OPP Meeting Summary: EP AFET Committee – Nordstream 2 and its geopolitical implications (31 January 2017)

A summary of the hearing on the Nordstream 2 and its geopolitical implications is now available.

EP AFET Committee – 31 January 2017
Nordstream 2 and its geopolitical implications

Chair, David McAllister (EPP, DE) made the following introductory remarks:

  • The Nordstream 2 (NS2) project had received much interest for its geopolitical, energy and economic implications;
  • NS2 could alter the European gas market, not giving access to new sources;
  • The European partners had pulled out from the project as a consequence of a negative ruling by a Polish competition authority regarding merger control proceedings. Nevertheless, Gazprom said it would push on with the project by itself.

The speakers made the following opening remarks

Andreas Goldthau, Professor of International Relations at Royal Holloway University of London and Associate with the Geopolitics of Energy Project at Harvard University’s Belfer Center for Science and International Affairs

  • He began by asking the public how many of them considered NS2 to be a bad deal (based on economics and politics) and noted that Joe Biden had called NS2 a “bad deal for Europe”. Senior officials of the EU Commission were now considering whether EU energy law would be applicable to the project;
  • He gave the basics of the project (55 bcm pipeline complementing an existing 55 bcm pipeline). For comparison, he noted that Germany was a 90 bcm gas market;
  • The pipeline would be built by Gazprom. The shareholder basis had changed because of a Polish competition authority veto;
  • As for the impact of NS2 on gas markets, it would be helpful to look at the impacts of Nord Stream 1 (NS1). The latter reduced gas flows through Ukraine (which was also the aim of NS2. The last contract with Ukraine runs out in 2019);
  • NS1 had begun competing with gas from Norway and LNG among others;
  • The Czech Rebublic, Slovakia and Ukraine had begun looking for gas from the West because it was cheaper (having pricing effects on Eastern Europe). Russian gas was entering from both sides of Europe. This was not only about gas competing against gas but also the possibility of having cheaper gas from West Europe. In Central and Eastern Europe (CEE), traders took opportunity of this Western gas to renegotiate their contracts with Russia;
  • Concerning the legal aspects, the question was to what extent NS2 would be subject to EU energy law. That Gazprom would have to abide by European law was the common assumption. However, NS2 was an offshore pipeline basically governed by the UN law of the sea (United Nations Convention on the Law of the Sea (UNCLOS)). That was why gas pipelines, from Libya for example, were not part of the EU energy legislation framework. Norway was, but it was because it was part of the European Economic Area (EEA). However, there were ways of making EU legislation apply. The question was the definition of the pipeline (interconnector v. offshore pipeline). Some people were making claims that NS2 could be seen as an interconnector. However, he thought this argument was standing on shaky ground. He explained the situation of the OPAL pipeline and said the EU Commission decision had fallen through. OPAL was not used and NS1 was not fully used either because of that;
  • A pipeline bringing in NS2 gas onshore would not be OPAL but a completely different pipeline. Chances were, this pipeline would be compliant with EU energy law;
  • Naturally, EU law could be interpreted in various ways, including using it against NS2. However, it was his opinion that the EU law should not be applied selectively and should not be politicised;
  • Concerning Ukraine, 2 billion EUR revenue would be lost with NS2, he said and added that despite of this, consumer benefits could be made worth around 1.1 billion EUR, which was not necessarily the worst news;
  • NS2 might not be as problematic as it was commonly thought in the EU. There could be benefits for the consumers. Moreover, a selective application of EU energy law was not to be recommended (this would be “Trump territory”).

Sijbren de Jong, Strategic Analyst at The Hague Centre for Strategic Studies (HCSS)

  • He highlighted the “NS2 commercial project nature” and said that it was remarkable that investments were continuously made in fossil fuels;
  • Gazprom would be developing the project alone. However, as according to EU energy law, the different parts of the pipeline project would not be unbundled;
  • Some German politicians were now arguing NS2 was a “private project”. As for the role of the Russian military in Ukraine, this was bypassed by many of them. Gazprom statements did not give the impression NS2 would guarantee that Ukraine was “sorted”;
  • Sweden was not concerned about its security of gas supply but rather the military aspects and the use of its territory. Sweden had considered NS2 as having an interest in the strategic territory of Gotland. More and more reports had emerged of Russians going to Gotland asking military related questions. Therefore, the Swedes had decided to accelerate having increased military presence in Gotland. According to information he had received that very morning, Karlshamn could be expected to let the NS2 pipeline use its harbour;
  • Considering the route of the pipeline, it was surprising from an economic point of view that the Kaliningrad facilities were not used, but the pipeline would rather be running close to Sweden;
    Germany had solved its energy supply through Energiewende and the phasing out of nuclear energy. Germany had a leading role in EU politics and the Russians were counting on the new German government to help lift Russia-sanctions;
  • Concerning the broader geo-strategical game, the implementation of NS2 would affect countries like Slovakia and Ukraine as their negotiating position would we weakened vis-à-vis Russia;
  • Concerning the Turkish Stream pipeline (32 billion cubic metres), there would be a gas surplus. Where would this gas go, he asked and gave the examples of Southern and Eastern Europe (SEE) and Greece, saying these were not the key market but Italy was the second market after Germany. But how would you get to Italy, he continued and said that the Interconnector Turkey–Greece–Italy (ITGI-connection) could be envisaged as the route towards Italy, exempt for regulations for the next 25 years. In this respect, the Azerbaijan gas connection that was under work was competing for the same market;
  • From the EU energy framework point of view, if the EU backed NS2 it would also mean that the Gazprom dominant position in its domestic market (competitors included e.g. Novatek) would be strengthened. However, for increasing competition, it would be good to support other Russian producers too.

