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Nord Stream 2. Implications for the Eastern Neighborhood

Nord Stream 2. Implications for the Eastern Neighborhood

Nord Stream 2, perhaps the most controversial extant gas infrastructure project, not only has divided the European Union in supporters and opponents of the project but is also shaping the transatlantic relation while directly impacting the Eastern Neighborhood of the EU. Supported by a Germany that insists on the economic viability and capacity to improve EU’s energy security the project is maybe the most politicized project. Central and Eastern Europe led by Poland and the Baltic States have a limited timeframe until the project’s construction is finished to negotiate their strategic interests and, together with the rest of the European opponents of Nord Stream 2, to consolidate the EU’s energy priorities. The repeated gas crisis in the Ukraine and the recent events such as the Kerch Straight incident polarized the regional and international agenda to an even greater extent and highlighted the security dimension of the project.

The strategic documents developed in the Kremlin state that the “intensification of the struggle for the liberalization of the transportation of Russian gas both inside Russia and abroad” is seen as one of the main problems and threats to Russian energy security in the gas field.

The present article revises the historical strategic energy interdependence between the Russian Federation and the European Union while emphasizing the importance of the relatively new regulatory aspect in setting the tone of the energy dialogue with the Kremlin. Russia’s resilience to the normative constrains and the attempt to avoid the most recent provisions of the revised Gas Directive are presented while acknowledging that the Nord Stream 2 project is advancing even though it was prolonged until, most probably, 2020.

Russia’s rapprochement with the various actors of the EU is analyzed with respect to the advancement of the Nord Stream 2. Special attention is given to the future role of Ukraine as a consumer and transit country and the Republic of Moldova's perspectives of ensuring its energy security. 

King Carbon 

Energy is the strategic commodity that represents the interface of Russia’s relations with other countries. Hydrocarbons are the country’s main exported goods, accounting for over 60 percent of the total.

In the last 60 years, Western relations with Russia included all possible cooperation and coercive measures. It went from sanctions and even banning Soviet oil and embargo on large diameter pipeline exports such as the case of the Druzhba pipeline, and all the way to détente. Many countries oscillated from cooperation to confrontation during the past six decades. These actions often divided the Western alliance[1]. The herald of the warming of the relations emerged in 2000, when the authorities of the European Union and France, Germany and Great Britain initiated an Energy Dialogue with Russia. In particular, at the end of September 2000, the European Commission came forward with an initiative to further develop and expand energy cooperation between Russia and the EU. It was called “The Prodi Plan”, after the European Commission President at that time, Romano Prodi. Key areas were defined, the most important being the doubling of Russian gas exports to the EU, increasing oil deliveries from Russia to the EU and developing the infrastructure for transporting Russian energy resources with the participation of the European Union.

The directive will force Gazprom to "unbundle" or hand over the operation of the line to a company independent of Russia's state gas producer.

The “golden age” of Vladimir Putin in the Kremlin started and continued with the “fat years” during Putin’s second term, when the Western companies were eager to invest in Russian energy projects, while oil and gas generated wealth which contributed to the economic growth, with GDP measured in purchasing power parity increasing by 72%. The West was then divided by the South Stream project[2]. Since then, South Stream, this extremely difficult project in technical and financial terms was blocked. The second line of Putin’s great achievement, Nord Stream 1m is dividing again not only Europe, but also the transatlantic relation[3].

The economic reality proves that trade will occur and has occurred almost irrespective of politics for over 60 years[4]. Still, not all the actors involved (producers, transit countries and consumers) are acting in a purely commercial way. The complexity of the energy infrastructure projects is even higher when the same state-owned player, as is the case of Gazprom, is the producer, owner or co-owner of the infrastructure, and has solid, historical support from the main consumer’s side.

“On the saturated market, a buyer is the King. On the market of scarcity, a seller is the King”[5]

In the broader EU-Russia energy relationship[6], the gas trade has been the main source of controversy and the most politicized topic. This is due to many factors that also include the structural differences between Western Europe's ability to hedge its natural gas supplies (thanks to various pipeline providers apart from Russia, easy access to LNG supplies, and rich transport and storage infrastructure) and the Eastern European quasi-complete dependence on Russian exports, transit-oriented infrastructure, difficult access to LNG and insufficient level of connectivity as well as their consequent vulnerability to disruptions in the flow of Russian gas. These differences allow Russia to exert its power through energy tools over its former partners or, in case of the Eastern Neighborhood, over the former USSR countries.

Denmark has not responded to any of the two routes Nord Stream 2 applied for in 2017 and 2018 and asked for a third route to be investigated in March 2019.

