Nord Stream 2: commercial venture or political tool?

Mar 14 2018

Europe’s demand for gas is rising while production is declining, complicated by the decommissioning of nuclear plants and environmentally damaging coal plants. This has resulted in a need for new energy sources and Russia should not be ruled out, said panelist Brenda Shaffer, a senior fellow at the Atlantic Council.

In Germany, there is strong support for Nord Stream 2 as a business proposition, said Claudia Müller, a member of German Bundestag. Nonetheless, Ms. Müller noted that there have been some 62 meetings concerning the pipeline between the German Chancellor and other high-level politicians.

As such, many experts see Nord Stream 2 not merely as a commercial project, but as a political tool that threatens energy security in Europe, particularly in Ukraine and Eastern Europe.

With the rapid growth of renewable energy and LNG exports, Europe today has a variety of energy options. There is more competition in the energy market, said Agnia Grigas, a senior fellow at the Atlantic Council, and Europe should take advantage of this, whereas Nord Stream 2 would “lock in the European markets.” “I don’t think this is a very commercial project,” Grigas said.

Sandra Oudkirk of the US Department of State agreed, saying “buying into a massive expensive undersea project buys into future dependence on gas.”

Bypassing Ukraine

A divisive factor of Nord Stream 2 is that it proposes to bypass Ukraine, which some say would give Russia a free hand.

“This is a very dangerous free hand to give to Moscow right now,” said Ms. Grigas. “I don’t think this is exactly the time to reward the Kremlin and Gazprom.”

But opposition to Nord Stream 2 is not about punishing Russia, said Douglas Hengel, a senior fellow at the German Marshall Fund, as much as it is about European energy security. “We have to look at what Russia is trying to do here. It is part of an overall plan, I think, to try to weaken the energy union, to weaken the European Union, to weaken the West,” said Hengel.

Yet Ms. Shaffer argued that bypassing Ukraine would in fact be beneficial to its independence, due to Russia’s deep involvement in Ukraine’s energy industry and the latter’s reliance on gas transfer rents.

In this regard, the U.S. policy objective of strengthening Ukraine by blocking Nord Stream 2 is counter-productive, Shaffer said.

Nor would it change Russia’s wider foreign policy, she added. “Does anyone take the view that if Nord Stream 2 isn’t built, Russia suddenly comes out of Crimea, changes policies in Donbass, changes policies in Syria?” asked Shaffer.

While U.S. opposition to Nord Stream 2 might not change Russian foreign policy, said Ms. Oudkirk, it is linked to “Ukraine’s path towards the West and a European future.”

Panelists agreed, however, that the U.S. should not widen its Russia sanctions to Nord Stream 2 unilaterally.

Ms. Müller warned that more U.S. pressure and restrictions on Germany could shift public opinion in Russia’s favor.

Exporting corruption

Another criticism of Nord Stream 2 is that it could spread a culture of corruption. It could have a negative impact on political and business life in Germany, said Ms. Grigas.

“We know when Russia exports its natural gas, it also exports political influence and it also exports corruption,” Grigas said.

Moreover, it is an initiative that strives to “to enrich the Putin circle,” said Anders Aslund, a senior fellow at the Atlantic Council. Just as Gazprom has enriched Putin’s close friends – such as Gennady Timchenko, the Rotenberg brothers, and Yury Kovalchuk, as discussed in a 2008 report by Boris Nemtsov and Vladimir Milov – so, too, will Nord Stream 2 further benefit some of these individuals, Aslund said.

Free Russia Foundation head of research, Ilya Zaslavskiy, also present at the event, said there is already evidence of exporting corruption, as in the case of the Rotenberg brothers, who were beneficiaries of Nord Stream 1, as well as a money-laundering scandal around the Nordic Yards shipbuilding plant, as discussed in Free Russia Foundation’s report.

In his comments and questions to the panels, Zaslavskiy emphasized that independent research shows that Nord Stream 2 is not only about by-passing Ukraine but a whole of Central and Eastern Europe, breaking existing EU directives on Slovakia’s Eurostream and leaving an open question on who will pay for additional transit infrastructure from Germany to Central Europe. More importantly, Nord Stream 2 takes one of the major incentives for Putin not to wage a war of annihilation against Ukraine and creates a dangerous over-dependence on Russian gas via this single vulnerable undersea route that under worst scenarios would carry 70% of all Gazprom deliveries to the EU. In 2014-2015 Putin arbitrarily reduced supplies into Nord Stream 1 in order to prevent reverse gas flows to Ukraine and this is an indication on how political expediency will also drive Nord Stream 2 future operation.

The first panel at the Atlantic Council event included:

Mr. Douglas Hengel, Senior Fellow, The German Marshall Fund of the United States; Professorial Lecturer, Energy, Resources and Environment Program, School of Advanced International Studies, Johns Hopkins University

Ms. Sandra Oudkirk, Deputy Assistant Secretary for Energy Diplomacy, Bureau of Energy Resources, US Department of State

Dr. Brenda Shaffer, Senior Fellow, Global Energy Center, Atlantic Council

Dr. Agnia Grigas, Senior Fellow, Eurasia Center, Atlantic Council

Moderated by: Ambassador Richard Morningstar, Founding Director and Chairman, Global Energy Center, Atlantic Council

The second panel included:

Ms. Aliona Osmolovska, Head of Corporate Communications, Naftogaz of Ukraine

Dr. Friedbert Pflüger, Director, European Centre for Energy and Resource Security (EUCERS), King’s College London; Senior Fellow, Global Energy Center, Atlantic Council
Ms. Claudia Müller, Member, Mecklenburg-Vorpommern, German Bundestag

Dr. Anders Åslund, Senior Fellow, Eurasia Center, Atlantic Council

Moderated by: Ambassador John Herbst, Director, Eurasia Center, Atlantic Council

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