11010878
Faculty of Humanities
MA Thesis: Reasons Behind Nord Stream 2
Why, despite opposition from so many quarters in Europe, and amidst
deteriorating relations with Russia more generally, is Nord Stream 2
being built?
Student : Christian Cornelis Adrianus Luijkx
Student number : 12869295
Supervisor : dr. A.M. (Artemy) Kalinovsky
Date : 29-06-2020
1
Content
Introduction ... 2
1. The EU, Germany, and Russia ...10
Theoretical frames ...10
Germany-Russia relations in the (recent) past ...12
Germany and the EU ...15
2. Alternatives to Nord Stream...19
Refurbishment of the Ukrainian gas network system ...19
Liquified Natural Gas vs Nord stream 2 ...21
Geopolitics and LNG ...23
3. The influence of Russian pipelines ...26
Importance of gas exports to Russian economy ...27
Russia’s Energy Weapon ...28
Nord Stream 2...29
4. Economics über alles ...32
German politics and Nord Stream 2 ...32
Germany, Nord Stream 2, without the EU ...36
Germany, Nord Stream 2, and the EU ...39
5. EU Policy and interest in relation to Nord Stream 2 ...41
EU Policy and Nord Stream 2 ...42
EU interests and Nord Stream 2...45
Conclusion ...49
Bibliography ...54
EU documents ...54
German policy documents ...54
Official Nord Stream 2 documents ...55
Secondary Literature ...56
News Articles ...59
Video ...62
Appendix 1: Transcription Interview with Stephan Slingerland (translated from Dutch)...64
2
Introduction
‘I have a strong preference for pipelines that unite rather than for pipelines that divide.’1
Former President of the European Commission (hereinafter referred to as the ‘Commission’), Jean-Claude Juncker, made the above statement in a speech at the 20th Saint Petersburg International Economic Forum in 2016. In this statement, Juncker was referring in particular to Nord Stream 2 as a pipeline that divides the EU.2 On 5 September 2015, Gazprom and its five Western European partners (Shell, OMV, Unipiper, Wintershall and Engie) signed an agreement on the construction of Nord Stream 2 in Vladivostok. Nord Stream 2 will stretch approximately 1200 kilometres under the Baltic Sea. The construction of Nord Stream 2 is controversial, mostly because of its possible geopolitical implications. Many different actors fear that Russia’s dominant position as a supplier of the gas market in the European Union (EU) will grow, and that Central and Eastern European countries (i.e. Poland and Ukraine) will lose their role as transit countries. This would make it easier for Gazprom to bypass these Central and Eastern European countries (non-EU-countries and EU member states), which would make them more vulnerable to Russian pressure.3
Furthermore, Nord Stream 2 is contradictory to the Energy Security Policy of the EU. An important issue in this policy is the gas dependence of many EU member states on Russia. A European Energy Union was designed, and the stated goals are clear on this subject: diversify natural gas sources and increase competition.4 In 2014, 40 percent of the EU natural gas imports came from Russia, and Russia exported 71 percent of its gas to Europe. Moreover, six EU member states depended on Russia as single external supplier from their entire gas imports.5
1 ‘Speech by President Jean-Claude Juncker at the 20th Saint Petersburg International Economic Forum 2016’,
European Commission (16-06-2016).
2 ‘Speech by President Jean-Claude Juncker at the 20th Saint Petersburg International Economic Forum 2016’. 3 A. Goldthau, ‘Assessing Nord Stream 2: Regulation, Geopolitics and Energy Security in the EU, Central Eastern
Europe and the UK’, EUCERS (2016), 2, 7.
4 A. Vihma and M. Wigell, ‘Unclear and Present Danger: Russia’s Geoeconomics and the Nord Stream 2 pipeline’,
Global Affairs 2:4 (2016), 382.
5 ‘Communication from the commission to the European Parliament and the Council: European Energy Security
3 The new pipeline will follow the existing Nord Stream route through the Baltic Sea, and this would double the capacity of the existing Nord Stream line. The project consists of two new strings with a total capacity of 55 billion cubic meters (27,5 bcm each string). Combined with the two strings of Nord Stream 1, the capacity would be 110 bcm.6 The existing European pipeline network gives Gazprom a total capacity of 261 bcm per year, this includes: 142 bcm via Ukraine, 48 bcm via Belarus and Poland, 55 bcm via Nord Stream I and 16 bcm to Turkey.7
The first Nord Stream project started in 2005 and the construction of this pipeline was also criticized by many. Specifically, Poland was highly critical at the time, and now is the most vocal opponent against Nord Stream 2 as well.8 In 2005, when the Nord Stream project started, the Polish Minister of Foreign Affairs regarded the project as a ‘new Molotov-Ribbentrop Pact’, referring to how the Soviet Union and Nazi-Germany divided Poland in 1939 at the start of the Second World War.9 Moreover, another reason for the controversiality of the construction of the first Nord Stream pipeline, is the strong lobby behind it in Germany and the role of the former Chancellor of Germany; Gerhard Schröder. In 2005, before Schröder resigned, he agreed to start the construction of Nord Stream, and just after he resigned, he accepted a high position as a chairman of the supervisory committee of Nord Steam. This job change was heavily criticised in Germany and was regarded as a conflict of interests.10
The construction of the first Nord Stream pipeline was undesirable according to many politicians, scholars, and EU institutions. Yet, Nord Stream 2 is even more controversial. Since the start of the Nord Stream project, Russia has had two gas conflicts with Ukraine (2005, 2009), Georgia has been invaded (2007) and Crimea was annexed (2015). Putin brought traditional geopolitics into play and Central and Eastern Europe feared the increasing pressure from Russia.11 Moreover, the Association Agreement with Ukraine was signed in 2014, and
6 J. Dudek and A. Piebalgs, ‘Nord Stream 2 and the EU Regulatory Framework: Challenges Ahead’, Robert
Schuman Centre for Advanced Studies (2017), 2.
7 J. Sharples, ‘The Shifting Geopolitics of Russia’s Natural Gas Exports and their Impact on EU-Russia Gas Relations’,
Geopolitics 21:4 (2016), 891.
8 Vihma and Wigell, ‘Unclear and Present Danger’, 382-383.
9 S.F., Szabo, Germany, Russia and the Rise of Geo-Economics (London 2015), 3. 10 Szabo, Germany, Russia and the Rise of Geo-Economics, 76, 77.
