While the US leadership, from President Trump downwards, has been strongly critical of the Russian-German gas pipeline project, Nordstream2 (NS2) (see earlier Reviews), the US moved multiple levers in February to block it. Strong pressure was apparently brought to bear on the European Commission through various EU countries, urging it to apply its intra-EU energy rules to the project. EU rules require pipelines operating in the intra-European market to unbundle transportation from production. For NS2, this means that Russia’s Gazprom would have to sell its pipeline to a third party to separate production from delivery. Application of EU rules would also mean Russian gas sold in Europe would be subject to EU pricing regulations.
US Ambassadors to Germany and France wrote to individual companies, warning them that their participation in the project would result in their being barred from business in the US.
Germany and France, whose company is one of the contractors for NS2, had stood strong and were expected to swing the deal through the Commission. However, France did a last-minute volte face, apparently succumbing to threat of US sanctions against its company. Frantic lobbying by Germany with EU partners and a last-minute compromise formula worked out with France, resulted in a EU Commission decision, which would enable the project to proceed. The compromise enables Germany to seek exemption from EU to application of EU rules for the project. While this decision enables construction work on the project to continue, it has to be approved by all EU governments and the European Parliament. These approvals are normally formalities after the European Commission has decided, but continued US government opposition could still throw multiple spanners in the works. And then there is the ultimate weapon of CAATSA, which could scare off companies implementing the project.
Arguments about NS2 and Turkstream2 are often based on the objective of reducing Europe’s dependence on Russian gas. Meanwhile, Gazprom statistics showed that Russia’s share in EU’s gas imports has actually risen by over two per cent from over 34% in 2017 to about 37% in 2018. This trend is likely to continue, since piped Russian gas is considerably cheaper than LNG supplies; moreover, the import capacity of LNG in Europe is still limited. Thus, if through sanctions or other pressures, the US succeeds in stalling NS2 and Turkstream2, it would strike an economic blow to Russia, but also to Europe, by significantly increasing its energy import prices. It would also shift the European energy hub from Germany to Central Europe, with major implications for the EU.
February 28, 2019