[GGP] Judy Asks: Should Germany Dump Nord Stream 2? Can it?
Margarita Assenova | Director of programs at the Jamestown Foundation and associated scholar at the Center for European Policy Analysis
The Nord Stream 2 project would redirect between 70 and 80 percent of Russian gas exports through one route directly to the lucrative Western European markets, eliminating Ukraine as a major gas transit country, and bypassing most of Central and Eastern Europe. This would leave Ukraine in an extremely vulnerable position and expose it to further Russian aggression—threatening European security as well. Chancellor Merkel seems to understand this, but her coalition government depends on the Social Democratic Party, which has long been aligned with Russian business interests. Thus, dropping Nord Stream 2 is almost impossible for Merkel without causing a political crisis.
However, Germany will have to comply with a decision by the European Parliament affirming that offshore pipelines are subject to EU competition rules as they pass through EU territorial waters and exclusive economic zone. This seems to be the only EU mechanism to stop the project. The other is in the hands of the U.S. administration, which could impose sanctions targeting the financing of the Russian pipeline. Washington will probably make that decision eventually, but it would be better for all allies if the EU takes matters into its own hands, as it did regarding the South Stream pipeline project.
Aleksandra Gawlikowska-Fyk | Head of the International Economic Relations and Energy Policy Programme at the Polish Institute of International Affairs
Further expansions of Nord Stream will benefit Germany with competitive prices, the doubling of direct gas supplies, and an increased role as a hub. Already in 2017 German gas imports rose by 11.5 percent, while exports grew by as much as 29 percent. The effects on Central and Eastern Europe will be just the opposite, not to mention the political costs or military threats. Sadly, these are not the arguments that merit German attention. Rather, it is U.S. policy: the threat of sanctions and escalation of trade disputes.
Therefore, if there is a moment for German hesitation over Nord Stream 2, it is just now. So, Mrs. Merkel, isn’t it the right time to scrap the project? Or suspend it for further consideration? Why not barter away Nord Stream 2 in return for easing transatlantic trade relations? Only a too high political cost of doing business with Russia will enable a shift in German foreign policy. Otherwise, it would be difficult to escape the comparison notion that Germany is ready to push national interests that run counter to EU solidarity just as President Trump does in relation to global trade.
Julia Gurganus | Visiting scholar in the Russia and Eurasia Program at the Carnegie Endowment for International Peace
Germany would be wise to rethink its current position on Nord Stream 2. Although headlines today buzz with concerns over Russia’s efforts to influence elections in other countries, Russia’s use of energy as a tool to further its financial and political interests is well documented and should not be forgotten. Nord Stream 2 is a Gazprom-led energy project that, if completed, will bring a number of strategic vulnerabilities to Europe, including reducing the diversity of Europe’s energy supply. In addition, the pipeline pits Germany and Western Europe, where developed pipeline infrastructure reflects a single EU system, against Central and Eastern Europe—more vulnerable to Russian pressure and with fewer pipeline options. Kyiv stands to lose as well, as Nord Stream 2 will divert gas from the Brotherhood pipeline that traverses Ukraine, eliminating a critical source of revenue—as much as $2 billion.
Of greatest concern, however, is that Germany’s go-ahead signals to Moscow that Europe is back to business as usual with Russia, despite sanctions and unacceptable transgressions such as election interference, cyber hacking, support for Syria’s Assad, and links to the poisoning of an ex-KGB agent in the UK.
Jakub Janda | Executive director of the European Values Think Tank
There are six reasons why Berlin should have stopped Nord Stream 2. Building up this extra pipeline will increase German political dependency on Russian energy. It will bypass Germany’s Central and Eastern European allies and weaken the alliance. It will accentuate strategic corruption in Europe. The project contradicts EU Energy Union principles and will cause substantial environmental damage. Germany will be de facto cofinancing Russia’s war machine. Nord Stream 2 will further weaken the EU by increasing the Kremlin’s influence in Germany.
