Nord Stream 2: a test of German Power
https://www.ft.com/content/4875c9ff-0868-3798-8f66-4efa667eb5ba?mhq5j=e1
Power in Europe speaks with a German accent. With the UK at the exit door of the EU and France still economically weak Germany is uncomfortably dominant.
The latest example of this is the plan for the new Nord Stream 2 pipeline which will bring natural gas from Russia across the Baltic to the North German coast and then onwards to Central and Western Europe.
The question is how Germany will use its power.
13 EU member states have protested against the Nord Stream project, saying it will divert trade and transit revenues away from them and increase European dependence on Russian gas for decades to come. The protesting states want the European Commission to t
ake control of negotiations of the project away from Germany and to set gas trade in the context of the Energy Union – a concept agreed in 2014 but never implemented.
The Energy Union was designed to diversify sources of supply and build pan European infrastructure in the interests of security of supply. Most of the 13 are former members of the Soviet bloc and remain overwhelmingly dependent on Russia for supplies of both gas and electricity provided through grids built in the Comecon era.
In the words of the former Polish Prime Minister Jerzy Buzek, now Chair of the Industry Committee of the European Parliament, Nord Stream 2 and the Energy Union cannot coexist.
At the same time the US Senate, by a majority of 97 to 2 agreed three weeks ago to impose sanctions on companies involved in funding Russian export pipeline projects – the latest in a series of steps designed to use Russian economic interests as leverage over Kremlin policy on Ukraine.
In Berlin the official line is that Nord Stream 2 is just a straightforward commercial venture in which neither the EU or the US should interfere. The $10bn project not only cements the sensitive relationship between Germany and Russia but also establishes Germany as an entrepot in the European gas market, replacing the declining gas production from the Dutch and British sectors of the North Sea.
Seen from Russia the logic of Nord Stream 2 is clear.
The country remains dependent on oil and gas revenue which provided, even with low prices, almost half of its total export revenues in 2016. With the oil price beyond control, Russia has every incentive to maximise its revenue from gas sales and to maintain its share of the European gas market by whatever means.
From a European perspective the benefits are far less clear.
If built Nord Stream 2 will entrench Russian dominance of the European market. Russia currently supplies 34 per cent of European gas. With Nord Stream 2 that will rise perhaps to more than 40 per cent. The project destroys the concept of diversifying supplies.
There are numerous potential sources of supply, some of which could have provided much needed revenue to Europe’s neighbours across the Mediterranean such as Algeria and Libya where stabilisation through economic development is necessary to halt the flow of refugees.
With Nord Stream 2 in place Russia will be able to divert gas trade away from Ukraine, reducing the country’s income from transit fees and making Ukraine ever more dependent on EU subsidies. Even if a short term offer is made to cushion the impact of Nord Stream 2 on Ukraine, the longer term threat will remain.
Of course, Germany has the power to push aside the objections of the smaller European states. Berlin can impose any decision it wants on Brussels. But to press ahead and force the project through would have consequences.
The latest results from the fascinating Pew study of international opinion show that Germany is regarded as having too much power in Europe already – particularly in Southern Europe where Mrs Merkel is blamed for imposing unending austerity.
In Germany itself Nord Stream 2 is seen as the creation of the Social Democratic party – and in particular the former German Chancellor Gerhard Schröder who just happens to be the chairman of the project. Mrs Merkel would lose little by allowing the project to stall and would win respect in the serious parts of the US administration and Congress who are looking for support against Russian behaviour in Ukraine and Syria and alleged Russian interference in the US election.
A political solution would be to allow Nord Stream 2 to fall into the hands of the European Commission lawyers who could find good reasons for not proceeding – many of them set out in some excellent recent articles by Professor Alan Riley.
The gas would not be missed.
Indigenous supplies are certainly declining but demand for gas is also falling – 12.5% down across the EU over the last decade according to the latest BP Statistical Review. Surging renewable supplies could push gas demand down further in the future. With a global gas glut European importers could sign long term deals with suppliers from around the world.
Nord Stream 2 is anything but a simple commercial project. What happens next matters for Russia and for the US. But most significant of all is what is what the decision on Nord Stream 2 will tell us about how Germany intends to handle its economic and political dominance of Europe.