Germany sticks with Nord Stream 2

Berlin won’t scrap the Nord Stream 2 gas pipeline project after the latest conflict between Moscow and Kiev, says German Foreign Minister Heiko Maas, adding it would reduce Germany's ability to allocate gas supplies to Ukraine.

Russia is facing severe international criticism for its detainment of three Ukrainian naval vessels in the Sea of Azov.

Background

Nord Stream AG, formerly known as North European Gas Pipeline Company, is a consortium for construction and operation of the Nord Stream submarine pipeline between Vyborg in Russia and Greifswald in Germany. The project was initiated by Chancellor Gerhard Schröder and President Vladimir Putin. The five shareholders of the consortium are Gazprom, Wintershall Holding (a BASF subsidiary), PEG Infrastruktur AG, N.V. Nederlandse Gasunie and ENGIE.

A contractual framework is in place to ensure the transport of gas from the entry point of the Nord Stream pipelines in Vyborg, Russia to the exit point in Lubmin, Germany. In Germany, the gas is received by the connecting pipelines OPAL (Baltic Sea Pipeline Link) and NEL (North European Gas Pipeline) for further transport into the European grid.

Based on the EU Reference Scenario 2016, Europe’s gas demand is projected to remain mostly stable over the coming 20 years. At the same time, production will decline by about half, in Norway, UK and in the Netherlands. North African gas exports are expected to decrease, while gas from the Caspian region will be in limited supply. An approximate 120 bcm of European gas supply will have to be compensated by Russian gas. Thus, Nord Stream 2 was presented as a solution to close the import gap and increase security of supply.

On November 25th, Russia seized three Ukrainian Naval vessels off the Crimean Peninsula after opening fire on them.  Russia’s FSB security service said it had been forced to act because Ukrainian Navy ships were ignoring "legal demands to stop" and were "performing dangerous manoeuvres."

Analysis

German Foreign Minister Heiko Maas has denied the possibility that Germany will quit the controversial Nord Stream 2 pipeline project.

Ukraine has demanded Germany quit the project, accusing Russia of seizing its ships off the coast of Crimea. Moscow accuses Kiev of provocation after Ukrainian warships illegally entered its territorial waters. The conflict has given opponents of the Russia-led gas pipeline fresh grounds for slamming the project.

Earlier, some German conservatives urged the government to reconsider the country’s approach towards the gas pipeline in connection with the maritime incident that occurred over the previous weekend. On November 25, three Ukrainian Navy vessels violated Russia’s maritime border in the Black Sea. The ships and their crew were detained by Russia’s coastguard. Maas stressed that even if German firms abandon the project, Russia will press on with building the pipeline.

Separately, Annegret Kramp-Karrenbauer, who is reportedly a top candidate to replace Chancellor Angela Merkel as leader of the Christian Democrats, said that pulling Germany out of the project would be “too radical.” However, the politician stressed that Berlin may reduce the amount of gas to flow through the new pipeline.

The Nord Stream 2 gas pipeline, which is expected to double the existing pipeline’s capacity of 55 billion cubic meters annually, will run from Russia to Germany under the Baltic Sea. It is expected to provide transit for 70 percent of Russian gas sales to the EU.

The pipeline, controlled by a subsidiary of Russian energy giant Gazprom, is built in cooperation with German energy firms Wintershall and Uniper, French multinational Engie, Anglo-Dutch Royal Dutch Shell, as well as Austria’s OMV.

The project has been constantly criticized by the Baltic countries, the Ukrainian government and Washington. According to Kiev, the future pipeline would bypass Ukraine and deprive its budget of transit fees. The US government accuses Brussels of strengthening the bloc’s dependence on Russian gas, and Moscow of monopoly abuse on the European energy market.

Both Moscow and Berlin have stressed that the project is all about business and have assured Kiev that Russian gas transit through Ukraine will continue after the pipeline is built.

Assessment

Our assessment is that Berlin is carefully securing its own energy future and is not taking any rash decisions based on recent geopolitical development. The Nord Stream project will significantly fulfil Germany’s energy needs and we believe that Berlin will not give up on the project unless there is a dramatic escalation of the situation in the Kerch Strait.