The bottom line is that Germany—politically the most powerful country in the EU—could have found ways to stop Nord Stream 2, if politicians wanted to. Instead, we have seen dozens of high-level meetings of German officials on how to build it. In contrast with the high level of respect I hold for German policymakers, Nord Stream 2 is an example of selfishness—a naïve belief that if you do more business with a dictatorship, it will become less aggressive. Historical examples of appeasement have shown us that it is not true. Nord Stream 2 is the biggest strategic mistake Germany is making in a generation.
Jana Kobzova | Policy director at Rasmussen Global, which works in an advisory capacity for the Ukrainian president
Germany should dump Nord Stream 2, but I fear it won’t.
This project has serious geopolitical and political implications, as Chancellor Merkel recently admitted herself. First, the deal goes against the EU’s strategy to boost its energy independence and diversify supply routes; it will solidify Gazprom’s role as Europe’s biggest gas supplier. Needless to say, the Russian government—Gazprom’s majority owner—continues to upend the European security order by instigating a war in Ukraine and undermining democratic elections in Europe and elsewhere.
Second, the project’s main rationale is that an additional supply route to Europe is needed because Ukraine (which, for now, delivers much of Russian gas to Europe) is “inherently unreliable.” That argument does not hold. When gas was cut off to Ukraine and the EU in the past, Moscow did so for political reasons. Finally, the project will linger in a legal vacuum: it might avoid full application of EU regulations now; but it might not in the future. This will increase legal and financial costs for Nord Stream 2 investors.
Can Germany scrap the project now? It’s unlikely: German businesses believe that if Nord Stream 2 isn’t built, Russia will use the southern route and they lose out. Berlin does not see the United States as an impartial player and will resist potential sanctions. If Nord Stream 2 is built, Berlin can carry out some damage limitation by bringing it in line with EU legislation and ensuring that the transit via Ukraine continues in commercially-viable volumes.
Anna Korbut | International desk contributor at The Ukrainian Week
There is little hope that Angela Merkel alone can or wants to stop the Nord Stream 2 project at this point. With regard to Ukraine, she has mentioned that its transit role should be clarified before the pipeline goes ahead. But that would require a commitment from Russia, something in which there is zero trust. Moreover, there is not much the West can do in case Russia does not stick to its commitments, as shown by the Budapest Memorandum.
What is worrying is how such deals give Russia another instrument for undermining the EU and confidence in the Western values-based model. With many in Germany fighting vehemently for Nord Stream 2 and France’s Total investing in a Russian Arctic gas project, Russia understands that fringe groups in European politics are not its only ally—it can have a far more moderate and attractive promoter in the person of European businesses and the politicians backing it.
Russia gets a signal that almost anything it does will be tolerated in the end, even at the cost of European unity. More worrying is the prospect of the transatlantic rift pushing some of the EU's most powerful states closer to Russia. While the United States under Donald Trump is not a constructive player for now, Russia in its current state is not an alternative whatsoever.
John Kornblum | Senior counselor at Noerr LLP
Nord Stream 2 demonstrates how little Germany cares for the welfare of the rest of Europe. It is a dangerous plan, both for Germany and Europe. One can only hope that the American sanctions will make financing impossible.
Agata Łoskot-Strachota | Senior fellow at the Centre for Eastern Studies (OSW)
A change in the German government’s rhetoric on Nord Stream 2 has been noticeable since April. By Berlin admitting that there will be political consequences of realizing this project—narrowing it to the issue of gas transit via Ukraine—it raised hopes of many in Europe and beyond. Yet it soon became clear that Nord Stream 2 enjoys constant political support in Germany. Most of the EU’s internal problems related with the project aren’t solved.
Germany’s withdrawal of support for Nord Stream 2 could help to forge a common EU stance on Nord Stream 2, on similar projects, on gas legislation, and consequently EU gas policy. It would also send a clear signal to the companies involved in Nord Stream 2—and to the Russian side—that there would not be any formal or informal protective measures provided by Berlin in case of problems with the project’s implementation. Such a move by Germany could strengthen the EU in this one (gas) dimension—but it would certainly complicate relations of both the EU and Germany with Russia.