4 the relations between Russia and the EU seemed to be at an all-time low since the end of the Cold War. Therefore, when Nord Stream 2 was announced in 2015 it was even more criticized than its predecessor. Nevertheless, the German government allowed the pipeline to be built in the following years despite this criticism from several EU member states, the Commission and even the United States (US).12
The American aversion towards this project is so strong that, in December 2019, the US imposed sanctions on companies working on Nord Stream 2. As a result, Nord Stream 2 will be operational later than predicted.13 Russia itself will now work on the pipeline and finalize the project. As an alternative to Russian gas, the US offered to sell their Liquified Natural Gas (LNG) to Poland and other European countries that are affected by Nord Stream 2. The American LNG is in theory more expensive than the Russian gas from its pipeline network. Putin responded to the US sanctions and their offer to sell LNG to Europe with the message that he is an advocate of open and fair competition, and that Russian gas is simply cheaper than US LNG. Therefore, according to Putin, Russia will always have an absolute advantage.14 German Chancellor Merkel was critical of the sanctions from the US. At the same time the Chancellor was not impressed, because the sanctions would not be effective enough to stop the project. Moreover, Merkel emphasised the role of private actors in the construction of Nord Stream 2, while she downplayed the role of the German government in the project.15
The existing literature on Nord Stream 2 analyses the geopolitical consequences of the pipeline and the possibility of whether Russia would use its gas exports as a weapon against EU member states is discussed as well. For example, in the article ‘The geopolitical impact of Nord Stream 2’ by B. Sziklai, L. Koczy and D. Csercsik, it is emphasized that the Central and Eastern European countries are being hit harder by the pipeline than the Western European countries. The Western European countries and Germany in particular, would only see the commercial benefits of the pipeline. In contrast, the Central and Eastern European countries
12 D. Bellamy, ‘Nord Stream 2 Pipeline Construction to press on US Sanctions’, Euronews (2019).
<https://www.euronews.com/2019/12/21/us-sanctions-on-nord-stream-2-pipeline-could-freeze-construction>
13 Bellamy, ‘Nord Stream 2 Pipeline Construction to press on US Sanctions’.
14 Russia Insight, ‘Putin on Nord Stream 2: Some don’t like open and fair competition on gas market’, Youtube
(15-07-2017). <https://www.youtube.com/watch?v=kvqYnPwux3s>
15 G. Chazan, ‘Angela Merkel hits out at US Sanctions on Nord Stream 2 Pipeline’, Financial Times (2019).
5 tend to be more cautious on this subject due to their Soviet past.16 Furthermore, in the article ‘Unclear and present danger: Russia’s geo-economics and the Nord Stream 2 pipeline’ by A. Vihma and M. Wigell, the Nord Stream 2 project is seen as an illustration of Russia’s strategy to drive wedges between EU member states. According to Vihma and Wigell, Nord Stream 2 could potentially undercut Germany’s leadership role in the EU, erode solidarity between EU member states and create policy incoherence for the EU vis-à-vis Ukraine.17
In the literature on EU-Russia gas relations in general, the negative geopolitical consequences of the EU’s dependence on Russian gas are acknowledged, but also downplayed. LNG in particular plays an important role in minimizing the threat of Russia’s
energy weapon, according to many analysts. In the article ‘EU-Russia Gas Blues’ by G. Luciani,
an overview is given of the complex EU-Russia relations when it comes to gas. Luciani argues that Nord Stream 2 is a large investment for Russia, therefore making it highly unlikely for the Russians to cut-off gas flows through a newly built pipeline. Luciani advises the EU to ensure that Russian gas is no longer an issue of necessity by improving gas interconnections within the EU and increasing LNG capacity. 18 In the article ‘Deconstructing the “energy weapon”: Russia’s threat to Europe as case study’ by K. Smith-Stegen, it is examined whether Russia would use gas pipelines to influence EU member policies to extract political concessions. According to Smith-Stegen, even weak and highly dependent states such as the Baltic countries and Georgia were able to resist Russia’s energy weapon. So, she therefore argues that Germany and other EU member states should be able to resist Russia’s energy weapon. Yet, Smith-Stegen also affirms that Russia can use the pipeline as an energy weapon. According to Smith-Stegen, the EU member states should take the Russian threat seriously and they should use policy tools, renewables, and LNG to reduce dependence on Russian gas.19
In the previous literature on Nord Stream 2 and EU-Russia gas relations in general, the negative consequences of increased gas dependency towards Russia, for EU member states,
16 B. Sziklai, L. Kóczy, and D. Csercsik, ‘The Geopolitical Impact of Nord Stream 2’, IEHAS discussion papers 1821
(2018), 1, 16.
17 Vihma, and Wigell ‘Unclear and Present Danger’, 377-378.
18 G. Luciani, ‘EU-Russia Gas Blues’, Journal of International Affairs 69:1 (2015), 27.
19 K. Smith-Stegen, ‘Deconstructing the “Energy Weapon”: Russia’s Threat to Europe as a Case Study’, Energy
6 are acknowledged. Furthermore, this MA thesis is inspired by the book Carbon Democracy by Timothy Mitchell. Mitchell’s analysis confirms that increased gas dependency towards Russia could have negative consequences for EU member states. In Carbon Democracy, the infrastructure of oil is not only seen as a mechanism to ensure the supply and pricing of oil, but also as a manifestation of an empire and geopolitical power.20 Natural gas is becoming increasingly important to global economies due to process of decarbonisation. Natural gas is a hydrocarbon itself, though the global warming emissions from its combustion are much lower than those from coal or oil. Therefore, natural gas is presented as a useful back-up fuel for renewables.21 Consequently, natural gas is becoming more important in obtaining geopolitical power, and the pipeline infrastructure of Russia gives it more power to influence EU member states. Therefore, the argument Mitchell makes regarding the infrastructure of oil is also applied in this research on natural gas: the gas infrastructure of Russia is a manifestation its geopolitical power.22 Nord Stream 2 is part of this infrastructure and potentially expands Russia’s geopolitical power over EU member states. This will be elaborated in the third chapter of this MA thesis.
Germany has been the most important defender of the pipeline and is, according to policy documents of its parliament and government, fully aware of possible negative geopolitical consequences of the pipeline. The book Germany, Russia and the rise of
Geo-Economics written by S.F. Szabo is particularly important to this MA thesis to understand the
German position on Nord Stream 2. According to Szabo, Germany in general is finding a global role in which its interests do not always coincide with the US or its European partners. Germany is evolving a closer relationship with Russia in which it elevates economic interests over non-economic values such as human rights or democracy. Germany is to some extent an advocate for Russia within the EU, especially when it comes to cooperation centred around energy. According to Szabo, Germany is driven by economic self-interest and is insensitive to the EU energy security policy. Szabo argues that Nord Stream 1 and 2 are illustrations of this.23
20 T. Mitchell, Carbon Democracy: Political Power in the Age of Oil (London 2011), 143.
21 N. Das, O. Langhelle and J. Roy, ‘Natural gas: A transition fuel for sustainable energy system transformation’,
Energy Science and Engineering (2019), 1075.
22 Mitchell, Carbon Democracy, 143.
7 The Commission opposes the project not only according to their policy papers, but the concerns of the Commission were also often verbally addressed.24 For example, former President of the Commission Juncker stated in 2016:
‘The impact of a pipeline such as Nord Stream 2 goes beyond the legal discussions. If built, Nord Stream 2 could alter the landscape of the EU’s gas market while not giving access to a new source of supply or a new supplier, no market operator should be able to leverage a position of dominance to the detriment of competitors and consumers.’25
This MA thesis will move beyond the academic and political debate on Nord Stream 2. Previous academic research and political discussion focused on the possible geopolitical consequences of Nord Stream 2. According to many scholars and politicians, Nord Stream 2 will have negative geopolitical consequences. Moreover, the EU was outspokenly against Nord Stream 2, but the construction of it continued nonetheless. The reasons behind Nord Stream 2 have not been analysed by scholars. Research conducted on this topic could give new insights into the changing relations between Germany, Russia and the EU, as well as the energy relations in Europe in general.
