By Amb. Gurjit Singh
The Russian decision to grant independence to the Ukrainian provinces, Luhansk and Donetsk, and to “conquer” Ukraine tipped the scales. The nuanced differences between Europe and the United States on how to deal with Russia are softened.
Strategically, Europe seeks autonomy over Russia and China and does not want to follow American policy. Russian and Chinese actions reduce this autonomy.
The completion of the Nord Stream 2 (NSPL2) gas pipeline created a sense of economic cooperation with Russia for Germany. For the United States, it was a sense of economic dependence.
The United States was looking for a geopolitical answer. Germany preferred a geoeconomic response. As long as Russia did not cross the borders, the problems were handled diplomatically. Germany was willing to provide economic partnership guarantees to Russia for strategic congruence.
Now that Russia has decided to invade Ukraine, Germany has followed the American example. His overtures to Russia fail. For this reason, Chancellor Scholz suspended the NSP2 certification process, indefinitely delaying its operationalization.
—Ω (@W4RW4ATCHER) February 24, 2022
Germany and the United States are fighting over Russia. Germany preferred diplomacy. When German Foreign Minister Annalena Baerbock met US Secretary of State Antony Blinken, she explained that NSPL2 was an economic concept with limited geopolitical impact. His Green Party has consistently opposed NSPL2.
Vice-Chancellor Robert Habeck also of the Greens, when meeting with the Polish Deputy Prime Minister, conceded that, given the situation, NSPL2 was now a geopolitical factor. Chancellor Scholz, while visiting the White House for a summit with Biden, remained silent as Biden told the media that NSPL2 would be suspended if Russia breached its responsibilities.
—Ω (@W4RW4ATCHER) February 24, 2022
Clearly, there have been behind-the-scenes discussions about graduated responses to Russian measures, including sanctions. In this NSPL2 plays an important role. Russia’s recognition of the Ukrainian provinces as independent led to Germany’s immediate halt to the certification process. Thus, the operationalization of NSPL2 has been postponed from 2022 to at least 2023.
What is the Nord Stream-2 pipeline
NSPL2 is a parallel line to NSPL1, laid in 2011. NSPL1, 1222 kilometers long, carries 55 billion cubic meters and has become a major supplier of Russian gas to Germany and Europe. NSPL2 was built in 2018-2021, it will double the capacity to 110 billion cubic meters.
NSPL2 is 50% owned by Russia’s Gazprom. BASF Wintershall, PEG Infrastructure AG, a subsidiary of E.ON Beteiligungen, NV Nederlandse Gasunie and Engie have invested in the 1,230 kilometer pipeline which costs around 9.5 billion euros. NSPL crosses the EEZ of Finland, Estonia and Sweden.
Until August 2021, the Russian and German foreign ministers agreed that the pipeline would go ahead despite American objections. Germany’s Green Party has urged Chancellor Merkel to withdraw from NSPL2 as they believe the pipeline runs counter to the goals of the European Energy Union and increases Europe’s energy dependence on of Russia, giving it an unnecessary strategic advantage.
Other politicians, including within Merkel’s CDU, had also opposed NSPL2, but the reasoning was still based on Russia’s political actions. While Finance Minister Olaf Scholz tried to improve NSPL2’s prospects by offering US Treasury Secretary Minuchin two new LNG terminals built for US natural gas imports, on the condition that the US spare NSPL2 the sanctions that affected Gazprom. The difference in approach between geopolitics and geoeconomics is due to the dependence of Europe and Germany on imported energy.
The EU, a major energy importer
60% of EU energy in 2020 was imported. Germany’s import dependency was higher at 63.7%. In the integrated European energy market, the importance of a country-by-country analysis of import dependency would be reduced and a European orientation would emerge. However, nuances remain.
In 2021, energy prices in Europe have increased with increasing demand, especially for natural gas. In the post-pandemic period, this has grown in importance. Russia’s geopolitical antics created problems for Europe, as stability as a gas exporter was at stake.
