Nord Stream 2: Commercial Project or Geopolitical Threat?

In each installment of “CGI Asks,” a selection of experts respond to a question about developments related to Russia and the region. 

This week, as Russian and German leaders were set to discuss the construction of the controversial Nord Stream 2 pipeline from Russia to Germany, we asked whether the project was mainly a commercial enterprise, or a geopolitical threat to Europe.

Douglas Hengel, Senior Resident Fellow, German Marshall Fund of the United States (GMF)

Whether one views the proposed Nord Stream 2 pipeline as a brilliant commercial arrangement or a geopolitical menace may depend on where one sits.  To the companies involved in the project, the pipeline may well make sense economically, especially when factoring in the commercial interests some of them have in Russia (in at least one case, vague threats were directed against a partner if the company did not join the consortium).  To the countries of Central and Eastern Europe, Nord Stream 2 is clearly seen as a major threat as evidenced by the letter written by nine leaders from the region to European Commission President Juncker in March arguing that Nord Stream 2 would endanger their energy security.

Wherever one sits in Europe, however, politics cannot be divorced from economics when it comes to natural gas from Russia. Gazprom does not behave like other suppliers (to wit, the EU charges against the company for abuse of its dominant position), and Russia has cut off energy supplies to Europe several times over the years.  Nord Stream 2 is a significant issue for the future of European energy – by concentrating instead of diversifying suppliers and routes for Europe’s energy imports, the pipeline would undermine key principles of Europe’s Energy Union. In particular it would reinforce the preponderant position of Gazprom in Central and Eastern Europe and hinder development of the market for LNG in Europe, which offers a significant opportunity for diversification of supply.  The economics of Nord Stream 2 are also questionable, given the excess transit capacity available on Nord Stream 1 and through Ukraine and Poland.  Furthermore, several experts have argued that if the Nord Stream 2 consortium is forced to submit to the unbundling and third party access rules of the EU’s Third Energy Package (as it should), the business case for the project is highly doubtful...