By questioning ‘why’ Nord Stream 2 is being built instead of analysing the consequences of Nord Stream 2, this MA thesis aims to fill up the gap in the scholarly literature. The following research question will be answered in this MA thesis: Why, despite opposition from so many quarters in Europe, and amidst deteriorating relations with Russia more generally, is Nord Stream 2 being built? Answering this question is not only interesting to scholars but to politicians and policy makers in the EU as well. The continuation of the construction of Nord Stream 2 reveals how conflicting EU interests on the subject of energy harm the unity of the EU and the EU’s position towards Russia. Therefore, this MA thesis is more than an explanation on Nord Stream 2. This MA thesis is a case study on the Germany-Russia relations, the EU-Germany-Russia relations and on the position of Germany in the EU.
24 Vihma, and Wigell, ‘Unclear and Present Danger’, 383.
25 G. Baczynska, and A. Carbonnel, ‘EU’s Juncker says doubt over Nord Stream 2 pipeline plan ‘beyond legal’,
Reuters (16-06-2016). < https://de.reuters.com/article/uk-energy-nordstream-eu-juncker-exclusiv/exclusive-eus-juncker-says-doubts-over-nord-stream-2-pipeline-plan-beyond-legal-idUKKCN0Z229U>
8 In addition, before examining the reasons behind Nord Stream 2 in the next chapters of this MA thesis, it is important to emphasize that the construction of Nord Stream 2 was not a necessity. Without Nord Stream 2 the EU has enough capacity in the form of LNG terminals and pipeline networks to import all the gas it needs, as will be explained in the second chapter of this MA thesis.26
The main question of this MA thesis will be answered by five sub-questions in five chapters:
1. What is the geopolitical context in which Nord Stream 2 is being built?
2. Why was Nord Stream 2 preferred by Germany (and its Western European partners) above alternatives?
3. To what extent is it possible for Russia to use its pipelines to gain (geo)political power over EU member states?
4. How can the construction of Nord Stream 2 be reconciled with Germany’s domestic politics and interests?
5. How can the construction of Nord Stream 2 be reconciled with EU policy and interests? There is a lack of relevant and up-to-date academic sources written specifically on Nord Stream 2, due to the fact that Nord Stream 2 was announced only in 2015 and is still being built. Furthermore, most academic sources focus on the geopolitical consequences of Nord Stream 2 and not on the reasons behind the project. Therefore, a wide range of sources are used to answer the main question of this MA thesis. I used policy documents of the EU and the German government to define and analyse the positions of the EU and Germany on Nord Stream 2. Additionally, I used secondary literature and news articles on topics related to the subject of this MA thesis. The secondary literature consists of position papers on Nord Stream 2 and academic articles and books on EU-Russia relations, Germany-Russia relations,
26 M. Günther and V. Nissen, ‘Gas Flows and Gas Prices in Europe: What is the Impact of Nord Stream 2’, Enerday
9 the energy security of the EU and Nord Stream 2 itself. News articles are used from a variety of sources to obtain an independent view on the Nord Stream 2 project.27
27 I want to thank Stephan Slingerland, Senior Research Associate of the Clingendael International Sustainability
Centre (CISC), and Hanco Jürgens, Academic Researcher of the Duitsland Instituut in Amsterdam, for their contribution. The interviews with these experts contributed to the analysis in this thesis regarding the role of decarbonization and the role of German domestic politics in the construction of Nord Stream 2.
10
1. The EU, Germany, and Russia
One cannot understand the construction of Nord Stream 2 without the context of the relations between the EU, Germany and Russia. In this chapter the following question will be answered: What is the geopolitical context in which Nord Stream 2 is being built? This question will be answered by first looking into the international relations strategies of the EU, Germany, and Russia by theoretical frames. Secondly, the (historical) relationship between Germany and Russia will be examined. Thirdly, the position of Germany in the EU will be analysed by focusing on the gradual expansion of Germany’s dominance in the EU in past decades. What becomes clear in this chapter is that the EU takes the role of a liberal actor even as the world of energy turns more realist which makes the EU incapable of protecting the interests of smaller EU member states to countries as Russia and Germany. Additionally, Germany has a strong historical, political and economic relationship with Russia and Germany has a dominant position in the EU. These factors created the grounds for the construction of Nord Stream 2 in the first place.
Theoretical frames
It is hard to determine which theories to apply to the relations between the EU, Germany, and Russia, because these actors have different approaches in the international relations. Moreover, since the oil crisis of 1973, several disciplines have tried to explain the complex space of energy by using theories. However, no theory was able to tackle the complexity of global energy trade.28 Nevertheless, despite the difficulty to use theories on the geopolitical context in which Nord Stream 2 is being built, it is still important to briefly discuss it in a theoretical framework, because it helps to understand the motives and interests of the EU, Germany and Russia on this subject.
When comparing the foreign relations strategy of the EU, Germany and Russia, Russia behaves the most as a realist actor. The sales of natural gas are crucial to Russia’s economic growth and to the legitimacy of the domestic leadership. Therefore, Russia’s external strategy, when it comes to gas, is focused on the security of markets. Moreover, Russia is
28 P. Aalto and D. Dusseault et al, ‘Russia’s energy relations in Europe and the Far East: towards a social
structurationist approach to energy policy formation’, Journal of International Relations and Development 17 (2014), 2.
11 currently a regional key player, but it has the ambition to become a global power again. Russia is assertive in securing its markets, because the economic and (geo)political stakes are high.29 This assertiveness is often labelled as ‘imperialist’ by Central and Eastern European countries. This conviction of the Central and Eastern European countries fits well in Mitchell’s theory mentioned in the introduction: the gas infrastructure of Russia is a manifestation of its empire and geopolitical power.30 However, Russia tends to present itself as a liberal actor when it suits its own best interests.31 In a recent interview, Russian President Putin stated that he is in favour of an open and fair competition in the EU gas market. Putin responded with this message to the American sanctions and their offer to sell LNG to Central Europe. Russian gas is simply cheaper than American LNG. Therefore, according to Putin, Russia will always have an absolute advantage.32
Germany is a more realist actor as well. However, the German version of realism is a more economic form. In Germany, Russia and the Rise of Geo-economics, by S. Szabo, Germany’s realism is referred to as geo-economics (commercial realism). It is similar to traditional realism, but it puts the national economic interest as the ultimate value in state’s foreign policy.33 According to Vihma and Wigell, in ‘Unclear and Present Danger’, Nord Stream 2 fits clearly in this theory: despite the conflicts between Russia and Ukraine in 2015 in which Germany supported Ukraine, Germany allowed Nord Stream 2 to be built, because it seemed in their economic interest. In addition, Gazprom is the largest joint stock company of Russia, and the Russian government has a controlling stake of just above 50 percent. When Gazprom is presented, like Putin does, as a more or less independent enterprise instead of an extension of the Russian state, the Russian external gas strategy could be seen as geo-economical as well: it is apolitical, and its strategy is based on commercial interest.34
Therefore, the EU is the odd one out. Since the 1990s the EU is using a market-based liberal model when it comes to international energy trade. However, increasingly assertive producer states (Russia, China and the United States) and rising resource nationalism (=the
29 Aalto and Dusseault et al, ‘Russia’s energy relations in Europe and the Far East’, 2-4. 30 Mitchell, Carbon Democracy, 143.
