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Nord Stream 2 Nears Completion Despite U.S. Opposition Effort

20 Dec 2019, Posted in All Posts, Blog Posts

Despite years of lobbying from the U.S. to stop the Russian natural gas pipeline, Nord Stream 2, it is all but complete as we enter 2020. And with it, Germany and others may have made themselves dependent –to one degree or another– on Russia for their natural gas supply for the decade to come.

The route for the pipeline crosses the Baltic Sea, avoiding a number of Eastern European states. This gives Russia direct access to the EU market without interacting with any additional parties, allowing the economic argument of efficiency. It tracks the same route as Nord Stream 1 (Nord Stream AG) and effectively doubles the capacity Russia is able to feed into Europe.

While Germany held off on approving the project until 2018, it ultimately gave the green light. Germany and other European nations are largely dependent on imported oil and gas. The additional capacity seems to have been too tempting to pass up, even if Russia is the supplier.

The U.S. has left no uncertainty about its views, especially at a time of greater Russian interference in the West. The pipeline project strengthens Russia, weakens Europe, and sets up security and stability concerns for valuable allies and trading partners. Germany only seems to see the potential for doubled capacity coming into Europe. Russia already provided the largest share of natural gas to Europe each of the last two years, and with a greater capacity, they secure the next decade as well.

Some, particularly former Soviet states, do see problems for energy security. Those with a history of energy victimization at the hands of Russia understand the security risks. Ukraine in particular stands to lose out on the revenue from existing energy transit from Russia into Europe. With the greater capacity ready to be unleashed by sea, Ukraine may be bypassed entirely. This would diminish Ukrainian geopolitical leverage and it’s valuable, even needed, middle-man energy transit fees for resources entering Europe.

It is no wonder the U.S has sought to shutter the project and encourage Europe to seek alternatives. Not to mention arguments that it flies in the face of the original purpose of the North Atlantic Treaty Organization (NATO) to be a counterweight to the Soviet Union (now Russia). As a geopolitical threat, Russia cannot be ignored, even when it has something to offer in return. New natural gas capacity does not diminish the threat or power of Russia; it actually bolsters both. Critics rightly see a broad range of concerns.

Russia strengthened; Ukraine weakened; Germany dependent; NATO undermined.

Perhaps the United States did too little at the outset to offer any viable alternatives to the siren song of cheap and abundant Russian natural gas. Market and regulatory activity stateside kept natural gas here rather than see it exported, and even industry layoffs occurred due to unsustainable pricing.

But the three-year effort by the U.S. – which has persisted despite the European approval of the project and in spite of its continued construction – did offer more. Not only did the federal government threaten sanctions and repeatedly warn about security concerns, but natural gas exports were liberalized and our own energy independence was strengthened to the tune of higher exports and lower prices. Nevertheless, construction continued apace.

Only time will tell if the economic and energy benefits from Nord Stream 2 prove to be worth the risks to Europe, and as a consequence, to the West generally. U.S. officials have begun admitting defeat, even as Congress approved further sanctions in its year-end budget. With the project set for completion and operation soon, it will be important for America to continue to diversify our energy portfolio for security and sustainability, and to learn lessons from the mistakes of others.

Written by Benjamin R. Dierker, Director of Public Policy