The Trojan Horse of Russian Gas

Brenda Shaffer wrote eloquently last week in Foreign Policy about why the United States should drop its vehement bipartisan opposition to Nord Stream 2, the gas pipeline that would expand existing direct gas export capacities between Russia and Germany. Yet her well-crafted arguments miss crucial geopolitical points. Most importantly, allowing Nord Stream 2 to proceed would send the wrong signal to an increasingly assertive and belligerent Russia that threatens the established world order while tossing a struggling Ukraine under the bus.

Cheap Russian gas imports to Europe are indeed a good thing, provided they compete on an equal footing with other resources and cannot be exploited for political gains as has been often the case in the past. Europe will need Russian gas for years to come and diversifying away from it entirely is unrealistic and would be counterproductive. The European Union, with effective U.S. assistance, made significant progress in developing a common European energy market and eliminating the physical and regulatory bottlenecks preventing the free flow and depoliticization of gas as a commodity.

Yet the job is not done, and Russia is still in a position to exploit a fragmented market inside the EU. Nord Stream 2 would further exacerbate this situation by potentially allowing Russia to isolate certain markets and by increasing transit fees and thus prices for southeastern and Central European countries. By channeling the majority of European gas imports to one pipeline set, it would also allow the Kremlin to flex its muscles vis-à-vis Western Europe if it feels the need to exert political pressure. The expanded system of 110 billion cubic meters would go through the Baltic Sea, where we have witnessed increased geopolitical tensions and Russian military buildup in the past few years, adding to fears about physical risks to the pipeline.

Europe may need more imported gas as its indigenous resources are dwindling. But Nord Stream 2 would not bring new resources in. Its primary aim is to bypass Ukraine and ship in the same gas molecules Gazprom, the Russian state oil company, now transits through Ukraine. The Russians have made no secret about their — sometimes understandable — frustration with the Ukrainian transit arrangements.

There are clearly risks associated with Ukraine’s existing pipeline network. It was built 40 years ago — as were the majority of pipelines in Russia and Central and Eastern Europe — and requires regular maintenance and modernization. However, the best way to ensure Ukraine can raise sufficient investments is to make sure the system is actively used and generates revenue. In 2017, the Ukrainian gas transport system carried half of Russian gas exports to Europe. Neither Gazprom nor its European clients have ever claimed any technical disruptions. In fact, the Ukrainian system flexibly balances demand fluctuations in Europe and provides backup capacity for periods when other routes, including Nord Stream, stop for maintenance. The only halt of transit across Ukraine occurred in 2009, when Russia stopped gas flows over contractual disagreements, not because of technical issues. What needs to take place is a structured dialogue about modernizing Ukraine’s energy infrastructure and incorporating it into the European grid, making use of its great storage potential to offset seasonal demand shifts.

As to the competition in Europe between U.S. liquefied natural gas (LNG) and Russian gas, it will indeed be decided on commercial terms where Russian gas has obvious advantages. For many, access to LNG remains more of a bargaining chip and a safety valve in case of another protracted supply security crisis. But to profess that landlocked European countries will not be able to access LNG is misleading. That is precisely what the EU is working on through interconnectors and by supporting new LNG facilities in southeastern Europe that may not be viable on purely commercial terms but would serve a critical supply security role for the entire region. In an age of increasingly flexible and lower-cost infrastructure, such as floating regasification and storage units and potentially small-scale LNG solutions, precluding LNG from the mix would be a grave mistake.

There is no European unison around the project, thus the United States is not “oppos[ing] policies of its European allies,” as Shaffer put it. In fact, there is strong opposition by Poland, the Baltic States, as well as within the European Commission, and by most other countries in Central and Eastern Europe. Even in Berlin there is no unequivocal support. Only Germany’s Social Democratic Party supports the project unconditionally, while there are dissenting voices within the Christian Democratic Union/Christian Social Union, and the Free Democratic Party and the Greens oppose the project. Nord Stream 2 is a divisive issue in Europe at a time when the last thing Europe needs is further divisions.

Last but not least, allowing Nord Stream 2 to be built would send a terrible signal to the Kremlin and the world about the consequences of blatantly ignoring international law and norms. The annexation of Crimea and Russian actions in the Donbass in eastern Ukraine should not be rewarded with business as usual. The West must continue to put pressure on Ukraine to deliver on its economic reform agenda, but undermining basic solidarity with a country under siege would erode the credibility of the transatlantic alliance as a whole.

Were we living in an era of peace and harmony with Russia, supporting a project such as Nord Stream 2 could very well be acceptable. But Russia’s actions in the past few years should make us pause and consider the wider geopolitical context. The United States should thus stay on course and do its utmost to help Europe chart a sustainable energy security course by opposing the new pipeline.