Such an important decision should yet be taken autonomously by Germany—only then could it lead to genuine positive effects on the EU level. Force—for example by the United States threatening to impose the sanctions—may not be sustainable or deep enough to make a change and could result in increased transatlantic tensions and divisions within the EU.
Edward Lucas | Columnist at The Times
Yes, of course Germany should dump Nord Stream 2. This is a political project, not a business one. It will entrench Russia’s grip on the German energy system. Most of the gas that comes via Nord Stream 2 will be exported, not sold within Germany. Much better would be to diversify— both with LNG and looking for new gas sources in Europe. By pressing ahead with Nord Stream 2, Germany stokes suspicion in countries such as Poland—contributing to the decay in alliance cohesion and delivering a gift-wrapped political dividend to Vladimir Putin.
Gwendolyn Sasse | Nonresident senior fellow at Carnegie Europe and director of the Centre for East European and International Studies (ZOiS)
Germany is economically and politically too heavily invested in North Stream 2 to abandon it at this late stage in the proceedings. Former and current government ministers had claimed for years that the project was purely economic and not political in nature. Against this backdrop, already Chancellor Merkel’s recent call for an agreement with Russia that would ensure the continued use of Ukraine’s gas transit system beyond the completion of North Stream 2 marked a surprising readjustment of the official position. Even if this belated attempt to address in particular Ukraine’s financial and security interests succeeds, there could never be a guarantee that Russia would stick to a formal agreement.
In the meantime, U.S. President Donald Trump has turned himself into one of the staunchest critics of North Stream 2. For him, it is yet another issue he can use to demonstrate his resolve on the global stage. The prospect of selling American LNG to Europe is a further consideration. With Trump now calling for a stop to the whole North Stream 2 project, Merkel has to balance negotiating with Putin while avoiding being seen as giving in to Trump’s demands. The latter would undermine Germany’s strategic role just at the point when the need to spell out new strategic thinking is being recognized.
Marco Siddi | Senior research fellow at the Finnish Institute of International Relations
Nord Stream 2 involves Gazprom and five European financial investors. Political and security arguments were made against the project, but there is support for it in Germany and Western Europe. Moreover, Germany is phasing out nuclear power, EU gas production is diminishing, and coal and oil consumption should be curbed to cut CO2 emissions. Hence, Berlin has to consider a broader range of factors than just geopolitics.
The idea that a national government would intervene to block an energy project seems to be out of tune with the functioning of the EU energy market. Trump’s threats to sanction European companies involved in Nord Stream 2 are not helpful: should he determine German or European energy policy? Trump’s proposals to provide more American LNG to Europe are not reliable either, given the high uncertainty regarding available quantities, costs, his recent use of tariffs, and the fact that the EU and the United States are industrial competitors.
The German government should reassure its European partners that they will have equal access to gas supplies, regardless of the entry point in the EU market. Berlin can also facilitate the continued use of the Ukrainian transit pipelines. It should not invest public money in new, large-scale fossil fuel infrastructure and instead continue to incentivize the Energiewende (the shift to renewables), inviting its neighbors to do the same.
Angela Stent | Director of the Center for Eurasian, Russian, and East European Studies and a professor of government and foreign service at Georgetown University
Germany has been importing Russian gas since 1972 and has experienced Russia as a reliable supplier. Indeed, Willy Brandt’s gas diplomacy was a crucial element in his Ostpolitik, about which the United States expressed great concern at the time. In 1982, the Reagan administration unsuccessfully tried to prevent its allies from exporting equipment for the Yamal gas pipeline. Fast forward to 2018 and Germany, like many of its European neighbors, needs to increase gas imports. Given the range of choices, Germany will be importing more Russian gas over the next decade, whether that gas comes from Nord Stream 2 or Turkstream, because Russian gas is the most economical.