Since the gas crisis in 2006 and 2009, when Gazprom cut off all supplies to Europe travelling through Ukrainian pipelines and continuing with the Russian aggression against Ukraine in 2014, fears about possible disruptions to the gas trade with Russia have increased. The EU and Russia have been locked in several disputes concerning their gas trade. The disputes concern the infrastructure through which Russian gas will be channeled to Europe in the near future, the commercial practices of Russia’s state-run behemoth company Gazprom (which has a legal monopoly over Russia’s pipeline gas exports), and European legislation liberalizing the EU energy market[7].

The most recent infrastructure project, Nord Stream 2, consists of a natural gas pipeline system through the Baltic Sea following the route of Nord Stream 1. The pipelaying of Nord Stream 2 started in summer 2018. The length of the pipeline is approximately 1,200 kilometers with two parallel lines running along the seabed. The total capacity of Nord Stream 2 will be 55 billion cubic meters of natural gas per year[8]. The $21bn pipeline aims to carry more Russian natural gas under the Baltic Sea directly to Germany, bypassing Ukraine and Poland.[9]

Voices across Europe and in the United States have either championed it or warned against Nord Stream 2, and both sides do so for a multitude of reasons. The issue has returned to the fore in 2018 with the crisis between Russia and Ukraine in the Sea of Azov, and as Europe and the US consider strategies going forward regarding their relationships with Russia[10].

The economic rationale of a geopolitical project shaped by regulatory provisions 

The Russian monopolist and its European supporters are claiming that Nord Stream 2 is a purely economic project which will improve the energy security of the European Union. Many other states, especially from Central and Eastern Europe, are very skeptical in this regard. The regulatory and the geopolitical arguments remain unanswered. How Nord Stream 2 is meeting the three central objectives of EU Energy policy (security of supply, competitiveness and sustainability) developed by the Junker Commission under the concept of EU Energy Union is unclear. The intensified energy ties between the Russian Federation and Germany could create a bilateral monopoly that also has impact on EU’s foreign policy. In addition, the European and global gas markets have undergone a fundamental transformation since 2009 – 2010 and considerably more than half of the natural gas traded today is tied to hub prices.

From Gazprom’s perspective, Germany is an extremely good choice as the hub for its westward gas exports. Germany is the EU’s largest gas market and the largest purchaser of Russian gas, with long-term contracts extending until 2034[11].

On the other side, states from the Eastern Neighborhood, such as the Ukraine, will be bypassed by this new pipeline, a fact that could impact not only the energy security of Ukraine, but also the already hampered security and stability of the region. Moreover, knowing the high dependence of Central and Eastern Europe on the Russian import of gas, the vulnerability of these states in terms of energy supply could increase. How is Germany taking into consideration Central and Eastern European countries’ interests? How about the Eastern Neighborhood?

The intense debates over the pipeline project unfold in a multi-dimensional context. For the EU, the Nord Stream 2 discussion raises the question whether – assuming the pipeline is built – it will be able to pass a three-fold consistency and coherence test: firstly in connection with the rules for the internal energy market, which should be neither watered down nor bent for political reasons; secondly in terms of its foreign policy and security objectives, concretely towards the Ukraine, which should not be undermined by energy policy decisions; and thirdly, in relation to its internal cohesion, which Nord Stream 2 could erode. This erosion would be political, if the rifts between Member States over policy on Russia and energy widen, and economic, because the pipeline project could lead Member States to concentrate more strongly on national energy policy and above all energy security policy, thus exacerbating market fragmentation[12].

Although the economic rationale as well as the geopolitical factor along with the regulatory one is important, it seems that, from the Russian perspective, the regulatory concerns are the main issues that projects like Nord Stream 2 will have to address. The strategic documents developed in the Kremlin state that the “intensification of the struggle for the liberalization of the transportation of Russian gas both inside Russia and abroad”[13] is seen as one of the main problems and threats to Russian energy security in the gas field.

This explains Gazprom‘s active lobbying for postponing the revision of the Gas Directive. Nevertheless, following its postponement, the EU Council approved this year a European gas directive on April 15, that is expected to delay the commissioning of the Nord Stream 2 gas pipeline – and potentially leave it half empty.

“This Directive seeks to address obstacles to the completion of the internal market in natural gas which result from the non-application of Union market rules to gas transmission lines to and from third countries. The amendments introduced by this Directive are intended to ensure that the rules applicable to gas transmission lines connecting two or more Member States are also applicable, within the Union, to gas transmission lines to and from third countries. This will establish consistency of the legal framework within the Union while avoiding distortion of competition in the internal energy market in the Union and negative impacts on the security of supply. It will also enhance transparency and provide legal certainty to market participants, in particular investors in gas infrastructure and system users, as regards the applicable legal regime”.[14]

By extending EU rules to non-EU pipelines — particularly those outside EU territory — the directive will force Gazprom to "unbundle" or hand over the operation of the line to a company independent of Russia's state gas producer. However, Gazprom maintains a jealously guarded monopoly over gas exports from Russia and will be very reluctant to share the right to export with anyone. Currently, the only other entity allowed to export gas is privately owned Novatek, which is limited to exporting liquified natural gas (LNG)[15].

