[Editorial] Nord Stream Pipeline Project

What is the project about?

  • The Nord Stream 2 is a natural gas pipeline project worth €11 billion.
  • It is a 1,225 km long pipeline and its construction started in 2015.
  • It is a project to transport natural gas from the Ust-Luga city in Russia to the city of Lubmin in Germany. It passes under the Baltic Sea.
  • Nord Stream 2 AG is a Switzerland-based company that operates this project. Gazprom, Russia’s main energy company, took ownership of Nord Stream 2 AG in 2015.

Why is it significant?

  • This pipeline will establish a direct supply of gas from Russia to Germany, without transiting through Ukraine or any of the other European nations.
  • It is expected to double the capacity of Nord Stream 1– the pipeline that has been supplying gas since 2011-12.
  • According to 2015 data, Germany imports a huge portion of its natural gas requirements:
    • Some 40% from Russia
    • 34% from Norway
    • 29% from the Netherlands
    • Only 10% is from German gas fields
  • Natural gas features prominently in Germany’s electricity mix:
  • Germany now plans to close down its nuclear power stations and coal-powered plants in order to fulfil its commitment to shift to renewables. In this light, the gas supply from this project gains prominence.
  • More recently, this winter brought an energy crisis into Europe with rising energy costs pushing up the cost of essentials including food. Gas prices rose 600% in Europe. This was partly fuelled by the recovery in global demand for natural gas in the aftermath of the initial waves of the pandemic.
  • Recent times has seen a decline in natural gas production in Europe. Several gas deposits, such as the ones in the North Sea and in the Netherlands, are running dry. This leaves the import-dependent European nations largely reliant on gas from Russia and Norway.
  • Throughout its history, the Nord Stream 2 project has been at the centre of controversies and sanctions. It has morphed into a bone of contention in the European political scene.
  • Its perception as a geopolitical tool is shared by the USA too.
    • In 2019, USA brought in a law to impose sanctions on EU companies involved in the Nord Stream 2 project.
    • Many politicians in Europe (including Germany’s Chancellor Angela Merkel) opposed this ‘extraterritorial sanctions’ and held that their energy policies are to be decided by themselves, without the ‘interference in autonomous decisions’.
    • In May 2021, USA decided to give a national security waiver for the project’s key company- Nord Stream 2 AG. This was to restore the trust and cooperation between the USA and Germany.
    • Later in July, Germany and the USA concluded an agreement to allow the project’s completion. Additionally, this agreement envisioned over €200 million investment in the energy security of Ukraine and in sustainable energy in Europe.

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Why is the project facing opposition?

  • The 2019 US move to impose sanctions on the project was driven by a fear that Russia would gain more influence over the energy supply in the region through this project. It feared that the project would reduce its share of the lucrative market for American LNG in Europe.
  • Ukraine has described this project as a ‘dangerous geopolitical weapon’. This comes amidst the tensions along Ukrainian border with Russia.
  • Many of the other European countries (except a few like Austria, Hungary and the Netherlands– in addition to Germany) are opposing this project over concerns that it would give more leverage to Russia when it comes to its dealings with Europe.
  • Some commentators even view the project as a political weapon that Russia would use to put pressure on security issues in Europe and that this may ‘undermine the democratic resilience of European institutions’.

What is the way ahead?

  • In November, Bundesnetzagentur (Germany’s network regulator) suspended the certification process for the project. It stated that the operator needs to be organized in a legal form under domestic law in order to be certified.
  • Nord Stream AG, for practical reasons, decided to establish a subsidiary under German law, instead of undergoing a complete legal transformation. This subsidiary manages only the German part of the project.
  • Such bureaucratic hurdles mean more delays are in the pipeline. This belief has been strengthened by the German energy regulator’s announcement that a decision on the project’s certification wouldn’t be made at least until the latter half of 2022.
  • Meanwhile, tensions have been brewing between the NATO allies and Russia over the concerns of a possible Russian invasion of Ukrainian territories. Several EU leaders have been calling for strong actions from Berlin (including the project’s termination in case of military escalation).
  • Russia has dismissed the countries’ concerns over the project and held that this pipeline is a purely commercial undertaking that seeks to make natural gas transport cheaper and more economically viable.
  • At the same time, a ‘perfect storm’ is raging in the European energy market this winter. Some have accused Russia of intentionally decreasing gas supplies to Europe in order to expedite this controversial project.
  • The recently elected German Chancellor has inherited the dilemma over this strategically important project from his predecessor. He has some difficult decisions to make, going forward.
  • However, there is a ‘silver lining’ in the current European crisis. It has opened opportunities for additional investments in green energy projects and in green hydrogen production.

Conclusion:

The Nord Stream 2 pipeline was meant to be an ordinary energy project, but it has transformed into a powerful geopolitical tool- available to every stakeholder for manipulation. The project’s relevance peaks at a time when energy prices are skyrocketing in Europe as the economy struggles to recover.

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