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Nord Stream 2 – Germany's Dilemma

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Nord Stream 2 – Germany's Dilemma NO. 32 APRIL 2021 Introduction Nord Stream 2 – Germany’s Dilemma Kirsten Westphal The Nord Stream 2 project presents the German government with the dilemma of choosing between energy and foreign policy interests. Geopolitical arguments often prevail in the political discourse. Yet, a weighing of priorities requires a look at the energy policy context, too. When it comes to balancing interests, there are no easy or “cheap” answers. With a focus on the energy context, it has to be emphasized that a cooperative approach toward energy transformation promises the greatest dividend for a balance of interests, but it presupposes a minimum consensus within the Euro- pean Union (EU), along with the United States (US), Ukraine, and Russia. By mid-April 2021, there were still nearly the German government to take a political 130 km missing from the Nord Stream 2 stance. pipeline (100 km in Denmark and 30 km in Germany), which stretches from Russia to Germany through the Baltic Sea and is built Foreign Policy Changes in two strings of 1,230 km each. US sanc- tions had halted construction work for more Nord Stream 2 was launched by Gazprom than a year starting in December 2019. and five European companies in 2015, one As a result of the sanctions, the continued year after the annexation of Crimea. In its construction, insurance, and certification dealings with the project, the German gov- of the pipeline is now a Russian matter. ernment took a fallback position early on, The package of US sanctions (Countering relying on existing German law and an eco- America’s Adversaries Through Sanctions nomic-technical position, and therefore it Act [CAATSA], the Protecting Europe’s classified the expansion of Nord Stream as a Energy Security Act [PEESA], and the Protect- commercial project. Nord Stream 2 strength- ing Europe’s Energy Security Clarification ens the industrial location and the German Act [PEESCA]) has led to the withdrawal of gas market. In doing so, the German gov- many European companies. The US sanc- ernment followed the paradigm of separat- tions are designed to stop construction. ing trade and politics and sees economic in- This has brought the situation between terdependence not as a problem for its own Moscow and Washington to a head – a security, but as a basis for balancing interests. highly charged situation that threatens to The “compartmentalization” propagated end with at least one losing face, forcing by Germany, i.e., framing the issue as a purely economic question, was shared relations. Indeed, all this raises the issue neither by the EU Commission nor by many of a continued downward spiral in energy other EU member states, which assessed the relations, where both sides are asymmetri- issue differently in the context of national cally but mutually vulnerable. Ultimately, (energy) security and the creation of the dealing with trade has also become a geo- Energy Union. These (geo)political dimen- political issue in a world characterized by sions (SWP Research Paper 3/2017) were not strategic rivalries and systemic competition, given enough consideration by the German in which trade and exchange have become government. Berlin resisted a transfer of political currency and supply chains are competences to Brussels for a long time, subject to normatively underpinned loyalty thereby missing the chance to hand over or antagonism. the controversial topic of Nord Stream 2 Since mid-2015, Berlin’s relationship to Brussels. Then, in April 2019, the EU’s with Washington has not been unaffected internal market rules were extended to by trends and changes of course in the US: pipelines entering the Union from third Although Berlin, or rather Brussels, con- countries. This amendment to the Gas tinued to impose sanctions against Russia Directive transforms highly political issues in coordination with the Obama adminis- into administrative action. Although this tration, this changed fundamentally during means that the issues at hand are less likely Trump’s presidency. Sanctions against to be politicized, it also limits the scope of Russia (and other energy-rich states) gained political action available to member states. their own momentum, driven in part by As the landfall state, it is now up to Ger- domestic politics in reaction to Russia’s many – in coordination with the EU – to interference in the US elections in 2016, regulate the section of the pipeline through but also by then-President Trump himself German territorial waters. However, it as an element of the trade conflict and dis- quickly became apparent that the EU mem- pute over defense spending in NATO, and ber states had only reached a consensus on also as an expression of US energy domi- the wording of the text, but not on the sub- nance. Although the