The pipeline that brought the first Soviet gas to Europe came with a strong geopolitical overtone. West German Chancellor Willy Brandt signed the first Soviet gas deal in 1970 as a key element in his Ostpolitik, aimed at reducing Cold War tensions, normalizing relations with the Soviet Union and Eastern Europe, and creating some common interest between East and West.

According to the Member States opposing the project, applying the EU's Third Energy Package to Nord Stream 2 – including unbundling, third-party access, and other rules – was supposed to limit the project's privileged status in comparison to other Russian export pipelines to Europe (including those running through Ukraine or Belarus and Poland). Initially, it was assumed that the adoption of the amendments and the challenges related to the implementation of the provisions of EU law (for example, the need for an independent pipeline operator, or to cap the capacity available to Gazprom), would lead to the Nord Stream 2 project being abandoned. However, as the project's construction has progressed, it became clear that, at this point, the new legal regulations coming into force would mainly result in Nord Stream 2's limited profitability and a possible delay in its completion[16].

Another delay in Nord Stream’s completion arises from the permits needed to finish construction. Russia, Germany, Finland and, despite reservations, Sweden have given Nord Stream 2 the necessary permits. The project had to obtain approval from Denmark.[17]

Denmark has not responded to any of the two routes Nord Stream 2 applied for in 2017 and 2018 and asked for a third route to be investigated in March 2019. At the beginning of July 2019, Nord Stream 2 AG, has withdrawn its application to lay pipe in Danish territorial waters. Gazprom (who owns Nord Stream 2 AG) will now press for two other routes that are within Denmark’s economic exclusion zone but outside its territorial waters. Because they skirt Danish territorial waters, these routes do not need the assent of Denmark’s foreign affairs minister and Denmark would be obliged to give approval under the United Nations Convention on the Law of the Sea, provided the pipeline meets environmental and ship safety standards. 

Western supporters versus Eastern opponent 

At the same time, Germany, the biggest natural gas consumer in Europe, sees Nord Stream 2 as a step toward realizing the country’s Energiewende decarbonization policy and presents an opportunity to become an energy hub for Western Europe[18].

Russia and Germany have mutual interest in further developing their ties. The bilateral cooperation in the energy field represents a strategic pillar not only for the Russia-Germany partnership, but in a wider context between Russia and the EU. Bilateral ties have successfully been seen since the 70’s when the German business sector was actually a pioneer in promoting large scale economic cooperation between the West and the USSR[19].

The infrastructure in Eastern Europe and the Eastern Neighborhood is transit-oriented (East-West running pipelines), the countries are also poorly connected to Europe's gas infrastructure.

The (new at that time) pipeline that brought the first Soviet gas to Europe came with a strong geopolitical overtone. West German Chancellor Willy Brandt signed the first Soviet gas deal in 1970 as a key element in his Ostpolitik, aimed at reducing Cold War tensions, normalizing relations with the Soviet Union and Eastern Europe, and creating some common interest between East and West[20].

In purely financial terms, Nord Stream is seen as a project from which Germany will make money at the expense of Ukraine, which currently receives income for gas transit, and at the expense of business opportunities of European Union Member States which had hoped to benefit from South Stream[21].

However, the project does not make economic or strategic sense from the perspective of the European Union[22]. In particular, the bypassing of transit countries in Eastern Europe has both economic and political implications. It may alter the flow of currently existing pipelines in Europe, such as the Yamal-Europe pipeline, whose route through Russia, Belarus, and Poland connects Western Siberia to Germany. It may also change the economics of the proposed Baltic Pipeline, which would transfer natural gas from Norway to Denmark and Poland. As a result, the differences between prices for German and for other Central European consumers may deepen, a possibility arising from Gazprom’s ability to discriminate between countries in the region.

Germany will have to tackle all the political risks in case the project is to be delayed or cancelled.

Austria, maybe less vocal but clearly an important actor in the Nord Stream issue, supports the project. Austrian Chancellor Sebastian Kurz repeatedly announced that Austria will continue promoting the Russian-led Nord Stream 2 gas pipeline project despite the negative stance of the United States on the issue.

OMV’s[23] senior Vice President for gas, Reinhard Mitsheck, said Nord Stream 2 will be necessary not only for Northwest Europe but also Central-Eastern and Southeastern European supply: 

“Transit agreements will expire in 2019 and 2020 so it is important to have a reliable supplier. Of course, there is LNG, however, if global prices change LNG prices could change from one day to another, therefore we need the existing pipes, new pipes like Nord Stream 2, Turk Stream and the southeast corridor, and LNG.” [24]

Scross the Atlantic, the United States is extremely vocal in opposing the Nord Stream project insisting that it will make US allies and partners vulnerable to having their gas shut off at Moscow’s whim. The Nord Stream 2 pipeline will heighten Europe’s susceptibility to Russia’s energy blackmail tactics and Europe must retain control of its energy security. 

