NORD STREAM 2

A Key Bargaining Chip

As Western powers attempt to avert a Russian invasion of Ukraine, Nord Stream 2, a long-touted energy infrastructure project that has already driven a wedge between Germany and the United States, could become a key bargaining chip. Ukraine is angry with the pipeline because it bypasses the country and thus denies it transit fees for Russia's gas exports. It has also raised fears that Russia could cut off gas supplies to Ukraine without endangering its own gas exports to Europe. It could give Russia complete dominance over gas supplies to Europe, and leverage and influence over these countries. It has also awakened old fears in some countries about Russia and Germany coming together against the rest of Europe.

Germany, which is at the center of the diplomatic standoff, is Moscow’s most important customer. The bulk of the gas to Germany flows directly from Russia through a large pipeline in the Baltic Sea known as Nord Stream. Nord Stream 2 is the project meant to enable Germany to act more independently on the energy market in Europe. Although the natural gas pipeline between Russia and Germany is officially completed, it is still not operational. Nord Stream 2 runs parallel to the project Nord Stream 1, which has been in operation since 2011 at the bottom of the Baltic Sea. The pipeline stretches for roughly 1,230 km and connects Ust-Luga in Russia with Greifswald in north-eastern Germany. The construction began in May 2018 and was completed on 10 September 2021, a year and a half behind schedule. The owner of the pipeline is the Russian state-owned energy giant Gazprom, taking over half of the costs of the €9.5-billion project. The remaining costs were financed by a European consortium of companies including OMV (Austria), Wintershall Dea (Germany), Engie (France), Uniper (Germany) and Shell (UK). The pipes are supposed to deliver 55 billion cubic metres of gas each year -- but the project still needs certification from the German authorities before it can begin delivering gas.

Moscow relies on hydrocarbons for 60% of its national budget, while oil and gas make up nearly one-third of its gross national product. It already provides about 39% of Europe’s gas. Russia built Nord Stream 2 to bypass Ukraine — an $11 billion undertaking that stretches 745 miles before it filters into Germany’s Baltic coast. It can’t start delivering gas unless Germany’s regulators permit it. Moscow would benefit from this, as it could sell its gas, which would bring financial returns. About 55 billion cubic metres of gas are to be delivered from Russia to Germany through the Baltic Sea every year. According to the operating company, this could supply 26 million households.

The US's insistent opposition to Nord Stream 2 over three administrations—Obama, Trump and now Biden – has revived discussion on an old question asked whenever the US enters an arena of conflict– “is it all about The oil”, or in this case gas. The EU imports less than 5% of its gas from the US ( the top four suppliers are Russia at 41%, Norway at 16%, Algeria at 7.6% and Qatar at 5.2%, according to 2019 figures ). But as a net exporter of LNG since the middle of the last decade, the US wants to expand its markets and reach in the continent. According to one estimate, 23% of US exports of gas are to the EU now, and in 2021, hit a high of 21 billion cubic metres (bcm). Among the buyers are France, Italy, Spain, Greece, Portugal and host of smaller countries. US exports are seen by some as vital to the diversification of Europe's energy supplies, and its energy security. In January, in a war-like atmosphere, Europe imported more gas from the US than from Russia.

The US believes the pipeline could give Russia too much leverage and influence over Europe, increases the threat of a Russian invasion of Ukraine, and hinders its own efforts to contain Russian leader Vladimir Putin. Even before the Ukraine crisis, the US had imposed some sanctions against it, although in May 2021, the Biden Administration waived two sanctions that would have torpedoed it entirely, in a bid to give diplomacy a chance. Over the last few weeks, Biden and other US officials have been vocal that if Russia invades Ukraine, Nord Stream 2 would be among the first casualties. According to some analysts, the US sees the coming together of Russia and Germany in an economic partnership as a precursor to upending its role as the guarantor of security in Europe, and Nord Stream 2 as a threat to an arrangement that has existed from the end of World War II and the start of the Cold War. However, Europe and Germany depend on Russia’s gas, with this current conflict exposing vulnerabilities, meaning Nord Stream 2 has become both a deterrent to war in Ukraine and a punishment option in the event there is one.