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Nord stream 2 splits the EU

Nord stream 2 splits the EU 28 novembre, 2017

According to the company in charge of the Nord Stream 1 pipeline (Nord Stream AG), this latter has shipped 182.1 billion cubic meters of gas since it has become operational five years ago. Yet, the second pipeline Nord Stream 2 seems in jeopardy due to controversies in the EU. Political, commercial even diplomatic questions are raised all over Europe and even beyond.

EU Member States split on Nord Stream 2

  • Germany

In the EU, Germany was by far the first supporter of the Nord Stream 2 project. Indeed, if Nord Stream 2 is to succeed, Germany will be the first and the most to benefit of it as it will double the amount of gas between Russia and Germany. Nevertheless, due to the recent elections, the Social Democratic Party, one of the most proponents of Nord Stream 2 in Germany, is no longer part of the coalition government. Even if it is unlikely, this change in the government may have consequences on the Nord Stream 2 pipeline.

  • Denmark

Denmark is a different issue. As for Poland, Denmark is quite opposed to the Nord Stream 2 project. On 19 October, five opposition parties in the Danish parliament called on the government to veto the project. The Danishes are currently debating a law that could give the government powers to reject large infrastructure projects (e.g. offshore pipelines) crossing its territorial waters in case of security and foreign affairs concerns. Therefore, the pipeline concerned should apply for another construction permit with a route crossing Denmark economic zone but not its territorial waters. The demand for this permit implies more administrative work and therefore time; it would delay pipelines constructions. However, the Danish Energy Minister, Lars Christian Lilleholt, argued that the bill is not yet a law and that it “is too early to draw conclusion or reject the application at this time.” Indeed, the bill will be sent to the energy committee of the Parliament that should reach an agreement on November 23, after which a second reading is planned for the last week of November.

  • Poland

In summer 2016, the polish authority for competition opposed Nord Stream 2 pipeline because it would give Gazprom a dominant position over their national market and thus reduce the competition. Since then, Poland has been calling to oppose the project.

On 19 October, Polish Prime Minister, Beata Szydło, raised the subject of Nord Stream 2 pipeline at a gathering of EU leaders in Brussels, despite not being on the agenda. The main question was: “does EU energy rules apply to the Nord stream 2 pipeline?” Indeed, there is confusion in Brussels (mostly between the European Commission and the Council) on whether the third energy package rules should apply to offshore pipelines projects entering the EU market from a third country or whether special discussions with Russia are needed.

Where does the European Commission stand?

According to Klaus Dieter Borchardt, European Commission’s internal energy market director, at the 30th meeting of the European Gas Regulatory Forum in Madrid, the Nord Stream 2 pipeline is a commercial project with such a magnitude that it requires investigation regarding the diversification of energy sources (one of the credo of the Energy Union). The EC bases its argumentation on ensuring a legal certainty and securing a competitive European market.

The EC has tried to answer a key question: can it have a mandate to negotiate a legal regime on Nord Stream 2?  On 19 October, President Juncker said that the request for a mandate to negotiate a legal regime for Nord Stream 2 might not happen.

Moreover, the EC legal services deem that there is a “legal void” in the operation of Nord Stream 2 project. Indeed, the Nord Stream 2 pipeline seems to be out of the scope of regulatory rules applicable to onshore gas pipelines. Neither the EU nor Russia could claim jurisdiction over the offshore pipeline. Nonetheless, even if the third energy package could not directly apply to the pipeline, the EC insists on the fact that the project needs to comply with the EU energy package principles such as unbundling, discriminatory Tariffs and transparency rules. Therefore, the Commission plans to propose changes to the EU’s gas rules in order for them to apply to offshore pipeline projects entering the EU market from a third country (e.g. Nord Stream 2 pipeline). The EC will propose for instance extending the definition of an interconnector to include pipeline coming into the EU market from a third country in order for the principles of the third energy packages to apply to these pipelines. The proposal should come on November 8 2017 and the EC is expecting it to come into force by the end of 2018, that is to say before Nord Stream 2 (scheduled in 2019).

Once more, it seems that the Nord Stream 2 issue once again raises the issue of a –maybe– “too” political European Commission putting Russia’s threat first, potentially at the expense of EU unity and core values of the Energy Union.

A project that divides beyond Europe: the US and Russia

The Russian President Vladimir Putin has been criticising EU endeavours to block Nord Stream 2 pipeline, underlining its economic and security benefits for the EU. Indeed, in a speech at the Valdai Discussion Club he said that “attempts are being made to create obstacles in the way of our efforts to forge new energy routes — South Stream and Nord Stream — even though diversifying logistics is economically efficient, beneficial for Europe and promotes its security.”

In the meantime, at the other side of the Atlantic Ocean, the US have also expressed their concerns of an EU more and more dependent on Russian gas. Therefore, the second week of October 2017, while the American administration officials was in Brussels, they voiced their support to EU’s effort to diversify its energy supplies and strengthen its security of supply – this including undermining the Nord stream 2 project. Even if he promotes other European projects such as the Three Seas Initiative for gas pipelines in Central and Eastern Europe (aiming at building infrastructure needed for the single European gas market, improving security, and increasing competition to control pricing), Benjamin Schmitt, European energy security advisor at the US State Department, highlighted the fact that this US position is not an attempt to sell its Liquefied Natural Gas, even if American LNG is an alternative to the Russian gas. This statement once again proves that the Nord Stream 2 project is not only an economic, but indeed, also a commercial project.

Back to basics: what is Nord Stream 2?

Officialized in September 2015, Nord Stream 2 is a pipeline which should double gas transported directly from Russia to the German border. By doing so, it would also bypass Ukrainian transit and increase Europe’s dependence to Russian gas – hence a political project dividing the EU. Its opening is planned for 2019.

 

Blandine Malvault holds a Master degree in European affairs at Sciences Po Strasbourg. After being redactor for two years, she is now Secretary General of EoE.

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