31 Aalto and Dusseault et al, ‘Russia’s energy relations in Europe and the Far East’, 2.
32 Russia Insight, ‘Putin on Nord Stream 2: Some don’t like open and fair competition on gas market’, Youtube
(15-07-2017). <https://www.youtube.com/watch?v=kvqYnPwux3s>
33 Szabo, Germany, Russia and the Rise of Geo-Economics, 8. 34 Vihma and Wigell, ‘Unclear and Present Danger’, 378.
12 tendency of governments to assert control over national resources on their territory) undermine this liberal strategy of the EU. The EU is aware of these developments but tries to meet these challenges still with its liberal approach; centred on the open market.35 The Commission is acting as the regulator of the open market of the EU and it is obligated to act according to the market-based liberal model. Nevertheless, in most cases there is plenty of room for ambivalent interpretation, causing the Commission to sometimes deviate from its liberal strategy if geopolitical stakes are too high.36
In the case of Nord Stream 2, the Commission expressed their concerns over the project, because it feared that Gazprom’s dominant position in the EU gas market would increase. The Commission was unable to block the project because it had not the legislative power. Moreover, Germany’s position in the EU was and still is too strong to be pressured to abandon the Nord Stream 2 project. Therefore, Nord Stream 2 has revealed the weakness of the EU in international relations. The rest of the world is becoming less inclined to stick to the liberal market model, whereas the EU is still a supporter of this model. Because of its liberal strategy, the EU is not capable of protecting the interest of smaller EU member states or the EU’s interest in general.
Germany-Russia relations in the (recent) past
Germany and Russia have very complex ties. In one perspective, we could argue that both countries are sworn enemies if we reflect back to the wars in the 20th century. From another perspective, they are an economic match: Germany needs Russia’s resources and Russia needs German technology and capital.37
West-Germany and Russia were able to maintain their strong relationship even during the Cold War. During the 1960s, at the height of the Cold War, West-Germany agreed to buy gas from Russia. Furthermore, the East-Germans have close ties to Russia because of its communist and Warsaw pact past. Therefore, Germany functions naturally as the bridge between other European states and Russia.38 The Germans tend to believe it was their
35 Goldthau and Sitter, ‘A Liberal Actor in a Realist World?’, 1453-1454. 36 Ibidem, 1468.
37 R. Newnham, ‘Germany and Russia Since Reunification: Continuity, Change, and the Role of Leaders’, German
Politics and Society 35:1 (2017), 43-44.
13
Ostpolitik from the 1970s that helped to end the Cold War peacefully, and that Germany was
reunified because of the engagement with the other side. Ostpolitik was the normalization in relations between West-Germany and Eastern-Europe (in particular East-Germany). For this reason, many German politicians stress the importance of a constructive relationship with Russia.39
Friendships between leaders remain an important factor in friendships between states.40 The relationship between Putin and Merkel is an important factor contributing to today’s relationship between Russia and Germany. Both leaders are illustrations of this historical relationship between Germany and Russia. Putin speaks German because he worked during the Cold War as a KGB-agent in the GDR, whereas Merkel grew up in the GDR and learned Russian because of that.41 However, Germany and Russia moved away from their “special partnership” since Merkel became Chancellor in 2005, despite Putin and Merkel speaking each other’s languages. The relationship between Merkel and Putin could be characterised as more sober when compared to previous relationships between predecessors such as Helmut Kohl and Boris Yeltsin, or Gerhard Schröder and Putin.42
Helmut Kohl was the chancellor of Germany from 1982 to 1998. During his lengthy period as chancellor, he experienced the decline of the Soviet/Russian power under Mikhail Gorbachev and Yeltsin, and the reunification of Germany. Kohl was able to build a relationship of trust with Gorbachev. The relationship between Gorbachev and Kohl developed into a real friendship, which had a positive effect on the negotiations between the Germans and Russians in the reunification of Germany.43 Kohl also seemed to be able to build an even closer relationship with Yeltsin. It was called a sauna-friendship, after Kohl and Yeltsin had enjoyed a sauna together at a summit in 1993. Under Kohl, Germany actively supported efforts to bridge the gap between NATO and Russia. Moreover, Kohl personally pressed the US, Japan
39 Szabo, Germany, Russia and the Rise of Geo-Economics, 11. 40 Newnham, ‘Germany and Russia Since Reunification’, 46. 41 Ibidem, 1-2.
42 S. Meister, ‘Germany’s Russia Policy under Angela Merkel: A Balance Sheet’, Polish Quarterly of International
Affairs 22:2 (2013), 29-30.
14 and other Western nations to increase grants, loans and other programs supporting Russia because of Russia’s drastic economic decline.44
The start of the Nord Stream project seems to be a direct result of the strong personal relationship between Schröder and Putin.45 The friendship between Schröder and Putin is essential in understanding the current relations between Germany and Russia. Especially the energy relations between Germany and Russia would not have been the same without Schröder. Before Schröder stepped down in 2005, he underwrote a loan of 1 billion USD to Gazprom to help them initiate work on the first part of Nord Stream. If an event would occur in which Gazprom would be unable to pay the loan back, the German government would pay much of the company’s debt. Schröder resigned shortly after underwriting this loan to Gazprom. After the plan of building the first Nord Stream project was announced, he accepted a position as chairman of the supervisory committee of the North European Gas Pipeline Company (NEGPC), which was responsible for the construction of Nord Stream.46 The
Washington Post’s reaction summarizes this problematic event clearly:
‘It’s one thing for a legislator to resign his job, leave his committee chairmanship and go to work for a company over whose industry he once had jurisdiction. It’s quite another thing when the Chancellor of Germany leaves his job and goes to work for a company controlled by the Russian government that is helping to build a Baltic Sea pipeline that he championed while in office.’47
After the Cold War, the balance of power between Russia and Germany had shifted in favour of Germany. Russia has not been regarded as a threat since the collapse of the Soviet Union. Mainly because the borders of both countries are now thousand kilometres away from each other, but also because of the demographic decline of Russia. At the time of its collapse,
44 Newnham, ‘Germany and Russia Since Reunification’, 48-49. 45 Ibidem, 43.
46 Szabo, Germany, Russia and the Rise of Geo-Economics, 76-77. 47 ‘Gerhard Schröder’s Sell Out’, The Washington Post (13-12-05).
<https://www.washingtonpost.com/gdprconsent/?next_url=https%3a%2f%2fwww.washingtonpost.com%2farc
15 the Soviet Union had a population of almost 300 million, whereas West-Germany had a population of 63 million. Today Germany has 80 million inhabitants and Russia 140 million.48 More important is the economic lead Germany currently has. Before reunification, West-Germany had a GDP of 945 billion USD and the Soviet Union had an estimated GDP of 2.66 trillion USD. Today the GDP of Germany is 3.82 trillion USD whereas Russia only has an GDP of 2 trillion USD. Therefore, the GDP of Germany is almost twice as large of that of Russia, and this shift in the balance of power lead to Germany and Russia now perceiving each other on relatively equal terms.49 In contrast to smaller EU member states, Germany is strong enough to face Russia alone, because of its economic lead in front of Russia. According to S.F. Szabo, in recent decades Germany has transformed into a geo-economic superpower and it even has the leverage to use economic power to impose preferences on nations like Russia. This explains why Germany is not afraid to make bilateral arrangements with Russia without the support of the EU or even some EU member states.50
Germany and the EU
In today’s EU, Germany has a dominant position. However, Germany (or, rather, West-Germany) was not instantly a dominant power when the European Coal and Steel Community (ECSC) was founded in 1951 or when it was extended and renamed to the European Economic Community in 1957. During the time of the forerunners of the EU, Franco-German leadership was important, and this did not change in 40 years. However, German dominance grew gradually in the second half of the 20th century because of German economic growth. Furthermore, after the re-unification in 1991, not only did Germany become economically dominant in the EU, but also demographically, which severely changed the balance of power in the EU institutions. From that moment on, Germany and France were not equals to each other anymore. Still, in the first two decades, the appearance of equality between France and Germany was maintained.51
Ever since the Second World War, Germans have been aware of the importance of improving their image in Europe. The Germans positioned themselves as a friend of smaller
48 Szabo, Germany, Russia and the Rise of Geo-Economics, 15-16. 49 Newnham, ‘Germany and Russia Since Reunification’, 44-45. 50 Szabo, Germany, Russia and the Rise of Geo-Economics, 8-9. 51 P. Lever, Berlin Rules: Europe and the German Way (2019), 1-3.
