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Editorial comment

A dominant supplier. Happy New Year from all at World Pipelines. Alexey Miller has been sending his greetings too: the Gazprom CEO had some confident declarations to make in his annual Christmas and New Year’s address. “We signed the Shareholders Agreement to construct the Nord Stream II gas pipeline [which] will substantially boost the reliability of gas supply to Europe for decades to come.” He also confirmed that Gazprom is building gas pipeline infrastructure across Russia, particularly in the northwest, in order to supply the proposed pipeline.

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Some recipients of this festive message will no doubt rankle at the assumption that the pipeline will be built, as it is the focus of furious debate within EU member countries. In fact, pipeline infrastructure made it onto the agenda for the EU leaders’ meeting in December, albeit veiled under the topic of safeguarding ‘energy union’ and energy security.

Nord Stream II would comprise an additional twin pipeline extension to the Nord Stream pipeline (which currently transports Russian gas through an existing twin pipeline system to Germany via the Baltic Sea). The pipeline project would double the capacity of gas flowing along the Nord Stream route. The offshore pipeline system bypasses the Baltic states of Estonia, Latvia and Lithuania, along with Poland and Ukraine. A shareholder agreement has been reached between Gazprom and Royal Dutch Shell, E.ON, Engie, BASF and OMV.

Opposition has been led by the President of the European Council Donald Tusk, ex-Polish Prime Minister, who refutes the claim that the project would aid diversification or security of supply. He is backed by at least nine countries in central and eastern Europe, with Poland and Slovakia taking the lead, supported by Italian Prime Minister Matteo Renzi and Ukraine Prime Minster Arseniy Yatsenyuk.

The extra 55 billion m3/y pipeline extension would contribute to a huge loss of transit status in eastern European countries, as well as possible infrastructure degradation in these nations, as pipelines go unused. Ukraine currently earns US$2 billion/y in transit revenue for Russian gas. Poland and Slovakia also stand to lose billions in revenue from the gas transport market.

Opponents are looking to legal reasons why the pipeline extension should not be built. The question of energy and competition law arises when you consider that, only last year, the South Stream pipeline was rendered unworkable by the introduction of the new Third Energy Package. This legislation seeks to aid in the “ownership unbundling” of European supply, by stipulating that the energy supplier and the pipeline owner cannot be one and the same. However, as this directive only applies to pipelines that touch EU land, it is possible that the Nord Stream II project will escape its jurisdiction, as it travels offshore only.

Perhaps this is simply a commercial matter, as German Chancellor Angela Merkel has been keen to frame it? “This is first and foremost a business proposition,” she said after the December EU meeting.

Some would argue that, when viewed in terms of supply and demand, the project is not needed; as the Nord Stream pipeline is only running at half capacity as it is. There are always those who see the first Nord Stream project as a bit of a fix: Gerhard Schröeder signed the deal with President Putin after he lost in the national election to Merkel. He then went on to join the board at Nord Stream. Is the German willingness to greenlight the project a form of geopolitical placation of Russia? Isn’t there a danger of completely undermining EU efforts to create a common energy market?

Nord Stream II will pass through the economic zones of Finland, Sweden and Denmark. If the final decision on the pipeline extension were to fall to the permitting process of these Nordic states, with the disgruntled Baltics unable to influence on the sidelines, will the traditionally legalistic approach of the Scandis mean that Putin ends up satisfied? European regulatory framework is about to be tested in a big way.

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