The issue this time is not German dependence on Russian gas—because Russia is equally dependent on revenue from the gas—but Ukraine. Since 2014 Russia has cut its gas exports through Ukraine and Kiev has lost revenue. Chancellor Merkel understands that arrangements will have to be made to compensate Kiev when the pipeline is built.
Germany should go ahead with Nord Stream 2. Indeed, preparatory construction work has already begun. If the United States chooses to retaliate against companies involved in Nord Stream 2 it will only exacerbate the already fraying U.S.-German partnership.
Jonathan Stern | Distinguished Research Fellow and Founder of the Natural Gas Research Programme at the Oxford Institute for Energy Studies
My answers are no, and probably not without some companies losing a great deal of money. Nord Stream 2 will be needed soon, even if not at the end of 2019, because of the supply problem emerging in northwestern Europe caused by the demise of Dutch gas production. LNG (including American LNG, which is what the U.S. administration is proposing instead of Russian pipeline gas) will have to compete with Russian gas everywhere except Poland, Ukraine, and (possibly) Lithuania, which are willing to pay higher prices to avoid buying from Gazprom. Everybody else will buy the cheapest gas which, up to now, has been from Russia.
The remaining important question is whether an agreement can be reached that will allow Nord Stream 2 to go ahead while maintaining significant transit flows of Russian gas across Ukraine. My answer is yes, but volumes will probably be limited to 30 Bcm/year, which is around one third of recent annual flows. But, even supposing that solution is acceptable, it is going to be very difficult to reach a new contractual agreement given the current political relationship between Kiev and Moscow.
Stephen Szabo | Resident senior fellow at the American Institute for Contemporary German Studies
This is a tough call. Germany has an interest in keeping a Russian stake in the stability of Europe, something President Putin has just emphasized—and he is actually speaking the truth concerning Russia’s interest in avoiding a chaotic Europe. Keeping Europe reasonably open to Russian oil and gas creates incentives for Moscow to have a good working relationship with the EU. The EU Commission has taken a number of steps to ensure that if Nord Stream 2 is built that gas will be shared across Europe, and its efforts to diversify energy sources will also continue. Support for a better working relationship with Russia is growing in Europe in Italy as well as in Hungary, Austria, and a number of other member states. Finally, the Trump factor makes it politically toxic for Merkel to be seen to be caving in to an adversarial American government.Yet it is important to keep the Ukraine related sanctions on as long as there is no Russian movement on this issue.
All this argues for a balanced approach of deterrence and dialogue with Russia. Germany should therefore go along with what it will describe as a commercial project, while continuing its tough line on sanctions.
Réka Szemerkényi | Executive vice president of the Center for European Policy Analysis
Yes, she should, and one hopes she still can. Germany has to dump Nord Stream 2 if she wants to maintain and continue to lead a sovereign EU based on a free market. Nord Stream 2 is presented as a business project serving the interest of German consumers. But the fact is Germany’s access to the quantity of natural gas it needs is already ensured by Nord Stream 1, which works under capacity, so excess volumes are also available. While Nord Stream 2 is said to offer a solution to a range of issues—from EU natural gas production and consumption to Ukraine’s transit infrastructure and reliability—but reality paints a very different picture. As this recent CEPA report shows, much of the discourse about Nord Steam 2 is seriously distorted and leads to the conclusion of supporting it.
In parallel to serious fact checking, the strategic consequences of the project also need to be clearly understood. Nord Stream 2 has the potential to derail the EU’s common energy policy and free market competition in the natural gas sector, cementing dependence on a single import source for an indefinite period of time, ultimately making a wide range of European decisions dependent on Russia. Nord Stream 2 will mark the beginning of a new era of external dependence yet unknown to the Western part of the continent.
If Germany is serious about European values, it should not only profess but also practice them. Nord Stream 2 is the moment of truth for Europe.
Originally published by Carnegie Europe
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