Agata Loskot-Strachota, Senior Fellow in Energy, Eastern Studies Centre, Warsaw

  • Pipe supplies and coating had already started. The formal mode of cooperation had changed;
  • The EU regulatory viewpoint was still under discussion. Timing mattered, she thought, and pointed out that the Ukraine-crisis had been the context for the launching of NS2;
  • The impact of NS2: It already increased controversies. One group of opinions saw the project as a commercial one. Russian gas supplies were seen as essential and cooperation with the Russians would bring economic benefits. A second group tended to see the project as political and saw the real (short-term) risks. Russian gas was considered as uncertain. Gas was not equally priced in Europe;
  • There were Member States pro-NS2, against NS2, undecided (e.g. Czech Republic) and those that had “decided to be neutral”;
  • Concerning the gas market, the role of Germany would further increase, as well as Gazprom’s role in Germany (Russia supplied over 50 % of German gas consumption in 2016). This could also influence the development of regional EU gas markets;
  • Russian gas imports to Europe had steadily grown since 2010. Therefore, the situation could develop into a diminished diversity of suppliers, especially in CEE. Also, the situation and possible commitments of the EU’s antitrust investigations could be affected;
  • NS2 could weaken Ukraine, at least temporarily. Ukraine was at the moment in war. It could also weaken EU actors in gas cooperation with the Ukrainians. It could decrease supply routes to Europe;
  • It would also affect the EU’s external relations with Russia, especially in terms of the sanctions policy;
  • In summary, NS2 could undermine a number of the EU’s energy policy goals and the cohesiveness of EU policy regarding Russia;
  • She considered the current problems to be of political nature, especially in the context of an imperfect market impacted by events such as Brexit.

Interventions from Members followed

Tunne Kelam (EPP, EE)

  • The context should not be forgotten. NS2 could not be considered as a private enterprise. Politicians should be able to see the big picture and not only the legal details. He referred to a “German chancellor” having tried to describe the project as a private one and said that today it could be seen that it was about Gazprom, the Russian state, and the Russian military spreading around the Baltic Sea;
  • He questioned whether Russia could blackmail (via the cutting off of gas) through this project.

Zigmantas Balčytis (S&D, LT)

  • He asked what had been done at EU level regarding the NS2 project;
  • Previously, there had been a common understanding that independence of Russian energy was an aim. Now there was talk of the NS2 project being acceptable. He did not agree with this and explained that Russia had tried to punish Lithuania, e.g. in 2000 through oil refineries policies;
  • Pipelines were just as important as nuclear plants in terms of infrastructure and energy independence.

Anna Elżbieta Fotyga (ECR, PL)

  • She would focus on the political and security aspects of NS2 and reminded all that during the NS1 project, the latter had pushed out Norwegian energy, for example;
  • Strengthening Russian state interests and energy policy was their aim and they wanted to squeeze Poland and the region, making them vulnerable to energy blackmailing;
  • Putin had presented Poland with the opportunity of “linking with Russian policy”. The Polish President Lech Kaczyński had declined the offer and so had Yulia Tymoshenko at the time;
  • The NS2 project was making the situation worse.

Petras Auštrevičius (ALDE, LT)

  • He cited a document from a Ukrainian Council which pointed out that Ukraine remained a reliable source of gas and the construction of NS2 would undermine this situation;
  • NS2 would achieve what NS1 had not managed. He called NS2 a “killer project”;
  • European politicians such as Gerhard Schröder were personally involved. It was a shame politicians were paid by Gazprom, therefore working not for Europe but for their own pockets;
  • His question was what could be done in terms of compliance with EU competition rules. Moreover, how could such a project be initiated without an impact assessment (IA) by the Commission, he wondered.

