In July, the Nord Stream 2 gas pipeline between Russia and the EU was halted after Poland’s anti-trust office blocked the transaction. The Nord Stream 2 is a proposed dual pipeline that would extend from Northern Russia, through the Baltics, to Germany. The entire project is set for 1,200 kilometers, and will have a capacity to transport 27.5 billion cubic meters of natural gas. The installation will require nearly 100,000 24-ton steel pipes to be laid on the sea bed of the Baltic Sea (1). The entire project was to be funded and owned by 6 different oil and gas companies. The Russian gas company, Gazprom, is the main contributor and owner with 50% equity. The other companies involved in the project include BASF/Wintershall, ENGIE, E. ON, OMV, and Shell; all maintaining 10% share (2). The pipeline is similar to Nord Stream, which was built in 2011; however, the new Nord Stream 2 is proving to be much more difficult to build due to geo-politics, anti-trust concerns, and energy security of Europe.
The Nord Stream 2 project was officially halted in August when Poland’s anti-trust commission blocked the mergers in order for the project to be completed. The Polish subsidiaries of the 6 large oil companies participating in the project will then not be allowed to participate; therefore, stopping the pipeline’s proposed construction (3). This forced a large debate on the future on energy security in Europe. Energy and gas is a useful geo-political tool for Russia and European states that consume large amounts of Russia’s natural gas. The Russian gas company Gazprom, the leader in the Nord Stream 2 project, supplies around one-third of the natural gas to Europe (4). Gazprom and the Russian government obtain substantial revenue and profits by transporting and selling gas to Europe. As a result, natural gas is often used as a political tool for both Europe and Russia; however, Russia often has better leverage due to the need of Russia’s gas to fuel Europe. However, that is beginning to change, as many European states are tired of allowing Russia to withhold gas or drive up prices, if there is political disagreement.
The European Union has taken steps in the past to try and reduce Russia’s leverage when it comes to energy security. The EU and Russia do not agree on many issues, and recently have further distanced themselves, as issues like Ukraine and Syria have driven a further geo-political divides between the EU and Russia. In February, the EU attempted to reduce their reliance on Russian gas, or at least try to increase competition, with a proposal by the European Commission which would allow European countries to explore contracts outside the European Union in order to prevent gas shortages, and increase transparency in order for Gazprom to not favor certain countries or make collusive deals (5). This is all to prevent large companies, such as Gazprom, and Russia from gaining to much control over the EU and giving them the ability to threaten withholding valuable resources from European economies, or driving up prices to punish European countries or to make up revenue lost due to sanctions.
Ukraine is also decreasing its dependence on Russian gas, due to the war that has engulfed the country. In 2011, imports of natural gas from Russia to Europe reached 40 billion cubic meters; however, in 2015, the amount is just over 6 billion cubic meters. This is due to a shrinking economy in Ukraine, but also a realization that getting away from Russian gas will not allow Russia to have such a great leverage tool against the country. Ukraine isn’t in the best position to negotiate given Russia’s annexation in Ukraine, overt and covert activity to destabilize the country in order to increase Russian influence. However in 2014, Ukraine started buying resold gas from Slovakia in order to decrease reliance on Russia gas and Gazprom. This was estimated to cost Gazprom $5.5 billion in lost revenue, as Eastern European countries resold their Russian supplied gas, which they had in surplus due to the warm winter (6). Ukraine exemplifies what much of the rest of Europe is trying to do: diversify their gas supply. The new Nord Stream 2 would allow Russian gas to bypass Ukraine and put Russia in a better position to not lose revenue in the future.
The United States government is also opposed to the Nord Stream 2 pipeline for geo-political reasons. Vice President Biden spoke against the pipeline, calling it a “bad deal for Europe” (7). Washington’s position shows how much deeper this pipeline goes beyond just supplying gas to Europe. In order to maintain energy security, Europe is changing its policies to increase competition with the support of the United States. Although the United States does not have a direct interest in the gas that Europe would receive, they do have an active interest in making sure that Russia does not have any control over its close European allies. A tough geo-political situation, which has happened in the past, could cause European countries to put in a tough position, if Gazprom and Moscow had further control over Europe’s energy security. With Putin in power, and issues around the world it is likely that Europe and the United States will continue to have disagreements, which will spill over into other geo-political tactics and resources.
The new proposed pipeline demonstrates Europe’s realization that over-reliance on Russian gas poses geo-political and energy security risks. Poland’s decision to block the pipeline does not guarantee it will not be completed. The oil and gas companies can still reconfigure the deal with different sub-contractors and re-do the deal. Europe is attempting to spread investment in the oil and gas industry in order to increase competitions to ensure that oligopolies are not established and governments are not held hostage by increasing gas prices or a vindictive Russian government. Europe will look to diversify their energy suppliers by further increasing their investment into renewable energy and ensuring anti-trust laws maintain diverse investment.
(1) "Nord Stream 2." Nord Stream 2. N.p., n.d. Web. 04 Sept. 2016. <http://www.nord-stream2.com/our-project/pipeline/>.
(2) "Nord Stream 2." Gazprom. Gazprom, n.d. Web. 02 Sept. 2016. <http://www.gazprom.com/about/production/projects/pipelines/built/nord-stream2/>.
(3) Repoza, Kenneth. "Poland Roadblocks Russia's Nord Stream 2 Pipeline." Forbes. Forbes Magazine, 12 Aug. 2016. Web. 01 Sept. 2016. <http://www.forbes.com/sites/kenrapoza/2016/08/12/poland-roadblocks-russias-nord-stream-2-pipeline/#6ef7200f1f56>.
(4) Kanter, James. "Europe Seeks Alternatives to Russian Gas Imports." The New York Times. The New York Times, 16 Feb. 2016. Web. 01 Sept. 2016. <http://www.nytimes.com/2016/02/17/business/energy-environment/european-union-seeks-to-reduce-reliance-on-russian-gas.html?_r=0>.
(6) Bershidsky, Leonid. "How Ukraine Weaned Itself Off Russian Gas." Bloomberg.com. Bloomberg, 12 Jan. 2016. Web. 04 Sept. 2016. <https://www.bloomberg.com/view/articles/2016-01-12/how-ukraine-weaned-itself-off-russian-gas>.
(7) "Russia's Nord Stream-2 Pipeline Is a 'bad Deal' for Europe - Biden." RT International. N.p., 26 Aug. 2016. Web. 01 Sept. 2016. <https://www.rt.com/business/357176-nord-stream2-biden-us-russia/>.
Image: © Ukrphoto | Dreamstime.com - Chairman Of The Management Committee Of Gazprom Alexey Miller Photo
Chadd Dunn is a senior at the University of Southern California double majoring in business administration and international relations. He focuses mainly on international economics,