- Published on Tuesday, 16 February 2016 12:28
- Category: Articles and Commentary
- Written by Wojciech Jakóbik
Ust-Luga and Vyborg are two towns in the Russian Federation’s Leningrad Oblast. Although they are located far from Warsaw, they are gaining special importance for the residents of Poland’s capital because of Moscow’s plans. Especially for those who spend sleepless nights searching for a way to block the Nord Stream 2 project.
Business, law, and politics
The gas pipeline from Russia to Germany through the Baltic Sea called Nord Stream has been operating with the use of both legs with a total yearly capacity of 55 bcm since 2011. It pumps Russian gas to Germany, resulting in transit countries being omitted. It is also part of Russia’s gas policy in Western Europe. The third and fourth legs planned within the Nord Stream 2 project are supposed to double the pipeline’s yearly capacity to 110 bcm and develop natural gas exports in this part of the market. In September 2015, representatives from Gazprom, German companies E.On and BASF-Wintershall, British-Dutch conglomerate Royal Dutch Shell, Austrian company OMV and French multinational Engie (former GdF Suez) signed a legally binding shareholder agreement on the construction of Nord Stream 2.
It will lead to the reinforcement of Gazprom’s position in the European market, which will weaken the diversification of supply sources to Germany and the markets that use its gas, such as Poland. It will also weaken Ukraine’s transit role, meaning that investment in that country’s political stabilisation will be squandered. The European Union invested not only its funds on the Dnieper, but also its expertise and political engagement.
Germany and France expect to benefit from Nord Stream 2, so Ukraine is not their main concern at this point. The UK and Spain are watching with interest, but one gas pipe in a distant sea is not a topic for serious discussion for them. For Poland, Lithuania and a number of other Central and Eastern European states this issue is nearly as vital as for Ukraine. Anxiety about the security of supplies through Germany flooded by Russian gas is only one of the reasons. Approval for Nord Stream 2 would question the reliability of Europe’s common energy policy. Yet Moscow already benefits from creating another dispute in the European family that weakens the tottering European Union.
Poland has tried to block the project using all its available measures.
Poland has tried to block the project using all its available measures. It criticised this project on legal grounds, saying that it was incompliant with the provisions of the third energy package and other European regulations. The European Commission responded to a letter from ministers responsible for energy policy in Poland, Slovakia, Hungary, Romania, Lithuania, Latvia and Estonia. It declared that it would scrutinise the legality of Nord Stream 2. It will take some time, which is favourable, as it gives Poland and other Nord Stream 2 opponents opportunity to act. It does not mean, however, that the project will be automatically blocked on legal grounds.
In an interview for Frankfurter Allgemeine Zeitung, EC Vice-President for the Energy Union Maroš Šefčovič said that the deciding question was whether the planned gas pipeline was subject to the EU rules of the internal market, i.e. the third energy package. If yes, all gas suppliers should have access to it and the consortium building Nord Stream 2 cannot administer it, as it is also a supplier of this commodity. The EC’s General Directorate for Energy issued a legal opinion concerning this matter, in which it admits that after adjusting to EU regulations the project’s approval will depend on a political decision.
Gazprom’s CEO Alexey Miller said that the underwater stretch of the designed gas pipeline Nord Stream 2 will begin near the sea port Ust-Luga in Leningrad Oblast. Meanwhile, Nord Stream 1 begins in Vyborg, on the northern side of the Finnish Gulf. It crosses the territorial waters or exclusive economic zones of Russia, Finland, Sweden, Denmark and Germany. The planned routes of Nord Stream 2 presented by Gazprom suggest that the gas pipelines will run parallel to each other within Russian territorial waters.
Miller also confirmed that a gas plant named Baltic LNG will be built in the Ust-Luga region, with a yearly capacity of 10 million tonnes. British-Dutch Shell is to engage in this project. It might be a rescue vest in case the new gas pipe lines fails, as it can be used for liquefied natural gas (LNG) export not only to Asia, but also to Western Europe.The Russians have high hopes of cooperating with Shell in the LNG sector.
Lawyers will help politicians gain time
Poland needs time to fight in order to reach an agreement to block this project. Legal arguments may still come in handy here. One of them is the environmental impact assessment (EIA) necessary before approving the construction. Such a document was needed before Nord Stream 1 was created. Russia is trying to convince Europe that two new lines are simply a continuation of the same project, so a new assessment is not necessary. They might be contradicting themselves, however, as the new project has a different route. This argument can be used to force an assessment of Nord Stream 2’s environmental impact. Legal arguments could help gain time to fight against this project using political power.
An EIA must be issued before issuing a construction permit. Under the Espoo Convention, the abovementioned countries whose economic zones are crossed by Nord Stream 1 are the project’s host parties, and the parties affected by it are Poland and the Baltic States. Only this convention may refuse to issue the construction permit. However, each of the countries affected may prolong the discussion and demand additional analyses of alternative routes, which according to Espoo would have to be included in the EIA; so such an assessment cannot be prepared without them.