16 member states in the EU, especially under former Chancellor Helmut Kohl.52 Kohl argued that it was because of the German power and its history that Germany should be sensitive to the interest of smaller EU member states.53
The big EU enlargement to the east of 2004 gave Germany geographically a more central position in the EU. However, partly due to the strong relationship between Putin and Schröder, the trust of the new Central and Eastern EU member states towards Germany was damaged. Merkel to some extent restored the damage done by Schröder but was faced in 2008 with a new problem: the economic crisis.54 The Franco-German leadership was based on their superior political, social, and economic performance. When the economic crisis revealed the economic vulnerability of Germany and France, their position was weakened. In the end, mainly France, due to the aftermath of the economic crisis, could not be presented as a role model developing EU countries anymore.55
The German position was not weakened by the economic crisis. On the contrary, the Germans took the leadership role of the EU solely upon themselves. The stakes for Germany became too high when the existence of the Euro was threatened, and the new German toughness made its entry into the EU. From that moment, the German government was not interested in being liked by smaller member states anymore.56 Currently, Germany is not an absolute power in the EU, but the German government is often able to exert veto power within the EU. Furthermore, the Franco-German relationship has changed to that of a junior and senior partner, in which Germany is of course the senior partner. Formally, the German position was not different to that of other member states in the EU. In theory, the Commission drafts proposals, while it is up to the European Council and European Parliament to make decisions. However, in practice the German viewpoint on matters is sought after by the Commission before it makes proposals, and the German viewpoint is also taken into
52 V. Handl and W. Paterson, ‘The Continuing Relevance of Germany’s for CEE and the EU’, Communist and
Post-Communist Studies 46 (2013), 327.
53 Lever, Berlin Rules: Europe and the German Way, 130.
54 Handl and Paterson, ‘The Continuing Relevance of Germany’s for CEE and the EU’, 329.
55 J. Schild, ‘Mission Impossible? The Potential for Franco-German Leadership in the Enlarged EU’, Journal of
Common Market Studies 48:5 (2010), 1385.
17 consideration by other governments before they make decisions, especially on subjects related to economics, finance, and foreign policy towards Russia.57
Furthermore, EU structures are very similar to the structures of Germany itself. Therefore, the Germans can easily find their way in EU institutions; the EU is recognizable political territory. The four key institutions of the Federal German Republic, the government, Bundestag, Bundesrat and Constitutional Court, are the equivalents of the Commission, European Parliament, European Council and the European Court of Justice.58 The German governmental model is implemented, not because of German influence, but merely because the Germans show they know how. Because thanks in part to this model, Germany became one of the most wealthy and powerful countries in the world.59
Another important factor influencing Germany’s position in the EU, is the Brexit. Even when the United Kingdom (UK) was still part of the EU, Germany was already pulling the strings. Now that the UK has left the EU, Germany’s position is strengthened even more, especially regarding EU foreign policy. In the recent past, particularly the UK and France determined the overall direction of the EU foreign policy, due to their sphere of influences in Asia and Africa and their place in the UN Security Council.60 Since Brexit, Germany is more capable of shifting the EU towards a foreign policy direction it sees fit, and it will not come as a surprise that Russia could play a large role in this EU foreign policy shift.61 In addition, it is questionable whether there is a real German vision on European integration at all. Some German politicians, variating from social democrats to conservatives, considered the establishment of a political union in Europe as a logical outcome in the long-term. However, many other German politicians from different German parties do not want their country to disappear gradually from the international stage due to European integration. What is clear, is that German government does not have to be afraid of handing over power to the EU
57 Lever, Berlin Rules: Europe and the German Way, 3-6. 58 Ibidem, 98-99.
59 Ibidem, 59.
60 I. von Weitershausen, ‘German Leadership between Change and Continuity: Reflections on the posible effects
of “Brexit”’, Global Affairs 2:5 (2016), 513.
18 institutions. The German dominance is so strong that they can confidently face a more integrated union.62
To conclude, what is the geopolitical context in which Nord Stream 2 is being built? In this research, Russia is perceived as realist actor, who desires to widen its global power, partly by use of its gas exports. Furthermore, Germany is seen as commercial realist actor who thinks geo-economically and is merely driven by economic interest. Lastly, the EU is a liberal actor who wants to protect the open market from dominant players, yet with regard to Nord stream 2, lacks the power to impose this interest. With this liberal approach the EU places itself in a difficult position against realist actors such as China, Russia, and the US. Furthermore, the relationship between Russia and Germany has changed drastically in the past decades. Today, Russia and Germany regard each other as equal partners. This explains why Germany is not afraid to make bilateral arrangements with Russia. Additionally, the Germans have a dominant role in the EU and are now capable of determining the overall direction of EU foreign policy. Nord Stream 2 is a consequence of this and an illustration of how Germany is dominating the EU.
19
2. Alternatives to Nord Stream
Why was Nord Stream 2 preferred by Germany (and its Western European partners) above alternatives? Currently, Western European countries do not necessarily need Nord Stream 2 to import the gas they need, mainly because of the Ukrainian transit route.63 However, the existing Ukrainian gas network needs to be refurbished to remain operational in the (near) future. An alternative to import more gas via pipelines is to import Liquified Natural Gas (LNG) from the US. The EU also has enough LNG terminals with enough capacity to import all the LNG they need.64
This chapter focuses on two alternatives: the refurbishment of the Ukrainian gas network system and the possibility to import LNG from the US. Furthermore, the influence of geopolitical considerations on the choice between Nord Stream 2 and these alternatives will be analysed as well. Important to note is that one alternative does not have to exclude the other. Especially the combination of the refurbishment of the Ukrainian gas network system and the increase of LNG imports from the US would have been a decent alternative to Nord Stream 2.
Refurbishment of the Ukrainian gas network system
‘I made very clear that a Nord Stream 2 project is not possible without clarity over the future transit role of Ukraine. So as you see, it’s not just an economic issue but there are political considerations as well.’65
German Chancellor Merkel made statements like the one above several times to emphasize that Ukraine will maintain its role as transit country, even after Nord Stream 2.66 In December 2019, Ukraine and Russia struck a deal in which both sides guaranteed the flow of natural gas to the rest of Europe for the next five years through Ukrainian territory. The agreement was signed just a day before the previous agreement expired and just a few days after the US
63 ‘LNG in the Europe 2018: An Overview of LNG Import Terminals in Europe’, King & Spalding (2018), 1,2.
64 ‘LNG in the Europe 2018: An Overview of LNG Import Terminals in Europe’, 1,2.