thrust of unilateral stance. sanctions is clear (to stop the project), the Much has changed in the environment range of motives is broad and the actual since the project was initiated: The five goal of the sanctions – to achieve a change European companies initially withdrew in behavior of the target – has been lost from the investment under pressure from from the focus. The secondary effects and the Polish antitrust authorities and instead externalized costs of these unilateral sanc- pledged financial investments of up to €950 tions for Germany and the EU were accepted million each. Transparency is an obvious as collateral damage, while the US itself con- casualty of political pressure. tinued to import oil from Russia in order More importantly, German-Russian rela- to be able to sanction Venezuela and Iran tions have deteriorated recently due to the (SWP Comment 6/2019, SWP-Studie 28/ Navalny case, the aggravated situation in 2019). After Joe Biden took office on Janu- eastern Ukraine, and Russia’s disinforma- ary 20, 2021, a small window for compro- tion campaign against Germany. Thus, mise around Nord Stream 2 opened, but it this pipeline deal no longer functions as seemed to quickly close due to congressional an element for easing tensions – not only pressure. Secretary of State Antony Blinken because of the repercussions on Ukraine. then said the project was “a bad idea” and Instead, as political science argues, energy contrary to EU interests – as well as US and foreign relations often reinforce each security interests – during his inaugural other in their tendency toward cooperation visit to Brussels on March 24. The basic or conflict. This is precisely why Berlin hopes tenor of the Biden administration is more that the construction of Nord Stream 2 keeps cooperative, but also more normative: It is costs high on the further deterioration of about restoring the transatlantic relation- SWP Comment 32 April 2021 2 ship and a shared attitude toward authori- that is approximately 1,000 km shorter, tarian regimes. Beyond the short-term twists more modern, and more efficient than the and turns, a realignment with Washington one through Ukraine. remains no easy matter because, although Gas production in the United Kingdom interests coincide in the systemic competi- (UK), Denmark, the Netherlands, and Ger- tion with China, Europe’s exposure is dis- many has fallen by more than half between proportionately higher in the geo-economic 2009 and 2019, to 76.2 billion cubic meters disruptions, as well as in the energy trade. (bcm). The large Dutch gas field in Groningen The shock of the confrontation with Presi- will cease production altogether in 2022. dent Trump endures, as does the realization Northwest Europe is Gazprom’s most im- that the US remains a deeply divided coun- portant sales market, with the UK and Ger- try and that its energy wealth sets it apart many being the biggest customers with from the EU in terms of energy policy. around 57 bcm (2019). Production in the EU Germany is in a predicament: Russia has fallen faster and to a greater extent than severely undermines the security situation was assumed in the 2017 Prognos study, in Europe, and US sanctions make the pipe- which formed the basis for the Nord Stream line a matter of national sovereignty. Oppo- 2 plan approval procedure. The study only sition in the EU to the pipeline masks the assumes a reduction of 41 bcm by 2025. fact that Washington is also undermining The Prognos study forecasted imports of Brussels’ powerful instrument of regula- 376 bcm from the EU28, plus Switzerland tion; broader questions concerning the stra- and western Ukraine, for 2020. In reality, tegic energy capacity to act with and vis-à- total net imports of around 407 bcm were vis the US also arise for the EU (SWP Com- already significantly higher in 2019. Ac- ment 7/2021). The August 2020 demarche to cordingly, about 170 bcm were purchased Washington by 24 EU member states gave from Russia. voice to this concern. Thus, political posi- Geology also plays a role at the Russian tions have hardened since 2015. In the fol- end of the pipelines, as the old gas fields lowing, this Comment will take a closer of the Nadym-Pur-Taz region have passed look at the energy context, which has their peak production levels. In contrast, equally changed since then. production levels on the Yamal Peninsula are growing. Thus, Gazprom has to manage the gas fields (and their depletion) with a Energy Security view to exports and consumption. The main export sources as well as routes are shifting The two additional lines of Nord Stream 2 primarily to the north, or from eastern do not pose a threat to European energy Siberia to China, if the “Power of Siberia” – security, nor are they indispensable for the with an annual capacity of 38 bcm – is security of gas supply. Since the project is included in the picture.
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