The EIA for Nord Stream was launched on November 16th 2006 and was completed on March 9th 2009, so the procedure to approve the construction of the new Baltic pipeline should take nearly three years. If an innovation mode is applied, like in Nord Stream’s case, works will be conducted by a body made up of representatives from all the countries listed above.
Poland probably still hasthe support of Lithuania, Latvia and Estonia, which oppose Nord Stream 2 as well. The countries not located on the Baltic Sea also against this project include Slovakia, Romania and Hungary, which signed the ministers’ letter mentioned before.
Russia probably already has the support of Finland and Germany, whose representatives they have met recently; this does not seem to be a coincidence. Whether it will get Denmark’s approval is not known yet. The project was supported by France and the Netherlands, and other Western European countries do not oppose it.
The pattern of acquisition of allies in Europe is important for Russia. A business decision is linked to a political watershed. Moscow uses business relations with Gazprom to influence EU politicians’ decisions. This, in turn, gives rise to legal consequences, such as approval from authorities which are in theory apolitical.
On September 4th 2015, an asset exchange between BASF and Gazprom was agreed upon, giving Germany access to Siberian deposits in return for letting Russia become a shareholder of industrial and storage infrastructure on Germany’s territory. Such a deal was previously blocked because of Ukraine’s situation. Germany changed its mind despite the lack of an effective truce on the Dnieper. On October 28th 2015, German Vice Chancellor Sigmar Gabriel visited Moscow, promising Russian President Vladimir Putin that he will limit the possibility of the European Commission ‘interfering with’ the Nord Stream 2 project. On December 22nd, the German anti-trust authorities approved the founding of the Nord Stream 2 consortium.
On December 18th, Finnish company Gasum announced that the Russian company agreed to sell 25 per cent of its shares to the Finnish government in order to complete the Finnish gas utility’s renationalisation. On January 29th 2016, a meeting between Russian Prime Minister Dmitry Medvedev and his Finnish counterpart Juha Sipila was held. It was decided there that political relations between them would be rebuilt. In return for resuming the work of bilateral committees and supporting Rosatom for the nuclear project Fennovoima, Finland’s PM declared that Nord Stream 2 “was a business project”. Rumour has it that Finland already has approved its implementation.
The most vivid symbol of this corruption mechanism is Gerhard Schroeder, but he has already become worn out like Silvio Berlusconi. Schroeder, a former German Chancellor and current member of the Nord Stream 2 consortium’s management board might welcome people like Gabriel and Sipila on this project’s board in the future.
I have not found information regarding meetings between representatives from Denmark and Danish gas company Dong with Russia. It is known that during Dong’s IPO in 2015, Denmark did not allow Russia to submit its bid. Moreover, Margrethe Vestager, a Danish citizen who is the EU Commissioner for Competition, is conducting an anti-trust investigation against the Russian conglomerate. Denmark’s cold attitude might result from the fact that on March 22nd 2015 Moscow threatened to aim nuclear weapons at Copenhagen if Denmark joined NATO’s missile defence programme. Denmark is also Russia’s rival in exploring Arctic hydrocarbon fields. Despite this, Gazprom declared that in 2017 it will apply for approval to build a stretch of the new pipeline near Bornholm. Its application will include an attached EIA, so the Russians are hoping they will reach an agreement with the Danes by 2017.
The described corruption mechanism should be discussed by the European Council. It shows clearly that Nord Stream 2 is a political issue. Russia, nevertheless, is attempting to present it as a pure business project, which is an insult to the analysts’ intelligence. They try to strengthen the interpretation that is favourable to them. Moreover, they try to isolate Poland and other opponents of the project and do not refrain from using unmeasurable arguments saying that Poles are prejudiced against Russians.
What will Angela Merkel do?
Bringing EIA into play would allow to attract more countries to the “Polish group” that opposes Nord Stream 2. It is not said, however, that Nord Stream 2 will be considered a new project. Russia’s definition, which says it is a new stage of the old project, might win. Irrespectively, it is worth causing commotion around the issue of environmental impact assessment in the European Commission, European Parliament and the European Council.
Obviously, Angela Merkel would not like the upcoming election campaign in Germany to be dominated by disputes over the Russian gas pipeline with EU allies.
Time is on the side of Nord Stream 2’s opponents. It may strike a blow at the keystone member of the group supporting the project – Germany. Support or lack of opposition against the gas pipeline is giving rise to increasingly stronger criticism against Chancellor Angela Merkel in Germany before the 2017 elections. Obviously, she would not like the election campaign to be dominated by disputes over the Russian gas pipeline with EU allies, who are vital for finding a solution to the migration crisis and wars in Ukraine and Syria.
If Angela Merkel is going to test the EU common energy policy and keep making compromises on Nord Stream 2, Poland and other states opposed to the pipeline may test her resilience. Both parties need each other, so it is worth to strive for an agreement. Blocking Gazprom’s new gas pipeline could be its potential consequence.
Wojciech Jakóbik is an energy analyst at Jagiellonian Institute and editor-in-chief of economic portal biznesalert.pl.