[Premium] NS2? Take it Easy, Advises Eucers

At an Atlantic Council gathering mid March devoted to the Nord Stream 2 (NS2) natural gas pipeline, the director of the European Centre for Energy and Resource Security (Eucers) at King's College London, Friedbert Pflueger, said it was time to be a little more relaxed in the debate about the controversial pipeline that would deliver Russian gas under the Baltic Sea to Germany.

One of numerous experts from the US and Europe, Pflueger suggested that the sparring factions for and against NS2 should “calm down and rationalise things; understand that there are good arguments on both sides and try to work on that.”

He said that issues like diversification, or less dependency on Gazprom had vastly changed in the last decade. “In 10 years, the EU has been pretty successful in many regards. We have today 30 LNG terminals in the European Union; many more interconnectors; many more storage facilities; we have reverse flow, which is a revolution because you can send gas in all directions, freely – there is no destination clause. That means if gas arrives in Europe it can be sold and traded freely.”

Conceding that this was not the case in all parts of Europe, Plueger said Europe is on the right path and needs to continue to work toward mature infrastructure.

He said: “I think one can make the point as the German Chancellor [Angela Merkel] has repeatedly, that today primarily there is a business case [for NS2], because the geopolitical background is different from 10 years ago.”

Moreover, contended Pflueger, today it's a buyer's market for natural gas in Europe, making it difficult to use energy as a political weapon, now that there are alternatives to Russian gas, including LNG and stored gas. “So it's much more difficult for the Russians to use it as a weapon.”

Meanwhile, he added, Europe is being subjected to things like tariffs and sanctions initiated by an America that is now trained upon its own interests.

News from Naftogaz

Head of corporate communications at Ukraine's state-owned importer Naftogaz Ukrainy, Aliona Osmolovska, conceded that, indeed, Ukraine had found itself in a different situation today from 2014 in terms of being dependent upon gas from its neighbour; but just last week the country had suffered from “failing supply from Gazprom.” She said that Ukraine is committed as a reliable gas transit partner for Europe and it is able and willing to make sacrifices from its own supplies and consumers for the sake of European consumers.

Still, Osmolovska said, this does not mean it is business as usual. She explained: “It's not a normal situation when our supplier fails to deliver gas we have prepaid based on the contract and on the invoice we have signed. In this respect, the situation has not got better. We still have the same situation with Russia.”

According to her, Ukraine's natural gas transmission system does not require massive external investment. “Our system generates sufficient cash flow to pay for the maintenance, for repairs and for modernisation.”

German opposition

Most of the political world in Germany supports implementing NS2, reported German Bundestag MP Claudia Mueller of Mecklenburg-Vorpommern. She said: “They are pleading that it's purely a business case, but when you see how the German government, especially the last government, acted, it certainly contradicts that.” According to Mueller, there had been at least 62 high ranking ministerial meetings with Chancellor Angela Merkel on NS2 that showed indeed how political the project truly is.

As to where the NS2 is set to make landfall in Germany, she said it was close to her region and that local farmers near the Baltic Sea had been dissuaded from using their land for farming in the permitting process.

Regarding the opposition to the line, some members of the German government are accused of kow-towing to American desires to sell LNG to Europe. “Therefore, I strongly warn you from placing restrictions that are too strict upon Europe and especially on Germany at this moment, because it will further strengthen anti American sentiments and help NS2. The public view will shift towards Russia and that's what we're seeing at the moment,” she said.

Not about commerce

A senior fellow at the Eurasia Center at the Atlantic Council Anders Aslund came out strongly in his assertion that “Gazprom is not about commerce, therefore NS2 cannot be a commercial project from the Russian point of view”.

Evidence of this fact was that in May 2008 Gazprom's market capitalisation had been $369bn, while today it is $58bn. He joked, “Market capitalisation has fallen by 85% and Alexei Miller stays as CEO of the company. So this has nothing to do with commerce.”

Europe as a whole, he said, has twice the capacity it needs, therefore, “Europe does not need more big pipelines.”

US opposition to NS2

A senior fellow in its Global Energy Center Brenda Shaffer said that Nord Stream had taken on “super-sized importance” in the context of other alleged acts committed by Russia. "It's a pipeline, okay?” she said. “It's become a litmus test to how you think about Russia, in some places in Europe and certainly the US.

“Despite all of the many important and relevant and deeply disturbing and troubling acts of Russia, we need now in Washington cold calculation,” said Shaffer, who explained punishment should be used for deterrence, not as payback for upset feelings.

She said it is also important for the US to be careful about unintended consequences when it comes to NS2. If the European Union were to extend EU law to pipelines entering Europe from outside of Europe, said Shaffer, it could enable Russia to enter into many of the diversification projects that the West has helped to launch. She commented, “It would empower Russia because you'd have third party access to north African pipelines, to Tanap.”

“I don't think anyone in the [US] administration believes that the US government opposition to NS2 is an attempt to change Russian foreign policy,” retorted Sandra Oudkirk, deputy assistant secretary for energy diplomacy, in the State Department's Bureau of Energy Resources. “That argument is a complete red herring,” she countered.

 Oudkirk said, however, there is a key link between US opposition to NS2 and American support for Ukraine and the country's path towards the west. "What NS2 is, is an attempt to replace old, generational infrastructure with new, generational infrastructure that would move the exact same molecules of Russian gas to Europe through a different route that bypasses Ukraine,” she said.

Russia, Gazprom and the Kremlin, explained Oudkirk, have made it their goal to end gas transit in Ukraine, and they have made this abundantly and publicly clear. Ukraine's recent demonstration of measures to maintain gas delivery in the face of drastically reduced supplies, she said, had been impressive. NS2, she said, could be looked at as an effort to crowd out a free and efficiently functioning market. “Buying in to a massive, expensive undersea project buys in to a future of dependence on Gazprom – there is no other way of looking at it. It doesn't foster an efficient market,” said Oudkirk.