By Mg. Han Tin
R USSIA is the world’s third-biggest oil exporter and the second-largest producer of oil and gas after the US, providing 17 per cent of gas output and 13 per cent of oil production globally in 2020. Russia supplies about 40 per cent of the EU’s natural gas imports. Most of the rest comes from Norway and Algeria, such as the Norway-UK Langeled pipeline. Russia sends gas to Europe through several main pipelines, which Russia is, reaping billions of dollars of benefits annually from them. Gas is delivered to the European customers through a unique gas transmission system that links the gas field of the Russian North with neighbouring countries, and also through the Power of Siberia pipeline. They are –
1. Yamal – Europe
2. Brotherhood
3. Soyuz
4. Progress
5. The Gas Transportation Route through Romania
6. Nord Stream 1
7. Blue Stream
8. Nord Stream 2 (under construction)
9. Turk Stream
10. Power of Siberia
Germany has no liquefied natural gas (LNG) terminals. It imports natural gas from Russia through the Nord Stream pipeline and Yamal – Europe pipeline. Russia is keen to boost supplies of gas to Europe from its vast fields in the west of the country. It wants an undersea pipeline to Europe, rather than relying on its land-based pipelines which go through Poland and Ukraine. Poland and Ukraine presently earn revenues from transit fees that Gazprom, the state-owned Russian gas giant, pays in return for sending its gas via their gas networks to Western Europe. These pipeline networks are ageing and inefficient. Besides this, Poland and Ukraine charge high transit fees. Russia has to pay Ukraine $2 billion annually as part of transit contract fees for sending gas through its territory by gas pipelines, which are set to be ended in 2024. But Putin has warned that Ukraine would have to show “goodwill” if it wanted gas transit to continue. Kyiv and Warsaw also fear the potential weakening of their political bargaining power in the event of the pipeline bypassing them under the Baltic Sea directly to Germany. Ukraine’s large gas reserve facilities could also become obsolete.
Nord Stream (Nord Stream 1) is a system of offshore natural gas pipelines in Europe, running under the Baltic Sea from Russia to Germany, which borders Denmark, Sweden, Finland, Estonia, Latvia, Lithuania, Poland, Germany and Russia. It was a joint venture of Russia’s Gazprom and its four European co-investors - Germany’s oil and gas producer Wintershall DEA, PEG Infrastrucktur E.ON, Dutch Gasunie and French Engie. It is 1,222 kilometres (759 miles) in length and is the longest sub-sea pipeline in the world. It is a twin pipeline underneath the Baltic Sea. The second line of Nord Stream 1 was laid in 2011-2012 and was inaugurated on 8 October 2012.
Nord Stream 1 is a submarine pipeline between Vyborg in Russia and Greifswald in Germany. It is made up of two parallel pipelines, each around 750 miles long, and is able to transport up to 971 billion cubic feet (27.5 billion cubic metres) of natural gas a year. Therefore, the twin pipelines are able to transport 55 billion cubic metres (1942 billion cubic feet) of natural gas per year. Nord Stream 1 has been carrying gas from Russia to Germany since 2011. It carries more than a third of Germany’s gas imports. Germany, the UK, the Netherlands, France, Denmark and other European states are the target markets for the supplies through this pipeline. Nord Stream 1 is owned and operated by Nord Stream AG, whose majority shareholder is the Russian state company Gazprom. (Gazprom was ranked as the 32nd largest public company in the world.)
Nord Stream 2 - (NS2) natural gas pipeline is an underwater twin pipeline, underneath the Baltic Sea, that would transport natural gas from Russia directly to Germany. It is 1,200 kilometres (746 miles) in length. It was designed to double the capacity of an existing (already in use) original gas pipeline Nord Stream 1, also known as Nord Stream, to 110 billion cubic metres (3,884 billion cubic feet) of gas a year. Nord Stream 2 pipeline travels in parallel along a similar route but from Ust-Luga in Russia’s northwestern Leningrad region to Greifswald in northern Germany under the Baltic Sea. The cost of building Nord Stream 2 is €10bn (₤8.4bn / $11 billion). Gazprom paid half the cost, with the remainder of the project is financed by its five European co-investors - British oil and gas major Shell, Austria’s OMV, France’s Engie and Germany’s Uniper and Wintershall. Nord Stream 2 is owned and planned to be operated by Nord Stream 2 AG, which is registered in Switzerland, is owned by Russian state-owned gas giant Gazprom. Therefore, Russian state-controlled energy firm Gazprom is the majority owner of both Nord Stream 1 and 2.