Rebecca Harms (Greens/EFA, DE)

  • She commented on the impact of NS2 project on the Paris agreement outcome and the EU’s seriousness in terms of its climate commitments. Such megaprojects contributed hugely;
  • She did not believe in the claim that Gazprom gas would somehow help Europe;
  • More diversification, energy security and energy independence were some of the goals of the EU’s Energy Union. The question was thus whether the EU could still go against NS2 and achieve more unity in terms of the Energy Union project. It would also matter to Ukraine;
  • The reform of Naftogaz had been one of the big successes recently in Ukraine. This showed that they were not only demanding something from Europe but also achieving in all fields of energy.

Janusz Korwin-Mikke (NI, PL)

  • Commented on Aleksandr Lukashenko and the Belorussians “steeling gas from a pipeline between Belarus and Russia”. Putin was using this NS2 project to put pressure on Belarus.

Michael Gahler (EPP, DE)

  • He said he would have appreciated having an adversary view from the “opposing side”, i.e. Gazprom, etc.
    Speaking about the neighbour regions to the pipeline and the authorities having the possibility of making an environmental impact assessment, he asked whether they had the possibility of stopping NS2 or delaying it, thus imposing considerate costs to the project;
  • He believed there was a division along the party lines in Germany; Gerhard Schröder and allies were in favour of NS2 with the CDU+CSU being opposed;
  • The German “compromise” was to call NS2 a private project although everybody knew this was about the Russian state and not about the economic interests.

Marek Jurek (ECR, PL)

  • NS2 was a monument to national egoism. Russia was not interested in the EU’s fate, its energy supplies, or the interests of Ukraine. This was only about Russia’s economic interests;
  • NS2 showed that the EU institutions could not agree or act politically. The centre-right in Germany had been opposed for years but had not acted;
  • Sanctions against Russia could be the solution;
  • The Russian strategy was to export energy as a tool of political influence.

The speakers gave the following closing remarks

Agata Loskot-Strachota, Senior Fellow in Energy, Eastern Studies Centre, Warsaw

  • Concerning the options of local authorities to stop NS2, the biggest legal opportunities were in Danish hands, as the pipeline would pass its territorial waters too. However, it seemed that the Nordic countries did not want to use the “legal card” in order not to ruin their bilateral relations with Russia. In the case of Denmark, it was particularly about cooperation with Russia in the Arctic;
  • The worries were that the interconnectors enabling gas competition would all be filled up with Russian gas;
  • If new infrastructure was not built in the EU, this could harm the markets;
  • A thorough impact assessment of NS2 would be needed;
  • A thorough analysis of earlier instances with Russian energy supply interference would be relevant;
  • NS2 project could be seen as an element improving the EU’s relations with Russia.

Sijbren de Jong, Strategic Analyst at The Hague Centre for Strategic Studies (HCSS)

  • To understand the kind of pressure Russia would apply, one only needed to look a few years back (e.g. the case with Hungary). Such pressurizing incidents were often timed with big decisions such as Russia-sanctions;
  • On what had been done, the interoperability of the EU gas market was nowadays greater than a few years back. Also, NS2 would work against the political decisions having been reached in terms of the Energy Union;
  • EU law applied in the territorial waters of the Member States, in his opinion;
  • Whether the permitting procedure or the IAs should be used, he would not go as far; the Scandinavians were complying with international law and did not want to make a political issue of the process;
  • Why there was no IA by the EU Commission, he could not understand. It would of course be needed;
  • He agreed with Mrs Harms that the reform of Naftogaz was good and thought that the Ukrainians “held the ultimate keys to the conundrum”; if they gave in to dropping their transit fees on gas, there would be no need to discuss whether NS2 made sense from a commercial point of view. He wondered why they did not do that.

Andreas Goldthau, Professor of International Relations at Royal Holloway University of London and Associate with the Geopolitics of Energy Project at Harvard University’s Belfer Center for Science and International Affairs

  • The question was what the EU could do about the geopolitical game of the Russians. The answer was “play the game where you are good at (and not the one you are bad at; geopolitics)”, meaning the “market game which would tie Russia’s hands”. Russia was dependent on EU markets; Gazprom had exported 178 bcm of gas to Europe and Turkey in 2016. Gazprom needed the EU market crucially (China was not working out as well as hoped, for example);
  • EU energy infrastructure (“a pool”) should be built with the “software” of Maroš Šefčovič, making sure all players comply with the rules;
  • He pointed out that it was not necessarily always the case in Eastern Europe that they opened competition and let the markets “do their magic”.

Source: One Policy Place

The simultaneous interpretation of debates provided by the European Parliament serves only to facilitate communication amongst the participants in the meeting. It does not constitute an authentic record of proceedings. One Policy Place uses these translations so this text is only a guide and should not be relied on as an official account of the meeting. Only the original speech or the revised written translation of that speech is authentic.

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