BERLIN – It’s a multibillion-euro natural gas project, publicly backed
by Russian President Vladimir Putin and Germany’s second-most powerful
leader, deputy chancellor Sigmar Gabriel.
Nord Stream II is a
pipeline project involving Russian majority state-owned gas monolith
Gazprom and some of Europe’s biggest energy behemoths, including BASF,
Shell and E.ON. It would double the supply capacity of an existing
pipeline, Nord Stream I, which runs from Vyborg in Russia to Greifswald
in Germany.
Kyiv may lose $2 billion
But the project is now at the center of a Brussels row concerning Ukraine, with several Eastern European countries warning that the project could rob Kyiv of around $2 billion in annual revenue from gas transit fees starting in 2019, when Ukraine’s contract with Gazprom expires. They fear Russian gas could then be piped directly elsewhere in the European Union from Germany, bypassing Ukraine.
Eastern European representatives worry this potential loss of revenue could further undermine the Ukrainian government, creating more chaos on the union’s borders.
According to Reuters, European Council President Donald Tusk said on Dec. 18 said that the proposed Nord Stream II pipeline extension did not meet EU energy rules on supply diversification and would undermine Ukraine’s role as a gas transit state.
Hurting diversification
Tusk said the project would double the amount of Russian gas shipped directly to Germany, flouting EU rules on diversifying energy supplies, energy sources and energy transit routes.
Slovakian energy minister Vazil Hudák authored also authored a letter critical of the project.
“The Nord Stream II project may have a substantial adverse impact on the economic and political stability of Ukraine, further hindering the implementation of the Ukrainian reform efforts, identified as top EU priorities,” reads Hudák’s letter to European Commission vice president Maroš Šefcovic, who is in charge of Brussels’ energy policy. “Preserving the transit route through Ukraine is [in] the strategic interest of the EU as a whole.”
In Germany’s interests
The second Nord Stream projects dates to September, when Gazprom and five of its European partners agreed to create it. Initial capital has since been transferred to a holding company based in tax haven Zug, Switzerland, financial records show. Like Nord Stream I, Nord Stream II AG is headed by Matthias Warnig, a Putin confident and former agent of communist East Germany’s intelligence service, the Stasi.
Since the latest project began it has received support from Berlin political heavyweights. Germany’s top social democrat, economics minister Sigmar Gabriel, traveled to Moscow in late October to champion the venture. At a meeting with Putin, Gabriel declared the project “in Germany’s interests” according to a read-out posted on the Kremlin’s website at the time.
Weeks later, a German delegation comprised of politicians and commercial leaders visited Moscow. The trip was led by the Bundestag’s economics and energy committee head Peter Ramsauer, from Bavaria’s conservative Social Union Party. Berlin sources say the trip was about securing cheap Russian gas for German industry in general, and about clearing a path for the Nord Steam II project specifically.
German opposition
The result of the trip was the creation of a Duma-Bundstag working group, which is likely to also include Gazprom, German energy companies and financiers. But it is facing opposition from several quarters in Berlin. Even before it was constituted, the German Bundestag’s President, Christian Democrat Norbert Lammert, wrote to Ramsauer to deny his pressure group official committee status. The opposition Green Party is also against what it sees as a rapprochement between Berlin and Moscow, to the detriment of Ukrainian interests:
“What I view critically was that – on the German side – the subtext [of the Moscow trip] was that the Minsk peace accords and their implementation weren’t top priority; the German/Russian commercial relationship was,” said Greens economics spokesman Dieter Janecek, who joined the trip but has refused to join the pressure group.
The concern among Eastern European diplomats is that the project could leave nations as dependent on Russian gas as they were in 2008/2009, when a pricing dispute between Ukraine’s Naftogaz and Gazprom led to supply cutoffs. Slovak sources also say the project would undermine efforts to promote diverse pipeline transit routes in the EU, as a large share of Europe’s gas would pass through the Nord Stream pipelines.
Undermining Ukraine
And then there are the implications for Ukraine. Polish sources say the pipeline could violate several EU and German commitments to the country: It could undermines Ukrainian-EU plans to upgrade pipeline infrastructure, diminish revenues from gas transit fees, and it may contradict EU and G7 efforts to keep Ukraine’s gas transit role.
“In response, the German government has denied that it is attempting to cut out Ukraine as a gas transit country, despite public statements to that effect from Gazprom managers. Both the German government and the Nord Stream II consortium now say that the proposed Russian pipeline is intended to substitute for declining gas supply from northwest Europe (chiefly Britain and the Netherlands.
Blaming Ukraine
“A continuation of gas transit via Ukraine to the Balkans and large parts of the EU is (as) important to us as ensuring the project conforms to German and EU law,” a German economics department spokeswoman wrote in an e-mail to the Kyiv Post. “Ukrainian gas depots and its distribution network will continue to be an important element of the European gas grid.”
Privately, German industry representatives also accuse Ukraine’s government of being unwilling to make good on its rhetoric, and to separate Russia and Ukraine’s economies – including their energy sectors. They posit that this is because Kyiv, too, has been all too willing to use gas as a weapon in its geopolitical disputes and its corrupt intrigues – adding that Eastern European nations have only got involved in this row because they want a share of gas transit fees.
The EU Commission’s ruling on the project is likely to decide its future. Until now, Brussels has withheld a binding ruling on the conformity of the project with European regulations. Analysts say it will be difficult for Gazprom to design the project to comply with European law as it currently stands.
“If it turns out that this is allowed to proceed, I imagine that there would be legal challenges all the way to the European Court of Justice in Luxembourg,” said Alan Riley, a professor and gas market expert at London’s City University.
Kyiv Post contributor Charles McPhedran is a Berlin-based journalist.
