THE Nord Stream 2 (NS2) natural-gas pipeline from Russia to Germany has long been dogged by controversy. But despite several years of transatlantic and intra-European feuding over the €9.5bn ($11bn) project, it is looking increasingly likely to go ahead. Offshore dredging to lay the pipes has already started near Greifswald in north-eastern Germany. Within just a few weeks, workers will begin laying pipes beneath the Baltic Sea.
In Brussels, meanwhile, experts say the political focus has shifted from preventing NS2 to mitigating its impact on Ukraine, which risks losing its lucrative role as a hub for the transit of Russian gas to Europe. “There is a sense that it is beyond stoppability,” says Marco Alverà, boss of Snam, Europe’s largest pipeline company.
True, the threat of American sanctions still hangs over the consortium backing the project, which comprises Gazprom, the Russian energy giant that is NS2’s sole shareholder, and its various financial backers, Uniper and Wintershall of Germany, OMV of Austria, Engie of France and Royal Dutch Shell. America has attempted to target investments in Russian energy to punish the Kremlin over the conflict in eastern Ukraine. (The consortium argues that the project predates the September 2017 starting-point for potential sanctions.)
But President Donald Trump, during his recent visit to Europe, has made sanctions seem less of a worry. Although he initially lambasted Germany for being “captive” to Russia as a result of NS2, Mr Trump later said in front of Vladimir Putin, the Russian president, that he understood where Germany was “coming from”. Indeed, he appeared tacitly to accept that NS2 would go ahead by saying that American companies would compete with the pipeline to provide liquefied natural gas (LNG) to Europe.
From a business perspective, this will be good news for some. Increased quantities of relatively cheap Russian gas will help Europe’s energy-hungry industrial giants, such as BASF, a German chemical firm, to compete globally with American rivals that benefit from cheap shale gas. The doubling of direct pipeline capacity between Russia and Germany, to 110bn cubic metres, reduces the dependence of German gas distributors on intermediaries in eastern Europe and gives them cheaper gas to resell themselves.
But the project will make it more difficult for LNG, from America or anywhere else, to extend its footing in Europe, because it is cheaper to pipe natural gas than to liquefy and ship it. That jeopardises energy security in a region whose gas supplies from the Netherlands and the North Sea are dwindling. Russian pipelines supplied 41% of Europe’s gas in the first quarter, whereas just 12% came from LNG (of which America provides just 1%). It also undermines Europe’s push for clean energy.
Kristine Berzina of the German Marshall Fund, a think-tank, notes that since the Ostpolitik of the 1970s, when West Germany took steps towards normalising relations with countries to the east, German firms have felt secure from mischief-making in Moscow. But NS2 will make Europe more dependent on Russia’s gas and pipelines at a time when its own supplies are faltering. “This is the better deck of cards that Russia is arranging for itself,” she says. “Germany has not woken up to it.”
In the shorter term, NS2 could squeeze Ukraine’s Naftogaz, which generated $2.8bn last year from supplying Russian gas further west but suffers regular bullying by Gazprom. Although talks, brokered by the European Union, are taking place between Gazprom and Naftogaz and their respective governments, some fear that if NS2 advances, Russia will need to make fewer assurances of fair play to Ukraine. NS2 is controversial for a reason.