It was carried out in 2018-2021. The first line of Nord Stream 2 was completed in June 2021, and the second line was completed in September 2021. It was completed on 22 September 2021, but not yet operating. The pipeline could heat 26 million German homes at an affordable price. It was ready to go but not switched on yet. It does not yet have an operating licence. German Chancellor Olaf Scholz has suspended the certification process for the Nord Stream 2 natural gas pipeline after Russia recognized the two separatist-held regions of eastern Ukraine (Donetsk and Luhansk), as breakaway states on 21 February 2022. On 22 February 2022, the German Chancellor ostensibly said that the Nord Stream 2 gas pipeline from Russia could not be certified after Russian President Vladimir Putin publicly recognized the eastern two regions as breakaway states.
Halting the certification process means the 55 billion cubic metres (1942 billion cubic feet) per year pipeline will be unable to begin commercial operations. Germany’s regulator had already refused to give an operating licence because Russian firm Gazprom owns both a 50% stake in the Nord Stream 2 and all of the gas that would go through it. Before the Ukraine crisis, Mr Scholz’s predecessor Angela Merkel did a lot to try and push through Nord Stream 2. Despite Germany having already imported 35 per cent of the gas it needs from Russia, she thought that Nord Stream 2 would be a way of getting much more Russian gas delivered directly to Germany. Germany currently gets about half of its natural gas and coal, and a third of its oil from Russia. Allies such as the United States have long warned that the heavy reliance of Europe’s biggest economy on Russian energy imports is a strategic risk given the growing friction with Moscow. Still, Germany is looking to get LNG from suppliers such as Qatar to cover any shortage in the near term.
The United States also sanctioned Nord Stream 2 AG before the Russian-Ukraine crisis which was followed by a wave of economic sanctions by the West. US President Joe Biden had previously vowed to shut down Nord Stream 2 if Moscow invades Ukraine. The US has tried to block Nord Stream 2 before, by imposing sanctions on companies involved in the project. However, it has only targeted Russian firms and not German ones, for fear of damaging diplomatic relations with Berlin. The project was 90 per cent complete when President Biden took office. Russia’s neighbours Poland and Ukraine, strongly oppose Nord Stream 2. They fear that if it were to start operating, it would give Russia even more of a stranglehold over gas supplies to Europe. Ukrainian president Volodymyr Zelensky has called Nord Stream 2 “a dangerous political weapon”. Biden’s officials mentioned cutting off Russia from the SWIFT system of international payments, but the key option is pressuring Germany to block NS2.
But Russian President Vladimir Putin gave remarks at the St. Petersburg Economic Forum that the project was “purely” a commercial and economic project with no geopolitical dimensions. Putin denies using energy as a weapon, though he has made it clear that the only way Russia can increase its gas output to Europe is if Germany approves the pipeline. Russia’s State-run Tass news agency mentioned that sanctions on the pipeline would lead to declining energy supplies and gas price growth in Europe.
Now The US is giving pressure to use NS2 as leverage to deter Russia from any further incursion into Ukraine. Germany would suffer most from the longer-term suspension of Nord Stream 2. It would not have direct access to gas from Russia and can’t even think of becoming a gas hub for the region. Germany would not be significantly affected by stopping NS2, since the pipeline isn’t designed to bring significant new gas to the German market; rather it is aimed at circumventing Ukraine by bringing those same volumes through NS2. European countries will also not be meaningfully impacted if NS2 is cancelled because they can get the gas they need through existing pipelines. Apart from the Nord Stream projects, there are two other pipelines - the Brotherhood pipeline goes through Ukraine and the Yamal-Europe pipeline passes through Belarus and Poland, which carry gas from Russia into the European market. By stopping NS2, Gazprom would still rely on the Ukrainian gas transmission system to deliver volumes to EU markets. The problem right now isn’t a lack of pipeline capacity, but that Russia isn’t shipping sufficient gas to Europe.
NS2 is not particularly important for the Russian government in financing itself, because even if it doesn’t come online Russia can send gas to Europe via other pipelines. But it will be a meaningful political defeat for the Kremlin, even though it won’t cost the Kremlin much in financial terms.
We will have to wait and see what will eventually happen in the very near future about this Nord Stream 2 controversy.
References:
- Wikipedia
- DW website (https://www.dw.com/
en/nord-stream-2)
- Gazprom website (https://gazpromexport.ru/en/projects/transportation/)
- The Washington Post (https://www.
washingtonpost.com/national-security/nord-stream-pipeline-germany)
- Aljazeera (https://www.aljazeera.
com/news/2022/1/25/ukraine-russia-what-is-nord-steam-2)
