The relation between Germany and Russia is passing through a very interesting phase; on the one hand, Germany is upset with Russia’s annexation of Crimea and its policy of intervention in the Baltic region, while at the same time, it is eager to quickly complete the Nord Steam 2 gas pipeline that will carry natural gas from fields in Russia to the EU network at Germany’s Baltic coast. Many observers had been predicting that the last month’s summit between Russian President Putin and German Chancellor Merkel would further complicate these relations to a new level. There were tough talks and there was no agreement, but still both leaders were able to at least keep the project on the track despite intense opposition. The debate among the stakeholders on a planned new natural-gas pipeline into Europe from Russia is shaking up geopolitics and it has put German Chancellor into a very difficult situation both at home as well as in global political arena. Nord Stream 2, as it is generally labelled, has attracted the ire of US President Donald Trump as well as serious worries of leaders in the European continent.
As per plan, a new 1,230-kilometer undersea pipeline that will carry natural gas from fields in Russia to Germany, will double the capacity of an existing undersea route - the original Nord Stream - that was initiated in 2011. Russia’s Gazprom PJSC is the main owner of the project, with Royal Dutch Shell Plc and four other investors including Germany’s Uniper SE and Wintershall AG providing half of the 9.5 billion-euro ($11 billion) in cost. Nord Stream 2 AG, a Swiss unit of Gazprom, has acquired environmental and construction permits from Germany, Finland and Sweden but has had trouble getting similar approvals from Denmark - the pipeline would cross the economic zones of those four nations, in addition to Russia. However, the objections from Denmark have compelled the company to consider rerouting the line away from Danish waters, eliminating the final legal hurdle. According to some optimistic assessments, the project will be completed by the end of 2019. But, for some obvious reasons, this project has become the most controversial undertaking by Merkel in recent times.
For decades, Russia was transporting more than seventy five per cent of its natural gas exports to Europe through pipelines in Ukraine, a nation with which it has had sour relations since the disintegration of Soviet Union. Moscow is quite wary of the potential disruptions, such as the pricing dispute with Ukraine that coerced the Russians to plug gas flows for 13 days in 2009. Since then, relations between the two countries have aggravated, resulting in the Ukrainian popular revolt that prompted the expulsion of pro-Russian president and Russia’s annexation of the Crimean Peninsula. The Nord Stream project is actually a key part of Moscow’s decades-long strategy to diversify its export route options to Europe. Russia expects that European gas demand will continuously increase as more and more nations move away from nuclear and coal power. This is what Moscow has been trying to project but the Americans and Europeans are viewing this project with utmost suspicion.
US President Donald Trump is one of the extreme opponents of the Nord Stream 2 and he has lambasted Merkel many times for her willingness to build a gas pipeline. Not surprisingly, Trump’s view that this will make Europe particularly dependent on Russian gas is widely shared by European politicians, think-tanks and energy specialists, including some in Berlin. Countries that sit between Russia and Germany collect transit fees on the natural gas that flows through their territories. Those nations include Ukraine, Poland and Slovakia. Their worries are two-fold: one, they will lose revenue, and two, the Nord Stream 2 will equip Russia with the ability to bypass them completely in times of political friction. However, no country is more angry about the pipeline than Ukraine, which is likely to lose billions of much needed dollars if Russia starts transferring its gas to Europe across the Baltic Sea, away from a pipeline running across Ukrainian territory. Recently, the Ukrainian president, Petro Poroshenko, said: “This is not a commercial project – it is not economical or profitable – it is absolutely a political project. There is no point, from the economic point of view, creating this project. This is absolutely a geopolitical project.”
A group of US senators warned in March that Nord Stream 2 would make American allies in Europe “more susceptible to Moscow’s coercion and malign influence.” On July 11, before a meeting with NATO Secretary General Jens Stoltenberg, Trump said Germany had made itself “captive to Russia” by “getting so much of its energy” from there. After a subsequent meeting with Putin, Trump vowed to compete for Europe’s gas market. Nine days later, after striking an in-person deal with European Commission President Jean-Claude Juncker over threatened tariffs; Trump said the EU would become a “massive buyer” of US LNG. But this would be a very expensive proposition. Gas from the US can’t be transmitted through pipeline; it must be chilled into a liquid and then shipped in tankers at a great cost to Europe. Whereas Russian supplies mostly arrive in Europe through a network of pipelines that have been in place for decades - and at a much lower cost. But President Trump is trying his best to build a case against this project and push the Europeans to buy American gas – though at a much higher price. But it will not be easy for him to “convince” his European allies to pay more for gas from the US territories.
Indubitably, Germany is inordinately dependent on imported fossil fuel, and one of its other sources of gas - the Netherlands – is drying up fast. Russia supplies roughly 46 percent of Germany’s gas and 59 percent of its oil and it urgently needs to keep the energy flow intact to support its economy. Yes, Trump may be exaggerating when he says Germany could rely on Russia for up to 70 percent of its energy once Nord Stream 2 is operational. Both Merkel and Putin are finding it hard to convince the critics about the economic viability of this project. Putin is right in his assertion that Trump’s objections are motivated by his desire to promote the interest of his business to sell American liquefied natural gas to Europe. His argument is that Kiev is an unreliable partner, and that its tariffs for transporting gas are so high that they make the Ukrainian route uneconomic, while Merkel also vehemently defends the “economic aspects” of Nord Stream 2 and she seems to be ready to assuage the fears of Ukraine by offering guarantee that Ukraine will not be fully cut off from transit traffic. But things are heating up for her. Washington will not let her to have an easy run on this issue in the coming days.
n The writer is a freelance columnist.