“The Nord Stream 2 pipeline will drastically increase Russia’s energy leverage over the EU. Such a scenario is dangerous for the bloc and the West as a whole. […] Make no mistake: Nord Stream 2 will bring more than just Russian gas. Russian leverage and influence will also flow under the Baltic Sea and into Europe, and the pipeline will enable Moscow to further undermine Ukrainian sovereignty and stability”. [25]

In this respect, the US representatives insisted that the EU revise the Third Energy Package’s Gas Directive and threatened to impose unilateral sanctions on all the companies involved in the Nord Stream 2 project. A group of US Republican Senators has introduced a bill called “The Escape bill” to sanction entities involved with a Kremlin pipeline project as Washington seeks to force its European allies to reduce their dependence on Russian energy. The aim of the bill is to delay the completion of Nord Stream 2.

The bill authorizes U.S. sanctions on individuals offering investment, goods, or services to Russia to facilitate the development of energy export projects.[26]

Eastern Europe and the Eastern Neighborhood 

Black Sea 

Many Central and Eastern European countries, led by Poland, are opposing the Nord Stream project. Along with the quasi-complete dependence on Russian energy, particularities of the Eastern European market have to be taken into consideration. The infrastructure in Eastern Europe and the Eastern Neighborhood is transit-oriented (East-West running pipelines), the countries are also poorly connected to Europe's gas infrastructure.

In the case of the Black Sea, the geopolitical risk increased following the political and military events in Crimea and in the Eastern part of the Ukraine. The tensions between NATO and Russia, as well as the unclear position of Turkey, are also challenging the security and stability of the countries bordering the Black Sea.

The military build-up in the Black Sea challenges, both in terms of security and commerce, the states that are bordering the Black Sea, while it empowers Moscow with the capability to assert control over the region, including to deny freedom of movement at sea and in the air. This unprecedented intensification of the military build-up in the Black Sea is also inevitably reflected in the geopolitical risk perception of the potential investors in the energy field.

This is a region which is a significant import-export gateway for the Russian Federation and Crimea has been the focus of a dramatic increase in Russian military build-up and capabilities since 2010. Rbs 68bn ($1bn) have been allocated to modernizing it by 2020, and, since the illegal annexation of Crimea, there has been a dramatic increase in the number of arms and military equipment (AME) in Crimea. According to estimated figures by the Center for Army, Conversion and Disarmament Studies (CACDS), the Russian Federation had 24 warships, 92 armored fighting vehicles (AFVs), 24 heavy gun systems, 59 combat aircraft and helicopters and 2 submarines deployed in the peninsula prior to the annexation; those numbers have now increased 6.8 times for main battle tanks (MBTs) and AFVs, 7.2 times for heavy gun systems, 2.2 times for combat aircraft and helicopters and 2 times for submarines. Russia has deployed to Crimea’s littoral areas its Bastion anti-ship missile systems as well as ground-based targets. Several BAL (SSC-6 Sennight) coastal defense missile systems were also redeployed from Russian Caspian Flotilla. The estimated total missile complement has been increased 1.5 times, from 142 to 264 missiles. Moreover, Kremlin is looking to build up even further its military capacities in Crimea. In the period through 2020-25, the number of Russian military personnel deployed in the peninsula is set to be increased to 43,000, MBTs to 100, AVFs to 1,150, artillery systems of various calibers to 400, combat aircraft to 150, helicopters to 95, coastal missile systems to 50, warships to 33 and submarines to 7.

The military build-up in the Black Sea challenges, both in terms of security and commerce, the states that are bordering the Black Sea, while it empowers Moscow with the capability to assert control over the region, including to deny freedom of movement at sea and in the air[27]. This unprecedented intensification of the military build-up in the Black Sea is also inevitably reflected in the geopolitical risk perception of the potential investors in the energy field[28].

The EU Member States bordering the Black Sea Region along with the Ukraine and the Republic of Moldova have geographic limitations preventing them tapping into the international trade with liquefied natural gas (LNG), mainly because the tanker traffic through the Black Sea straits is already congested. The added security risks are making LNG trade in the Black Sea even more difficult for the Eastern Neighborhood countries.

Other issues such as insufficient levels of interconnectivity, diversification versus integration challenges, high vulnerability to gas supply crisis and disruptions, a physically worn-out and morally obsolete energy transport infrastructure (oil and gas pipelines), poor cross-border connectivity of gas and power networks are common challenges for Eastern European countries.  

In Ukraine, Moldova and Georgia, Gazprom sought for more than two decades to gain direct control over the gas pipelines, with various degrees of success. The pipelines were built in the times of the USSR and the Ukrainian infrastructure, especially, is the critical route of export to Europe. In all three countries, threats to discontinue gas supply, massive gas price increases along with discounts for good behavior were used. Georgia and the Ukraine managed to enhance, to some extent, their energy security by diversifying their gas supplies. Ukraine’s negotiation position substantially improved after the arbitration in Stockholm[29]. But all three countries are facing poor governance which allowed Kremlin controlled entities to gain control over major energy assets[30]. 

