PIPELINES ARE meant to be safe, reliable and deadly boring. Yet the €9.5bn ($11bn) Nord Stream 2 (NS2) pipeline, which will double the natural-gas carrying capacity from Russia to Germany when it is completed this year, is as controversial as energy projects come. For years it has caused rifts between Europe and America, and within Europe. Germany vigorously supports it, a point Angela Merkel, the chancellor, is sure to make in her meeting with President Joe Biden in Washington, DC, this week. Poland says it is anti-competitive. Ukraine sees it as a potential Russian noose around its neck. America opposes the pipeline, arguing that it hands too much market (and therefore geopolitical) power to Vladimir Putin, Russia’s autocratic ruler. Yet, for all that, the massive pipes have been laid across the Baltic sea and, barring last-minute snags, gas will start flowing through them soon. Why is it such a geopolitical problem? And why is it going ahead regardless?
Ukraine is the biggest potential flashpoint. NS2 gives Russia a bigger cudgel to bully its neighbour over natural gas. Much of the gas that flows from Russia to Europe currently passes via Ukraine, earning the country some $2bn a year in transit fees. This is an important part of the state budget. But Gazprom, a Kremlin-backed energy giant, has played havoc with Ukraine’s gas supplies, especially since the annexation of Crimea in 2014. Russia has promised to keep gas flowing through Ukraine till at least the end of 2024. But the government in Kyiv frets that, once NS2 is completed, Russia will divert its gas supplies directly to Germany. To allay such fears, Ms Merkel insisted on the eve of her trip to America that “Nord Stream 2 is no replacement for the promised supply through Ukraine.”
America has long opposed it. The Obama administration, in its efforts to isolate Mr Putin, complained rightly that NS2—like the original Nord Stream that opened in 2011—would make Europe even more dependent on Russian gas (43% of the EU’s natural-gas imports came from Russia in 2020), and would isolate Ukraine. Russia, in turn, argued that America’s concern for Ukraine was a red herring; in its eyes, America wanted to stop the deal so it could ship more of its own liquefied natural gas (LNG) to Europe. As president, Donald Trump undermined his country’s moral standing by acknowledging that America wants to sell more LNG (which he dubbed “freedom gas”) to Europe and will compete with Russian gas. In support of Ukraine, and to punish the Kremlin for the annexation of Crimea, America’s Congress tried to quash the pipeline by imposing sanctions on some firms involved with NS2. Mr Biden has taken a more pragmatic approach. His administration insists that America continues to oppose the NS2 project on security grounds, in part to satisfy Russia hawks in Congress. However in May, noting that the pipeline is “almost completely finished”, he waived American sanctions against the firm behind NS2 as they would be “counter-productive” to the trans-Atlantic relationship.
So will NS2 be completed? In the absence of last-minute surprises, yes. The German government has confirmed that all construction permits have been issued, and the firm behind the pipeline now expects it to be launched as early as this year. The consortium financing the project, which comprises Gazprom and its five backers (Uniper and Wintershall of Germany, OMV of Austria, Engie of France and Royal Dutch Shell, the Anglo-Dutch supermajor) is holding fast. German industrial giants such as BASF consider it essential to secure Russian gas to compete with their American rivals—after all, piped gas is cheaper than LNG. When the gas does start flowing, it will not only leave Ukraine’s fossil-fuel finances at the mercy of its Russian foe: it will also make Europe more dependent on Russian gas at a time when its own supplies are dwindling. Germany refuses to acknowledge that stark reality.
Editor’s note (July 14th 2021): This article has been updated since it was first published.
By The Economist
