While Gazprom is looking for technical opportunities to complete the Nord Stream 2 pipeline, Germany faces a struggle on a different front. Before May, Berlin needs to find a new loophole so that Nord Stream 2, after commissioning, can operate at full capacity. Then Washington will lose the battle in exactly the same way as it lost in the fight against the Soviet gas pipeline during the Cold War.
The Federal Grid Agency of Germany announced that it had accepted applications from Nord Stream AG and Nord Stream 2 AG for the removal of the Nord Stream gas pipelines and the unfinished Nord Stream 2 gas pipeline from the action of the updated EU Gas Directive.
The EU applied only to land pipelines. As you know, the pipeline cannot belong to a company that produces and sells gas, that is, Gazprom. The Russian company must give the pipe built on its own money to some independent pipeline operator, which Gazprom, of course, cannot do as an investor. In this case, he is threatened with the use of the gas pipeline only by half, the second half of the power should be given to a certain third supplier. In practice, there is no other supplier besides Gazprom, so half the pipe is idle.
Now, for example, half the pipe of the Opal gas pipeline, an onshore continuation of the Nord Stream gas pipeline, is empty. Previously, Opal received an exception to the Third EU Energy Package until 2033, but last year Poland appealed in court this decision of the EC and secured the annulment of this exception. Gazprom returned to the need to assert its rights. However, industry experts do not see serious problems here, believing that this is only a matter of time and Opal will again work at full capacity.
But with the offshore gas pipelines, Nord Stream and Nord Stream 2, the situation is more complicated. Until last year, offshore pipes did not fall under the Third Energy Package. But the EC last spring updated the EU gas directive, correcting this “annoying misunderstanding”, extending the rules to offshore gas pipelines coming from third countries to the EU. No other pipelines other than Nord Stream 2, which are subject to the new rules, were built. It was nothing more than direct pressure on Gazprom and Germany. After all, Germany is the first European country where the Russian gas pipeline comes.
Germany already made an attempt in the fall to help Nord Stream 2 get an exception to the gas directive by finding legislative loopholes. In particular, the EC insisted on the entry into force of new rules from May 23, 2019. However, when Berlin translated these new EU norms into its legislation, the ruling parties removed this wording. Germany decided that the pipeline would receive an exception if it was completed before May 23, 2020. By that time, it was already clear that Nord Stream 2 would be completed by that time, which means getting an exception would be a technical matter.
However, the United States, with its new sanctions before the New Year against pipe-laying vessels, ruined everything. Nord Stream 2 will now only be completed by the first quarter of 2021, Vladimir Putin said after meeting with Angela Merkel earlier this year. The German chancellor promised support for the Russian project. And one of Berlin’s main tasks now is to achieve the exclusion from the norms of the EU’s Third Energy Package of both the Opal gas pipeline and the Nord Stream 2 pipeline. German lawyers will have to find a new loophole and put it into action.
Merkel has opportunities for this. If the CDU / CSU, ADG, and SDP factions vote to get Nord Stream-2 out of the scope of European norms, then their votes in parliament will be enough to win. The EC, however, threatens to fight to the end, but then Germany has to find a way to agree.
In parallel, Germany should lobby at the US level for not toughening sanctions so that those Russian vessels that go to complete the Nord Stream 2 pipeline are also not sanctioned, says Igor Yushkov, a leading expert at the National Energy Security Fund. It is enough for the United States to withdraw insurance to Russian ships that will come to the Baltic Sea to finish laying pipes in Danish waters, which did not have time to finish the Swiss pipe-laying vessels due to sanctions. The United States has already applied such tactics to Iranian oil tankers so that they do not trade in oil bypassing the US ban. In exchange for this, Germany may even promise to build LNG terminals for receiving American LNG and start buying more of it. No one refuses to diversify supplies.
However, Germany is interested in maintaining its important economic advantage – to buy inexpensive pipeline gas for its own needs and for resale to neighbors.
Russia has been supplying uninterruptedly its inexpensive gas to Europe and Germany for over 40 years. The supply of Russian gas did not stop either during the Cold War or in the modern world, even when Europe introduced its economic sanctions against Russia after the United States.
Anything can be expected from the USA. In the case of Nord Stream 2, they even dared to impose sanctions against European companies. Although this is not a special case. In fact, Washington is now using the methods of struggle that had been tested back in the years of the Cold War. If you recall the story, then under Ronald Reagan, the United States already tried to stop the construction of the Soviet gas pipeline from Siberia to Western Europe in order to prevent the USSR from earning currency. We are talking about the construction of a gas pipeline through Ukraine, which was part of the USSR.
Washington first banned American companies from supplying equipment for this construction site and then imposed sanctions on European companies that supplied equipment for the construction of the gas pipeline. Then the United States could only achieve a delay of several years of launching the first pipeline. However, in the end, a gas pipeline from Russia to Europe was built. This time the situation is repeated.
Germany has purely economic reasons for getting the Russian gas pipeline into operation. It is the German economy and industry that are the main beneficiaries of the Nord Stream 2 project. And no matter how the United States praises its LNG, pragmatic Germans can count. They will understand how much cheaper pipeline gas from Russia is more profitable for them than more expensive American LNG. For example, the German chemical industry is unlikely to survive in tough competitive conditions, if instead of inexpensive Russian gas, American LNG is used as the raw material.
Gas demand in Germany will only grow in the coming years. And there are several reasons for this.
First, Europe’s own production of blue fuel is steadily declining. In particular, production in the Dutch Groningen field back in 2013 reached its peak and can be completely completed within two to three years.
Secondly, and more importantly, Berlin is abandoning atom and coal, which will automatically raise demand for natural gas. Thus, Germany intends to accelerate the decommissioning of coal-fired power plants with a capacity of up to 18 GW. The plan is designed until 2038. Germany intends to completely abandon nuclear generation by 2022.
All these factors indicate one thing: Germany will increase imports of natural gas. Of course, the German elite, obsessed with wind and sun, will seek to increase the share of renewable energy sources (RES). And this share is likely to grow, given the efforts and volumes of capital that are invested in this market. However, in the transitional period, which will last three decades, Germany cannot cope without natural gas, which, unlike renewable energy, is used by all sectors of the German economy. For example, over 49% of German homes are equipped with gas heating systems, and the country’s electricity generation sector is 13% dependent on gas.
Germany is the largest buyer of Russian gas in Europe. In 2018, it acquired 58.5 billion cubic meters of gas in Russia from 202 billion cubic meters of exported gas.
gas exported by Gazprom in this direction. For Germany, gas after the oil is the most important energy source. Despite Berlin’s love of green energy, gas is still more important for its economy than renewable sun and wind. Gas accounts for almost a quarter of all energy consumed in countries, and RES – less than 14%. In total, Germany consumes about 90 billion cubic meters of gas. And almost all of these volumes (94%) are imported. In addition to Russia, which occupies 60% of the market, Norway and the Netherlands supply gas to Germany.