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A whiff of trouble in the Nord Stream Pipeline

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December 30, 2021

What is the issue?

What was meant to be an ordinary energy project from Russia to Germany is now a powerful geopolitical tool.

What is Nord stream 2?

  • It is a natural gas pipeline project (1,225 km ) under the Baltic Sea from the Russian city of Ust-Luga to the German city of Lubmin
  • The construction began in 2015 by Russia.
  • This avoids transit through Ukraine and other European countries.
  • Russia’s main energy company Gazprom took ownership of the project’s operator, the Switzerland-based company Nord Stream 2 AG.
  • The project was expected to double the capacity of the existing pipeline, Nord Stream 1.

Why is USA concerned about the pipeline?

  • There is a strong opposition from USA and European countries of Austria, Germany, Hungary and the Netherlands.
  • They view the project as a political weapon.
  • They believe that it would render more bargaining power to Russia while dealing with Europe and its energy market.
  • E.g Russia is blamed for an intentional decrease in gas supplies to Europe during winter, aiming to speed up the Nord Stream 2 pipeline by European Union (EU) market regulators.
  • However, Russia says that project is purely a commercial, which is shorter, cheaper, and economically more viable, compared to the gas transit through multiple European countries.

How did USA respond to the project?

  • In 2019, U.S. President Donald Trump had signed a law that imposed sanctions on any EU company that was involved in completing the Nord Stream 2 pipeline.
  • USA fears the pipeline would reduce its own share in the lucrative European market for American liquefied natural gas (LNG).

What was Germany’s response?

  • Germany opposed the US sanctions, stating that they were able to decide their own energy policies without an interference.
  • So, in May 2021, US decided to issue a national security waiver for the Nord Stream 2 AG.
  • The main reason was apparently to restore trust and close cooperation between the U.S. and Germany.
  • Besides, the agreement aimed to invest more than €200 million in energy security in Ukraine, as well as sustainable energy across Europe

How important is Nord stream 2 pipeline for Germany?

  • Germany imported about 40% of natural gas from Russia, 34% from Norway, 29% from the Netherlands, with only around 10% from Germany’s own gas fields.
  • Of Germany’s electricity production
    • 25% comes from coal
    • 25% from renewable sources,
    • 16% from natural gas
    • 11% from nuclear energy.
  • The dispute takes place at a time when Germany is gradually moving towards renewable sources of energy.
  • Germany plans to shut down its nuclear and coal power plants.
  • This winter Europe is facing a huge demand in its energy market
  • The wholesale energy prices have more than doubled in 2021, and there is a limited supply of fossil fuels altogether.

What are the latest developments?

  • In November 2021, Germany suspended the certification procedure for Nord Stream 2.
  • The suspension comes as Nord Stream 2 AG plans to establish a subsidiary under German law only for the German section of the pipeline.
  • According to Germany's Federal Network Agency the company fails to meet conditions to be an "independent transmissions operator"
  • It could be certified only if that operator was organized in a legal form under German law.
  • This means further delays in project commencement.
  • Meanwhile, tensions have been growing between Russia and the NATO allies, amidst fears of Russia’s invasion into Ukrainian territories
  • The new German Chancellor will have to make difficult choices going forward.
  • Some EU leaders have called for termination of project from Germany in the event of further military escalation.
  • What was meant to be an ordinary energy project has transformed itself into a powerful geopolitical tool, available to every stakeholder involved, and even beyond.

 

Reference

  1. https://www.thehindu.com/todays-paper/tp-opinion/a-whiff-of-trouble-in-the-nord-stream-pipeline/article38067750.ece
  2. https://indianexpress.com/article/world/nord-stream-2-pipeline-germany-certification-7625802/

 

 

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