65 K. Connolly, ‘Merkel tells Putin not to exclude Ukraine from gas pipeline route’, The Guardian (10-04-2018).
< https://www.theguardian.com/world/2018/apr/10/merkel-tells-putin-not-to-exclude-ukraine-from-gas-pipeline-route>
20 imposed sanctions towards companies that worked on Nord Stream 2. However, soon the flow through Ukraine will be phased out, due to the lack of maintenance in the past 30 years of the Ukrainian gas network. 67
There is no up-to-date information on the physical state of the Ukrainian gas transport network. However, it is commonly known by gas experts in Europe and Russia that the gas transport network suffered from years of underinvestment in maintenance and upgrades during the 1990s and 2000s. The biggest part of the network is more than 30 years old and the efficiency of the gas compressor stations (which pump the flow of gas to its destination) is less than 29 percent.68 Furthermore, the Ukrainian gas transport system is also marked by Nord Stream AG (the international consortium established in 2005 for the planning, construction and subsequent operation of Nord Stream) as unreliable, due to the many disruptions that occur. Since 2013, several issues, such as gas leaks, depressurisation and pipe body damage, have been reported that are partly caused by the current conflict in Ukraine.69
In 2009, it was estimated by Ukrainian system operator Naftogaz, which is responsible for the maintenance of the system network in Ukraine, that a total refurbishment of the system network would cost three billion USD. According to Gazprom, this is a high number, but Naftogaz would have earned more than enough to transit fees paid by Gazprom to pay for such an investment.70 Russia pays Ukraine almost three billion USD in transit fees each year, and in the new deal between Russian and Ukraine, Russia pays Ukraine seven billion USD for the use of its gas network for the next five years.71 What is certain, is that the refurbishment of the Ukrainian gas transport network would cost far less than the construction of Nord Stream 2 when the estimated three billion USD are compared to the ten billion USD costs of Nord Stream 2.
More transparency and research are needed on the actual state of the Ukrainian gas network to decide whether the refurbishment of the Ukrainian gas network would have been a decent alternative to Nord Stream 2. Yet, the costs of Nord Stream 2 are more than three
67 N. Astrasheuskaya, G. Chazan, and R. Olearchyk, ‘Ukraine and Russia sign deal to secure European gas flows’,
Financial Times (31-12-2019). <https://www.ft.com/content/5c6733b2-2bc6-11ea-a126-99756bd8f45e>
68 S. Pirani, ‘Russian gas transit through Ukraine after 2019: the options’, Oxford Energy Insight: 41 (2018), 16-17. 69 ‘Market Study: Situation of the Ukrainian natural gas market and transit system’, 38-39.
70 Ibidem, 40.
21 times higher than the refurbishment of the Ukrainian gas network, which makes the latter option the better alternative in absolute economic terms. However, the fact is that Naftogaz has poorly maintained its network and this created distrust among the Russian supplier and the (Western) European demanders towards the Ukrainian gas network. Therefore, the Russians and the Germans and their Western European partners had fair reasons from a business standpoint, beside political motives, to support the construction of Nord Stream 2.
Liquified Natural Gas vs Nord stream 2
The Americans had a double agenda when they imposed sanctions on European companies that worked on Nord Stream 2. Of course, at first, the Americans were afraid that Gazprom would obtain an export monopoly to the European gas market. Secondly, the Americans wanted to sell their own Liquified Natural Gas to Germany and other European countries. The supporters of the pipeline argue that the sanctions are intended to push competitors out of the European market. 72 Whether US gas exports towards Europe will increase mainly depends on the relative prices of US-delivered LNG and Russian pipeline gas. The Russians are likely prepared to lower their gas price to maintain their position as the lowest-price supplier of Europe.73
The case of Poland is interesting in this light. Poland has recently announced that they will not sign a new deal with Russia. The Polish government stated that it will not buy Russian gas from 2022, because it wants to align its energy regulations with EU rules. Instead, the Poles chose alternatives above Russian gas; for instance, they will import Liquified Natural Gas from the US, despite the higher prices of LNG compared to the Russian gas.74 Therefore, the increase of LNG imports also depends on (geo)political considerations of the EU member states.
LNG from all over the world is transported to LNG terminals in which the LNG is stored. Currently, Spain has seven LNG terminals, the UK six, France four, Italy three and the
72 U. Hessler, ‘Nord Stream 2 Gas Pipeline Faces Sanctions under US Defense Bill’, Deutsche Welle (12-12-2019).
<https://www.dw.com/en/nord-stream-2-gas-pipeline-faces-sanctions-under-us-defense-bill/a-51641960>
73 J. Roberts, ‘Russia’s gas challenge: the consequences for China, Central Asia, Europe and the USA’, Journal of
World Energy Law and Business 9 (2016), 96-97.
74 V. Soldatkin and A. Barteczko, ‘Russia, Poland to cut decades old gas transit ties’, Reuters (15-05-2020).
< https://www.reuters.com/article/russia-poland-gas/poland-russia-to-cut-decades-old-gas-transit-ties-idUSL8N2CX3EF>
22 Netherlands, Greece, Portugal, Belgium, Poland and Lithuania one each.75 In 2018, three companies, Gasunie (Dutch), Oiltanking (German) and Vopak (Dutch), started the construction of a LNG terminal in Germany and this will be finished in 2022. The total capacity of the already operational terminals is 227 bcm and is enough to cover 40 percent of the total EU gas demand. Between 2008 and 2014, the LNG terminals of these countries had a utilisation rate of 20 percent, and in 2017 this only increased to 25 percent. This means that there is still room for 170,25 bcm per year in the European LNG terminals.76 Therefore, the Commission argued in 2017 that the EU does not need more pipelines, especially not when the Ukrainian gas network is refurbished. Moreover, there already is enough capacity in the EU in the form of LNG terminals. The only issue was the absence of a big supplier, but after the shale gas revolution, the US suddenly became the third exporter of LNG in the world and the Americans are now very interested in selling their LNG to EU member states.77
As mentioned in the previous chapter, the Commission aims to produce no net emissions of greenhouse gases in 2050 in the EU. The increase of the use of natural gas will be helpful in achieving this goal, yet this applies specifically to pipeline gas. This goal does not count completely for LNG, because of its higher net emissions of greenhouse gases. Emission factors that do apply for LNG, but not for pipeline gas, are liquefaction, shipping and regasification.78 Therefore, LNG has significantly higher net emissions than a typical pipeline gas value chain. Nevertheless, LNG is still a better alternative to other fossil fuels in the process of decarbonisation.79
The German government is aware of the benefits of LNG, but it emphasises the existing price differences between LNG and pipeline gas. Nevertheless, the German government is very interested in the development of the decreasing LNG prices, because it could boost competitiveness in the EU market. 80 Consequently, an LNG terminal is being built
75 ‘Germany Warms to Plan for LNG Terminal’, Deutsche Welle (24-10-2018). <
https://www.dw.com/en/germany-warms-to-plan-for-liquefied-natural-gas-terminal/a-46033286>
76 ‘LNG in the Europe 2018: An Overview of LNG Import Terminals in Europe’, 1,2.
77 J. Harper, ‘The US Gas Journey: From Rigs to Riches’, Deutsche Welle (28-11-2018).
<https://www.dw.com/en/the-us-gas-journey-from-rigs-to-riches/a-46488619>
78 J. Stern, ‘Challenges to the future of LNG: decarbonisation, affordability and profitability’, The Oxford Institute
for Energy Studies (2019), 11.