Ukraine 

Unfortunately, the episodes of 2006, 2009, 2014 and the latest Kerch Straight incident (2018) confirm that the Kremlin will use its energy tools in achieving its foreign policy goals, one of the main ones being the regaining of its influence over its former satellites. By bypassing the Ukraine and extending its infrastructure through Turk Stream, Russia will be able to consolidate as a regional monopolist and will strengthen its ability to pursue an aggressive policy. Moreover, by expanding through Turk Stream and Nord Stream 2, Russia will be able to extend its military presence not only in the Black Sea but also in the Baltic Sea.

Insufficient levels of interconnectivity, diversification versus integration challenges, high vulnerability to gas supply crisis and disruptions, a physically worn-out and morally obsolete energy transport infrastructure (oil and gas pipelines), poor cross-border connectivity of gas and power networks are common challenges for Eastern European countries.

The Kerch Strait incident is relevant also with regards to the European discussions about building up the EU’s strategic autonomy so it can act in the military, economy, and sanctions domains. Russia has been enforcing sanctions on the Ukraine since 2014. By slowly strangling its neighbor’s goods exports through the Kerch Strait, Russia is not only hitting Russian-Ukrainian trade, it is also hitting economic relations between Eastern Ukraine and the EU (and between Eastern Ukraine and the Middle East). [31] 

“The Kerch incident should be a reminder to all of our European allies on why Nord Stream 2 is such a bad idea. The Kerch incident is a reminder that the less infrastructure you have, the less gas infrastructure you have bypassing Ukraine because of Nord Stream 2, the weaker the deterrent – deterrence is to Russian acts of military aggression”.[32]

In the public discourse concerning the illegal annexation of Crimea, the military and strategic dimensions were highlighted. But there is also a major energy dimension like the takeover of the reserves from the exclusive economic area of Crimea. Moscow is, thus, able to minimize the relevance of these resources for Ukraine. All of the energy projects initiated by the Ukraine before the annexations of Crimea were blocked, all the investors registering significant losses due to the sanctions[33].

Launching the new pipeline that will provide an extra capacity of 55 billion cubic meters (bcm) will allow Russia to completely bypass Ukraine, depriving it of a badly needed $3 billion a year in gas transit revenues[34], which is another concern in both economic (in terms of revenues) but mainly geopolitical terms for Ukraine.

Delaying the finalization of the project will motivate Russia to continue its gas flow through the Ukraine and prolong the existing agreement that is valid until the end of the year. Gazprom is providing Europe with about 30 percent of its natural gas, with 40 to 50 percent of that supply transiting through the Ukraine. The launch of Nord Stream 2 means the Ukraine will lose its transit fees and will not have the same position when negotiating the natural gas price for its internal needs. 

What are the variables that can influence the project? 

Nord Stream 2 is a project that has implications on the national level (of Ukraine), the European one and the transatlantic level. If the last one is on the agenda of the US-EU dialogue, the sanctions regime against Russia and the future LNG deliveries to Europe, the first two (national and European levels) are still seeing strong debate regarding the future impact of the Nord Stream 2 project. Any policy options would have to take into consideration a wide range of factors.

Firstly, the situation in the Ukraine is still unfolding. After the presidential election, the parliamentary elections are due to be held on July 21st, 2019. Any negotiations concerning a new transit agreement with Gazprom will depend on the electoral campaign and the results of the elections. The same applies to possible gas deliveries from the European Union to the Ukraine. The condition for those is the maintenance of reforms and the implementation of the Third Energy Package. Unbundling is necessary for the signing of a new agreement between Naftogaz and Gazprom.

At the European level, trilateral gas talks between Russia, Ukraine and the European Union were held in Brussels in January. Another round is expected to be held in September 2019. As Ukraine is preparing for the electoral campaign, the new European Commission is to be formed only in autumn.

The Ukraine needs to divide Naftogaz and this is a precondition for future deliveries from Russia, as the EU has to see the Ukraine route as any other European route. Another issue that is influencing the negotiations is that the two companies (Naftogaz and Gazprom) are having numerous legal disputes (although, in January 2019, Naftogaz quit one of its dossiers in order to negotiate a renewal of the transit contract with Gazprom). Important forces such as oligarch Igor Kolomoisky, associated with President Volodymyr Zełeński, have already argued in the past that Ukraine should give up foreign aid and painful reforms. At the same time, some of the opposition leaders in Ukraine have already been invited to Moscow to discuss gas supplies to the Ukraine. During the electoral campaign, these kinds of efforts, including pressure to persuade Ukraine to abandon reforms, will be intensified. The evolution in Crimea, including security issues and the bilateral sanctions regime, is also influencing the negotiation process. Another important issue remains the viability of the Gas Transportation System of Ukraine (GTS), a system which is obsolete and needs modernization.