It is anticipated that the rapid emergence of renewable energies in Europe could change the nature of energy needs and rebalance import dependency and, consequently, the geopolitics of energy imports. However, that’s obviously in a while.
Even if a transition to green fuels takes place, Germany will remain a major importer of green fuels, whether hydrogen, methane or synthetic gasoline.
Its ability to produce renewable energy in Germany and convert it into fuel is still limited. 60% of EU energy is still imported. 66% of energy imports were petroleum products in 2020, with gas and coal accounting for 25% and 5% respectively.
Significantly, Russia was the main non-EU supplier in all three sectors, supplying 26% of the EU’s oil, 44% of its gas and 54% of solid fossil fuel imports.
Last year, Germany imported 32% of oil for primary energy use in the transport sector. Russia supplied 34% to Germany. 25% of Germany’s energy imports were gas and it is one of the biggest consumers in the world.
Its domestic gas fields are almost exhausted. Since 2016, the Federal Office of Economics and Export Control has stopped publishing countries’ WISE data on imports. But Russia and Norway remain the main exporters of gas to Germany in 2015 35%, or German gas came from Russia.
Currently, Russian gas accounts for more than 40% of German imports. Germany has proprietary pipelines even before NSPL2. Germany has no infrastructure for the direct import and processing of LNG.
Why Germany desperately needs gas
The gas is seen as part of a low-carbon economy and will help Germany reach its climate goals faster by 2025. Russian gas is helping Germany’s planned exit from production nuclear and coal-fired electricity.
Germany is keen on NSPL2 because it removes transit fees as it bypasses Ukraine and Poland who are paid operating costs for maintaining compressor stations. Ukraine received nearly $720 million a year from onshore pipelines. NSPL2 can deprive Ukraine of $3 billion a year in transit fees.
Gazprom has indicated that 20 billion cubic meters of gas will be transported bypassing Ukraine and using NSPL2. NSPL2 is suspended, but Russian gas is flowing on the onshore pipeline through Ukraine; this means that Ukraine will get financial sustenance and will not be suffocated immediately.
The issue of Russian gas and European and German dependence on it also means that Russia could choke off those supplies, raise prices and disrupt the gas market as it sees fit.
The German belief is the pipelines on Ukraine, and subsequently, NSPL, would create a matrix of a cooperative partnership with Russia, which gave them economic advantages. While Russia might have an advantage in cutting off supplies, the stability of those supplies would, in German opinion, give them a sense of responsibility towards a cooperative relationship with Europe.
Obviously, this idea did not succeed. Although Germany and France in particular pushed the Minsk Accords and the Normandy Process to engage Russia outside the domain of the United States, Russia still went ahead and pointed the finger at them. Ukraine. Russian gas is now seen as a strategic geopolitical asset rather than an economic issue.
Impacts of the NSPL2 suspension
In May 2021, 75% of Germans came out in favor of NSPL2, and only 17% opposed it in a poll. What was significant was that the Greens had 69% support for NSPL2, the ruling SPD had 75%, the CDU 81% and the FDP 82%.
It was then that in a post-Merkel scenario, Germany wanted to have independent strategic autonomy based on its independent relations with China and Russia.
In today’s sad reality, NSPL2 could unite Europe’s energy supply but divide Europe politically. It is important that the NSPL2 suspension can be considered as such. The pipeline is already built and significant investments have been made in it.
It will impact the fate of Gazprom, which holds 50% of the investment and which suffered from American sanctions which are still being tightened today by several European countries. NSPL2 may not be restarting any time soon, but there does not appear to be any effort to scale back NSPL1 or the existing onshore pipeline, such as the 4,000 kilometer Yamal Europe pipeline.
Europe is a major market for Gazprom. Revenues support the Russian budget. Europe needs gas because it replaces polluting options before renewable energy sources are sufficiently developed. Germany will need to develop a strategy for dealing with a Russia that seeks to revamp European security and use its market access more effectively.
(The author is the former Ambassador to Germany, Indonesia, Ethiopia, ASEAN and the African Union. He is the Chairman of the CII Working Group on Trilateral Cooperation in Africa and a Professor at IIT Indore .)