79 Stern, ‘Challenges to the future of LNG’, 30.
80 ‘Antwort der Bundesregierung: Europaïsche Gasversorgung und Förderung von Flüssiggas’, Deutscher
23 in Germany. The choice of the German government to use natural gas as a tool to reduce its greenhouse emissions is based on its long-term strategy: ‘The Energiewende’. ‘The Energiewende’ is instrumental in the major role Germany desires to play globally in climate protection.81 In this German long-term strategy, pipeline gas is a better fit due to its lower emission rates compared to LNG. A controversial part of the ‘Energiewende’, which was announced in 2011, was the phasing out of nuclear energy in Germany. The phasing out of nuclear energy in Germany was criticized by many EU politicians, because it was not aligned with the energy policies of other EU member states. Moreover, Merkel’s decision to end German reliance on nuclear energy went against previous CDU policies. CDU was afraid that such a shot down would increase German dependence on Russian energy. In retrospect, CDU was right. Phasing out nuclear energy opened the door for Gazprom to increase its cooperation with German energy companies, which contributed to the construction of Nord Stream 2.82
Geopolitics and LNG
As mentioned earlier, the increase of LNG imports also depends on geopolitical considerations of the EU member states. Therefore, when discussing LNG as an alternative to Nord Stream 2, it is important to analyse the changing relationship between the US and EU. No other regions in the world are as closely connected in economics, security and politics as the US and the EU. However, already under the leadership of Obama did the US foreign policy prioritize Asia, which could be derived off the fact that the US’s attention and resources were relocated to Asia. Furthermore, since the election of US President Donald Trump in 2016, the transatlantic relationship has been under increasing pressure.83
Recently, the French President Emmanuel Macron announced that the NATO is ‘brain death,’ declaring that the EU states could no longer rely on the US as an ally and that the real enemy of NATO is no longer Russia, but terrorism.84 The Polish and Baltic states were highly
81 ‘The German Energiewende’, Federal Foreign Office Germany (2011), 2. 82 Szabo, Germany, Russia and the Rise of Geo-Economics, 72.
83 M. Riddervold and A. Newsome, ’Transatlantic relations in times of uncertainty: crises and EU-US relations’,
Journal of European Integration 40:5 (2018), 505-508.
84 A. Chrisafis, ‘Macron criticized by US and Germany over NATO brain-death claims’, The Guardian (07-11-2019).
< https://www.theguardian.com/world/2019/nov/07/macron-warns-of-nato-brain-death-as-us-turns-its-back-on-allies>
24 critical on Macron’s statement, calling it a pro-Russian and anti-US stance.85 The cracks in the relationship between the US and the EU are caused by diverting perspectives on value and importance of multilateral cooperation and norms, but also by a fragmentated EU, which is reflected in the Nord Stream 2 project.86 The EU, but in particular Western Europe, is becoming a stronger autonomous actor in a weaker EU-US relationship. Choosing cheaper Russian gas above American LNG could be an illustration of this development.
In addition, the fragmentation of the EU, due to different norms and values, interests and (geo)political considerations, is seen in many crises. The Economic-crisis of 2008 revealed a North-South divide in the EU, and the Refugee-crisis of 2015 created an East-West divide. Similarly, the current Corona-crisis demonstrates, according to many of the European population, a lack of solidarity between the EU member states.87 Germany and its Western European partners did not stop the construction of Nord Stream 2, even after many Central and Eastern Europeans addressed their concerns towards the project. The fact that Germany and its Western European partners did not choose American LNG to protect the interest of fellow EU member states is an example of the lack of solidarity in the EU as well. Moreover, Nord Stream 2 has the potential to erode general solidarity within in the EU even more.88
So, why was Nord Stream 2 preferred by Germany (and its Western European partners) over other alternatives? Instead of building Nord Stream 2, the Ukrainian gas network could have been refurbished. This would even have been more than three times cheaper. Nevertheless, the Ukrainian gas operator, which was responsible for the badly maintained Ukrainian gas network, has not acted as a reliable partner. Therefore, the Russians and Germans and their Western European partners had fair reasons from a business standpoint, besides political motives, to support the construction of Nord Stream 2.
Furthermore, importing American LNG would have been a reasonable alternative to Nord Stream 2 for the Western European countries, especially when the Ukrainian gas
85 P. Wintour, ‘Macron defends brain-death NATO remarks as summit approaches’, The Guardian (28-11-2019).
< https://www.theguardian.com/world/2019/nov/28/macron-defends-brain-dead-nato-remarks-as-summit-approaches>
86 Riddervold and Newsome, ’Transatlantic relations in times of uncertainty: crises and EU-US relations’, 515. 87 S. Vallée, ‘Coronavirus has revealed the EU’s fatal flaw: the lack of solidarity’, The Guardian (28-04-2020).
< https://www.theguardian.com/commentisfree/2020/apr/28/eu-coronavirus-fund-share-crisis-soul-european-parliament-fiscal>
25 network would have refurbished. The increase of LNG imports partly depends on geopolitical considerations of the EU member states. However, the EU, and in particular Western Europe, is becoming a stronger autonomous actor in a weaker EU-US relationship. Therefore, it is becoming less obvious to give the US preference over Russia. In addition, increasing the imports of natural gas is helpful in the process of decarbonisation, yet pipeline gas is a better alternative than LNG on this issue. Therefore, Nord Stream 2 was preferred by Germany and its Western European partners above increasing American LNG imports.
26
3. The influence of Russian pipelines
Evidently, Russia is the biggest supporter of Nord Stream 2. As mentioned in the introduction, the analysis in this MA thesis is inspired by the book Carbon Democracy of T. Mitchell. This book focuses particularly on the importance of oil in shaping and controlling democracies. However, in Carbon Democracy, fossil fuels in general are discussed as well in addition to other related themes. Moreover, what applies to oil, applies to other fossil fuels such as natural gas: natural gas allows economies to increase in size, without any form of ultimate material constraint.89 In Carbon Democracy, fossil fuels are not treated as just a commodity. Mitchell argues that fossil fuels had an important role in the development of current political systems. For the Russian government, fossil fuels are essential to its economic development and the restoration of its ‘great power’ status in the international system.90 Furthermore, according to Mitchell, the infrastructure of oil, oil wells and pipelines must been seen as manifestation of empire and geopolitical power91 and this fits in well with the accusation that Russia, being a modern imperialist state, uses its gas to gain geopolitical power.92
The importance of oil to the world economy will decline in the next years and the use of gas will only increase because natural gas is seen as a useful back-up fuel to renewables.93 As a result, gas is becoming more important to the world economy and to the energy security of the world. Russia is the world largest gas supplier and is often accused of using its gas supplies and pipelines (its gas infrastructure) through Europe to influence domestic politics in EU member states. In this chapter the role of Russia’s pipelines in its geopolitical power will be examined, by asking the following question: To what extent is it possible for Russia to use its pipelines to gain (geo)political power over EU member states? Russia and the EU are highly interdependent of each other when it comes to gas. It is even harder for Russia to get access to other gas markets than for the EU to find other gas suppliers. Moreover, Russia has been a reliable energy supplier to (Western) Europe for forty years. Nevertheless, Nord Stream 2
89 Mitchell, Carbon Democracy, 143.
90 Khrushcheva, and Maltby, ‘The Future of EU-Russia Energy Relations in the Context of Decarbonisation’, 802. 91 Ibidem.