At the European level, trilateral gas talks between Russia, Ukraine and the European Union were held in Brussels in January. Another round is expected to be held in September 2019. As Ukraine is preparing for the electoral campaign, the new European Commission is to be formed only in autumn. This also allows Gazprom to use its leverage in Ukraine. Although the results of the meeting in January were not public, Russia repeatedly declared its willingness to conclude a new transit agreement, although it highlighted the need for the legal dispute between Naftogaz and Gazprom to be resolved before that could happen.

Under these circumstances, most probably a new contract will be negotiated in late autumn or even at the beginning of 2020 (the existing agreement expires at the end of 2019). It is still unclear if the new agreement will be a short, medium or long-term one, although a short-term agreement is disadvantageous for Kiev. A compromise package (proposed to the parties as a minimum 10-year contract for the transit of 60 bcm of gas per year[35]) proposed by Brussels in January was not confirmed by Gazprom.

Meanwhile, Gazprom is looking for strategies to avoid the application of the Gas Directive. One approach was to suggest that the pipeline could be run by two separate companies, one in German territorial waters and one outside such waters and thereby argue that EU law only applied to the company that was in the territorial waters. A further one was to avoid the full application of the directive by arguing that the pipeline had been completed by May 23 (pipelines completed before the May 23 are subject to a less onerous legal regime). Therefore, they argued that “completion" has taken place in German waters and, as a result, the pipeline has been "completed" in EU territory[36]. At the same time, Gazprom’s representatives understand that any delay in completion of Nord Stream 2 will force Russia to continue selling its gas supply through Ukraine. 

“Turning off the tap is not an issue,” he said. “In principle, there is demand for gas in Europe, and the demand is high, and all corridors can take the gas.”[37]

Conclusions 

Despite the continuous multilateral negotiations, Nord Stream 2, with the support of its Western European partners, is an advanced project of gas delivery from Russia to the EU. Although it does not yet answer the 3 priorities of the EU Energy Policy (security of supply, competitiveness and sustainability), its advocates highlight the modern and liberalized market of Germany and its capability to become a European gas hub that will consolidate the European energy security.

Any future scenario must unfold under the regulatory effects of the Third Energy Package and the renewed Gas Directive that must remain the framework that will ensure a competitive gas market.

Even with the risk that the project will be delayed or will have a limited profitability, the negotiations must be held in trilateral format EU-Russia-Ukraine. The interests of the Member States that are mostly affected by the project must be taken into consideration. Guarantees from Germany and Austria that future deliveries to Central and Eastern Europe will take place must be negotiated.

At the same time, the role of Germany, Austria and other supporters in the negotiation process gives the opportunity to take into consideration the interests of the Eastern Neighborhood countries and, thus, to consolidate the security in the Black Sea. The evolution in the Black Sea is of paramount importance in both security and energy terms. The recent crisis in the Kerch Strait, the militarization of Crimea, along with the construction of the new gas infrastructure project, Turk Stream, not only is hampering the Ukraine’s security and energy security but is also reshaping the security environment and the energy transportation routes towards Europe.

The US is becoming an active player on the EU’s gas market. The LNG deliveries from the US are expected in Poland in 2023, after the contract with Gazprom expires[38]. At the same time, the bipartisan position of the USA against Nord Stream 2 is very vehement, Washington considering the Nord Stream 2 the Trojan Horse of EU and considering unilateral sanctions against all companies involved in the project. The White House is arguing that the project would boost Russia’s influence in Europe at a time when the West is at odds with Moscow over the latter’s encroachments against Ukraine in Crimea and Donbass. This year, Donald Trump has announced the idea of establishing a US military base in Poland suggesting that troops will be moved from other European countries to Poland, pointing towards Germany. Thus, Nord Stream 2 became a project directly linked to security. Nord Stream 2 is often used by all interested countries (supporters or opponents, producers, transit or consumers) as a negotiation tool on different dossiers. The participation of the US in the negotiation between EU and Russia, as well as the Ukraine’s presence in the process, are therefore important.

At the same time, Eastern Neighborhood countries have the responsibility to ensure that all the required criteria are met. The efforts to continue reform implementation as well as that of the provisions of the Third Energy Package must continue. In the case of Ukraine, a solution for unbundling Naftogaz must be found in order to ensure the future deliveries of gas towards Europe. 

