HIGH ENERGY prices in Europe and a buildup of Russian troops on the Ukrainian border have drawn renewed scrutiny to Nord Stream 2 (NS2), a natural gas pipeline connecting Russian gas fields to European customers through the Baltic Sea. Plans for the Gazprom-controlled pipeline were announced in 2015; six years on, the $11 billion, 759-mile project is complete. Once European regulators approve the pipeline, a larger share of Russian gas will flow directly into Western Europe and circumvent the current route through Poland and Ukraine.
International disagreements concerning the pipeline’s viability have simmered since its announcement. Germany is the main supporter; it contends that NS2 is a commercially sound, climate-oriented infrastructure project that will lower energy costs in Europe. Detractors, mainly the U.S. and Eastern European states, fear that a deepening of Europe's dependence on Russian transport networks will hamper the bloc’s ability to confront Russia. The debate turns on Europe’s ability to separate their close economic interests in Russia from their confrontational political stance.
While the world holds its breath in anticipation of a Russian invasion of Ukraine, a quieter crisis has enveloped Europe. Wholesale gas prices in Europe have risen 300% in the last year, hindering industrial capacity and driving inflation.
The factors motivating higher energy prices in Europe are straightforward: demand outpacing supply. A cold winter and an uptick in economic activity have boosted demand for energy. Meanwhile, EU regulations shutting down coal plants and gas fields, as well as safety concerns in France’s nuclear plants and a downturn in wind energy production on the North Sea, have limited Europe’s ability to power itself.
The slump in European energy production accounts for only part of their supply-side woes. Europe relies on imports for half of its energy supply, and its most prominent supplier of crude oil, fossil fuels, and natural gas is Russia. The last energy source, Russian natural gas, is of particular importance to Europe; it accounts for one-tenth of Europe’s energy consumption and its undersupply is a key force driving energy price inflation. The historical motivations for this relationship are complex; European energy policy discouraging domestic production, extensive Russian supply networks into former Soviet satellite states, and a depletion of North Sea gas fields have all fed this dependence.
The folly of relying on Russia, a geopolitical foe, for a crucial supply of energy is clear; Putin is regularly accused of weaponizing Russia’s supply of gas into Europe during times of tension–the present moment being the latest example. Whether the activity on Ukraine’s border is military grandstanding or preparation for war is yet to be seen. Europe’s uncomfortable bind, however, is more certain. Sanction Russia for violating international law, and risk energy prices spiraling out of control. Do nothing, and send a message to autocrats across the world: if you are of sufficient economic importance, the rules do not apply to you.
Disagreements Over Nord Stream 2
The pending approval of NS2 has emerged as a point of disagreement amongst Western allies in their efforts to deter Russian aggression. The pipeline runs along the original Nord Stream, another Gazprom-owned project and, upon approval, will double Russia’s capacity to ship natural gas directly to Western Europe.
Critics of the project, the most prominent being the U.S. and an Eastern European bloc led by Ukraine and Poland, have a list of intertwined objections. The first is that the pipeline is unnecessary; current gas shortages in Europe are attributable to Russia’s decision to curtail exports, not insufficient transport capacity. The second is Russia’s ability to starve non-Nord Stream networks of adequate gas to maintain operation (the combined transit capacity of NS and NS2 will be sufficient to carry Russia’s contractual natural gas commitments to Europe); this would cut the number of natural gas entry points into Europe from four down to one, raise transport costs, and exclude the expansive Ukrainian network (GTSOU) from gas networks, depriving Western Europe of a buffer of natural gas storage facilities.
Europe’s increasingly intimate connection with Russian energy is an increasingly solvent domestic issue for a number of European nations. Ukraine fears that the loss of control over the transportation of Russian gas into Europe would eliminate a source of leverage over Russia, leaving them vulnerable to military and economic aggression. Within the EU, France has argued in favor of diversifying the source of Europe’s energy–not investing more in their Russian connection. In Italy, the EU commission’s rejection of the South Stream project, a natural gas pipeline that would have made Italy a European energy hub, is evident of a Germanic regulatory bias, and thus grounds for opposing NS2.
The staunchest support for NS2 comes from Germany, a country with a mixture of commercial, historical, and political reasons to back the project. The commercial incentives are clear: natural gas pumped directly from Russia to Germany will be cheaper and more secure than purchasing it from Ukrainian networks, and Germany would assume the lucrative role of distributing gas to the rest of Europe. Historically, Germany’s support for NS2 reflects their inclination towards a “change-through rapprochement” approach. Germany fashions itself as a cool-headed buffer between Europe and Russia and, per this above-the-fray mentality, is wary of political intervention in a commercial energy project. Lastly, Olaf Scholz, Germany’s new Prime Minister, has little appetite for the cancellation of a major infrastructure project. The shakiness of his coalition and the powerful nature of the German business lobby mean that opposition to NS2 could upset the countries’ precarious political balance.
The intensifying debate over NS2 captures its importance in global affairs. Germany’s absence from the chorus of voices condemning Russian aggression has led to accusations of their prioritizing of commercial interests–NS2, among other items–ahead of international legal norms. The fissure between European nations on the issue challenges French President Emanual Macron’s vision of “European sovereignty”; how can Europe challenge China and America as world leaders when its own energy supply is a source of internal dispute? The similarities between the threat of war in Ukraine and a possible Chinese invasion of Taiwan provide heightened significance to the West’s response. Taiwan’s economic significance far exceeds that of Ukraine, yet its position–under threat of invasion from a domineering neighbor–hints at the U.S.’s appetite for engagement with a rival global power.
Where It’s Headed
Vladimir Putin is notoriously hard to predict. Will he advance into Ukraine during the Winter Olympics? Will he offer a partial retreat in exchange for a ban on Ukraniain membership in NATO? Will he sit on the border indefinitely? One hint of a potential conflict comes Russia’s building of foreign currency reserves. Their $630 billion stockpile has led to speculation that Putin may be preparing to weather a spell of lost income. This may result from a willful decrease in gas exports or a chorus of sanctions from Western nations, but most likely both. Conversely, one of the strongest motivators of peace is the likely cancellation of NS2 should Russia invade. The extent to which China will fill the gap of lost European demand for Russian energy may sway Putin’s decision.
Nord Stream 2 will continue to feature as the prospect for conflict grows. Its centrality to European energy security and Ukraine’s territorial security will force countries–notably Germany–to choose sides. More broadly, the pipeline will test whether a separation of commercial and political interests is still possible in a world where the two are increasingly intertwined.