92 Aalto and Dusseault et al, ‘Russia’s energy relations in Europe and the Far East’, 2.
93 Y. Marusyk, ‘Securing a Spot under the Sun? Gas and Renewables in the EU-Russian Energy Transition
27 could be a big game changer which divides EU member states and enhances Russia’s influence over several EU member states.
Importance of gas exports to Russian economy
The Russian economy grew by 1 percent in 2019. Before the Corona crisis, economists estimated that the Russian economy would grow between 1.6 and 1.7 percent in 2020.94 The Russian economy is recovering from EU sanctions that were imposed in 2015. Yet even more damaging to the Russian economy was the decline of the oil prices. In 2015 the GDP of Russia fell with 2.7 percent after these sanctions and it noted only an economic growth of 0.7 percent in 2015.95 The biggest problems to the Russian economy, according to the World Bank, are its declining labour force (due to population ageing), its dependence on foreign investment and its dependence on energy exports. In 2019, energy exports accounted for 65 percent of total exports.96 The dependence on energy exports is harmful to the Russian economy, because of the fluctuating prices of for example oil, as shown by the current corona crisis. Furthermore, the dependence on the European market and the fluctuating gas demand of European countries are problems for Russia.97
In 2014, Russia exported more than 70 percent of its oil and 90 percent of its gas to the EU. This makes Russia and the EU interdependent to each other; the EU needs Russian gas, but the Russians need the EU market.98 Moreover, the dependence of the current EU member states has increased slightly in the past years, but it has decreased in past decades. Today, the EU countries import less gas from Russia than they did compared to the end of the Cold War. In 1990, the Russian share in the gas imports of the current EU member states was 75 percent and now the Russian share is 40 percent.99 Furthermore, the EU has ambitious plans to achieve 80-95 percent decarbonisation by 2050 and desires to diversify its suppliers of gas.100 A decrease of demand in the EU for fossil fuels would be disastrous for the Russians,
94‘Russia Economic Report’, The World Bank 42 (2019).
<https://www.worldbank.org/en/country/russia/publication/rer>
95 Roberts, ‘Russia’s gas challenge, 84.
96 ‘Russia Economic Report’, The World Bank 42 (2019).
<https://www.worldbank.org/en/country/russia/publication/rer>
97 Roberts, ‘Russia’s gas challenge’, 85.
98 Khrushcheva, and Maltby, ‘The Future of EU-Russia Energy Relations in the Context of Decarbonisation’, 800. 99 T. Casier, ‘Great Game or Great Confusion: the Geopolitical Understanding of EU-Russia Energy Relations’,
Geopolitics 21:4 (2016), 770.
28 while Russia depends highly on its energy exports and is even more dependent on the EU market. Therefore, the Russians want to diversify their gas export markets. Part of this diversification strategy is Turk Stream, the alternative to the South stream project and the Siberian gas line towards China.101 The Power of Siberia pipeline stretches more than 3,000 kilometres and it should export 38 bcm per year from 2025 onwards from the Russian east to north-eastern China. When the pipeline reaches its full capacity, it would make China the second largest gas customer of Russia, after Germany.102
The costs of the Power of Siberia pipeline are estimated at 55 billion USD and Russia’s investment in this pipeline reveals how determined the they are to get access to markets other than the EU market. For comparison: Nord Stream 2 project should cost “only” 10 billion USD.103 The costs of projects such as the Power of Siberia pipeline makes it unrealistic for Russia to shift its focus from the EU market to the Chinese market. Moreover, the existing European pipeline network gives Gazprom a total capacity of 261 bcm per year, this includes: 142 bcm via Ukraine, 48 bcm via Belarus and Poland, 55 bcm via Nord Stream and 16 bcm to Turkey. This is almost seven times more than the export capacity to China.104 Therefore, Europe remains Russia’s biggest export market.105 It is arguably harder for Russia to get access to other gas markets than for the EU to find other gas suppliers.
Russia’s Energy Weapon
Russia has a history of gas disruptions and this history is used as an argument against Nord Stream 2 by opponents of the project. Although the gas disruptions of Ukraine in 2005 and 2009 are the best known, it is important to recognize the less-known gas disruptions. Estonia was affected by a gas cut-off in 1993, because it decided to define Russian speakers as foreigners. In addition, another disturbance involved Georgia accusing the Russians of sabotaging its pipelines in 2006. A last example took place in this same year, where Russia
101 Roberts, ‘Russia’s gas challenge’, 86-88.
102 ‘Russia, China Launch Gas Pipeline Power of Siberia’, Detusche Welle (02-12-2019).
<https://www.dw.com/en/russia-china-launch-gas-pipeline-power-of-siberia/a-51500187>
103 A. Cohen, ‘The Strategic Upside Behind Russia’s $55 Billion Power of Siberia Pipeline to China’ Forbes
(06-12-2019). < https://www.forbes.com/sites/arielcohen/2019/12/06/is-there-strength-behind-russia-and-chinas-new-power-of-siberia-pipeline/#256b3be1fafc>
104 Sharples, ‘The Shifting Geopolitics of Russia’s Natural Gas Exports and their Impact on EU-Russia Gas Relations’,
891.
29 decided to cut off an oil pipeline to Lithuania due to technical problems. This cut off raised suspicions, because it occurred right after Russia had displayed its disappointment with its customer’s behaviour. However, it remains unclear whether most of these gas disruptions are caused by the Russians on purpose, like the Ukrainian gas disruptions.106 Moreover, it is important to keep in mind that Russia has been a reliable energy supplier to (Western) Europe for forty years,107 calling in to question whether Russia would use gas cut offs as an instrument to gain geopolitical influence in today’s EU.
Russia’s intentions behind the disruptions are either punitive or coercive. Another instrument, which is regarded more effective and more commonly used, is the pricing of gas as a reward. Countries that have friendly ties with the Russian government pay considerably less than countries which lean more towards the US and the EU. For example, in 2011, western-oriented Georgia paid 235 USD per thousand cub meters of gas, whereas Russia-friendly Belarus only paid 46 USD. In contrast, Ukraine, a country on the dividing line between the EU and Russia, paid 135 USD. Therefore, a correlation can be found between the degree of pro-Western orientation and the price of gas.108
The EU member states and Russia have signed long-term contracts until the 2030s. From the 2030s the EU wants to phase out the use of gas and switch to other forms of energy rather than fossil fuels. The EU member states and Russia risk very high penalties if one side wants to interrupt the contracts earlier. Moreover, if the EU wants to start phasing out its use of gas in 2030, it is not in the Russian interest to disrupt the gas supply. 20 percent of the worlds gas reserves are located in Russian territory. Russia needs to sell its gas to its most important market, before its most important market switches to other sources of energy.109
Nord Stream 2
Among academics, there are two kinds of arguments on why Nord Stream 2 is being built from a Russian perspective: geopolitical and economic arguments. The geopolitical argument is that the Ukrainian gas disruptions make the Russians appear as an unreliable partner to the
106 Smith-Stegen, ‘Deconstructing the “Energy Weapon’’, 6509. 107 Ibidem, 6506.
108 Ibidem, 6510.
109 M. Siddi, ‘The EU’s gas relationship with Russia: Solving current disputes and Strengthening Energy Security’,