Photo source: pxhere.com

 

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https://www.ft.com/content/53a811c4-a481-11e8-926a-7342fe5e173f

“Stakeholders confident in Nord Stream 2’s year-end deadline”, https://www.icis.com/explore/resources/news/2019/06/12/10377406/stakeholders-confident-in-nord-stream-2-s-year-end-deadline

“Europe must retain control of its energy security, https://useu.usmission.gov/europe-must-retain-control-of-its-energy-security/

“U.S. Senators Submit Bill With Sanctions Targeting Russian Gas Pipeline”, https://www.rferl.org/a/russia-nord-stream-us-senators-bill-ukraine/29998205.html

“The Impact of Russia’s Strategic Interest in the Black Sea Region on Imbalansing the Russian Economy”, Leonela Leca, ESGA, 2019, http://www.themarketforideas.com/leonela-leca-j165/

“Riscuri, fiscalitate, decizii de investitii in sectorul offshore de titei si gaze naturale. Marea Neagra si Romania”. Vasile Iuga, Radu Dudau, 2019, report distributed within the conference “Securitatea energetică în zona Mării Negre și proiectele de dezvoltare economică a României”, organized by New Strategy Center, April 25th, 2019.

“Historikal Victory for Ukraine: Stockholm Arbitration”, http://www.naftogaz.com/www/3/nakweben.nsf/0/E62D5C9B21795281C225834B00537D4E?OpenDocument&Expand=2&

“Kremlin’s Energy Policy as a Channel of Influence. A comparative assessment. Case studies from Ukraine, Moldova, Georgia, Romania and Hungary”, Expert Forum, Romania, 2019, https://expertforum.ro/en/kremlins-energy-policy-as-a-channel-of-influence-a-comparative-assessment/

“Nord Stream 2. ECFR Opinions”. https://www.ecfr.eu/article/commentary_nord_stream_2_ecfr_opinions

“US warns EU to abandon Nord Stream 2 gas pipeline”, http://business-review.eu/energy/us-warns-eu-to-abandon-nord-stream-2-gas-pipeline-192670

“Riscuri, fiscalitate, decizii de investitii in sectorul offshore de titei si gaze naturale. Marea Neagra si Romania”. Vasile Iuga, Radu Dudau, 2019

“EU Gas Directive Approval Could Delay Russian-Led Nord Stream 2 Pipeline”, https://www.themoscowtimes.com/2019/04/17/eu-gas-directive-approval-could-delay-russian-led-nord-stream-2-pipeline-a65265

“OSW: A ‘last-minute’ transit contract? Russia-Ukraine-EU gas talks”, https://biznesalert.com/osw-a-last-minute-transit-contract-russia-ukraine-eu-gas-talks/

“Nord Stream 2: Gazprom's desperate moves”, https://euobserver.com/opinion/145087

Oleg Andreev, deputy head of the production department at Gazprom, https://www.ft.com/content/1f6ac3d6-861f-11e9-97ea-05ac2431f453

 

Notes:

[1] “Who’s Afraid of Russian Gas? Bridging the Transatlantic Divide”, CSIS Briefs, May 3, 2018, https://www.csis.org/analysis/whos-afraid-russian-gas-bridging-transatlantic-divide

[2] “The Role of the Modernization of Economic Rhetoric in the Russian Federation. Policy Options for the East-European Countries”, Leonela Leca, http://www.esga.ro/wp-content/uploads/2017/11/Russia-collection-of-policy-papers2.pdf

[3] The Nord Stream 2 will run parallel to the already existing predecessor Nord Stream 1

[4] “Who’s Afraid of Russian Gas? Bridging the Transatlantic Divide”, CSIS Briefs, May 3, 2018, https://www.csis.org/analysis/whos-afraid-russian-gas-bridging-transatlantic-divide

[5] A proverb

[6] The European Union is importing about 60% of energy products such as petroleum oils, gas and solid fuels from Russia.

[7] The EU-Russia Gas Relationship. New Projects, new disputes?, Marco Siddi, Briefing Paper, https://www.files.ethz.ch/isn/195367/bp183.pdf

[8] ”Demystifying Nord Stream 2: OMV’s rationale for participating in the project”, https://www.omv.com/en/blog/190513-demystifying-nord-stream-2-omvs-rationale-for-participating-in-the-project

[9] “Nord Stream 2 pipeline is against Europe’s interests”, https://www.ft.com/content/1f6ac3d6-861f-11e9-97ea-05ac2431f453

[10] Nord Stream 2: Russia’s Geopolitical Trap, https://harvardpolitics.com/world/nord-stream-2/

[11] “Nord Stream 2 – A Political and Economic Contextualisation” Kai-Olaf Lang and Kirsten Westphal, https://www.swp-berlin.org/fileadmin/contents/products/research_papers/2017RP03_lng_wep.pdf

[12] “Nord Stream 2 – A Political and Economic Contextualisation” Kai-Olaf Lang and Kirsten Westphal https://www.swp-berlin.org/fileadmin/contents/products/research_papers/2017RP03_lng_wep.pdf

[13] “Экономика России. Проблемы и перспективы”. Газовая составляющая энергетической безопасности России В. Ш. Уразгалиев, М. В. Титков, Санкт-Петербургский государственный университет, Вестник Санкт-Петербургского Университета, 2018

