russia and Ukraine? How can Germany effectively and credibly talk to Kiev about Nord Stream 2 and the various possibilities of transit through Ukraine if Gazprom – Nord Stream 2 AG – just announced (on May 16) the begining of construction work on the gas pipeline in the German Exclusive Economic Zone precisely at the time of these talks?

How does this case work for the European Union’s common energy policy?

Certainly, to date, this has been a major challenge for the common EU energy policy – there are various interests and ideas of actions needed, different visions of the role of the European Commission in the process, different interpretations and applications of EU law, as well as a position on the proposed and discussed changes to the Gas Directive. All of that divides and weakens the EU, highlighting the lack of a common interest and the lack of a single voice in relations with third countries -with Russia in particular, but recently also, for example, with the U.S., which are involved in the Nord Stream 2 issue – and lack of these unity in the case of the Nord Stream 2 project as such.

At the same time, the process is ongoing and it is clear that the EC and other stakeholders have great expectations that Germany will be more open to the political dialogue on the Nord Stream 2 project and that some agreement will be reached at EU level on this issue. If this succeeds – and as I have already said, it is highly unobvious and requires willingness to cooperate and compromise, first and foremost from Germany but also from other Member States – then, after all the perturbations and cracks caused by Nord Stream 2 within the EU, it could at the end result in strengthening the EU and the Energy Union in this particular dimension.

Interview conducted by Wojciech Jakóbik