[14] Directive Of The European Parliament And Of The Council amending Directive 2009/73/EC concerning common rules for the internal market in natural gas, https://data.consilium.europa.eu/doc/document/PE-58-2019-INIT/en/pdf

[15] “EU Gas Directive Approval Could Delay Russian-Led Nord Stream 2 Pipeline”, https://www.themoscowtimes.com/2019/04/17/eu-gas-directive-approval-could-delay-russian-led-nord-stream-2-pipeline-a65265

[16] “The gas directive revision: EU law poses problems for Nord Stream 2”, https://www.osw.waw.pl/en/publikacje/analyses/2019-02-21/gas-directive-revision-eu-law-poses-problems-nord-stream-2

[17] “Russia defies pipeline threats over gas for Europe”, https://www.ft.com/content/1f6ac3d6-861f-11e9-97ea-05ac2431f453

[18] “Nord Stream 2: Russia’s Geopolitical Trap”, https://harvardpolitics.com/world/nord-stream-2/

[19] “Energy Diplomacy”, Stanislav Zhiznin, Center of Energy Diplomacy and Geopolitics, Moscow, 2007

[20] “The Quest”, Yergin, Daniel, 2012, p. 336

[21] “Nord Stream 2. ECFR Opinions”, https://www.ecfr.eu/article/commentary_nord_stream_2_ecfr_opinions

[22] https://www.ft.com/content/53a811c4-a481-11e8-926a-7342fe5e173f

[23] OMV is an Austrian integrated oil and gas company which is headquartered in Vienna, Austria. The company is listed on the Vienna Stock Exchange. It is active in the upstream and downstream businesses.

[24] “Stakeholders confident in Nord Stream 2’s year-end deadline”, https://www.icis.com/explore/resources/news/2019/06/12/10377406/stakeholders-confident-in-nord-stream-2-s-year-end-deadline

[25] “Europe must retain control of its energy security, https://useu.usmission.gov/europe-must-retain-control-of-its-energy-security/

[26] “U.S. Senators Submit Bill With Sanctions Targeting Russian Gas Pipeline”, https://www.rferl.org/a/russia-nord-stream-us-senators-bill-ukraine/29998205.html

[27] “The Impact of Russia’s Strategic Interest in the Black Sea Region on Imbalansing the Russian Economy”, Leonela Leca, ESGA, 2019, http://www.themarketforideas.com/leonela-leca-j165/

[28] “Riscuri, fiscalitate, decizii de investitii in sectorul offshore de titei si gaze naturale. Marea Neagra si Romania”. Vasile Iuga, Radu Dudau, 2019

[29]Historikal Victory for Ukraine: Stockholm Arbitration”, http://www.naftogaz.com/www/3/nakweben.nsf/0/E62D5C9B21795281C225834B00537D4E?OpenDocument&Expand=2&

[30] “Kremlin’s Energy Policy as a Channel of Influence. A comparative assessment. Case studies from Ukraine, Moldova, Georgia, Romania and Hungary”, Expert Forum, Romania, 2019, https://expertforum.ro/en/kremlins-energy-policy-as-a-channel-of-influence-a-comparative-assessment/

[31] “Nord Stream 2. ECFR Opinions”. https://www.ecfr.eu/article/commentary_nord_stream_2_ecfr_opinions

[32] “US warns EU to abandon Nord Stream 2 gas pipeline”, http://business-review.eu/energy/us-warns-eu-to-abandon-nord-stream-2-gas-pipeline-192670

[33] “Riscuri, fiscalitate, decizii de investitii in sectorul offshore de titei si gaze naturale. Marea Neagra si Romania”. Vasile Iuga, Radu Dudau, 2019, report distributed within the conference “Securitatea energetică în zona Mării Negre și proiectele de dezvoltare economică a României”, organized by New Strategy Center, April 25th, 2019.

[34] “EU Gas Directive Approval Could Delay Russian-Led Nord Stream 2 Pipeline”, https://www.themoscowtimes.com/2019/04/17/eu-gas-directive-approval-could-delay-russian-led-nord-stream-2-pipeline-a65265

[35] “OSW: A ‘last-minute’ transit contract? Russia-Ukraine-EU gas talks”, https://biznesalert.com/osw-a-last-minute-transit-contract-russia-ukraine-eu-gas-talks/

[36] “Nord Stream 2: Gazprom's desperate moves”, https://euobserver.com/opinion/145087

[37] Oleg Andreev, deputy head of the production department at Gazprom, https://www.ft.com/content/1f6ac3d6-861f-11e9-97ea-05ac2431f453

[38] Polish PGNiG signed a contract with Venture Global (USA) in 2019. According to the agreement, Poland will buy 3.5m tonnes per year of LNG (or 4.73 bcm of natural gas after regasification).

 
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OEconomica No. 1, 2016