Weaponising Energy: Nord Stream 2

Within this framework, the security implications which some have treated as being geographically constrained to Eastern Europe, are cause for concern to all NATO members. Moving forward, the potential for Russia to weaponise the implementation of this pipeline is obvious, its reasons to do so are apparent, and therefore the West’s need to oppose this project should be made clear.

Background

Increasingly prevalent in mainstream media, Nord Stream 2 is many years in the making. Completing Nord Stream 1 in 2011, Moscow devised the second pipeline to further limit “uncooperative transit countries” from its gas infrastructure. This idea gained traction following the 2004 Orange Revolution in Ukraine and the Kremlin has made statements, following the illegal annexation of Crimea and ensuing war in Donbas, that it would further reduce gas flows through Ukraine by the end of 2019². Unlike the pilot project, Nord Stream 1, which had European shareholders, Nord Stream 2 is solely owned by Gazprom – the second largest gas company in Russia. Although Gazprom is the sole shareholder, five European companies are still involved in the project: Royal Dutch Shell, Austria’s OMV, France’s Engie, and Germany’s Uniper and Wintershell – each pledging to provide €950 million³.Expected to be completed by the end of 2019, the pipeline will cover 1,220 kilometers along the bottom of the Baltic Sea from Russia to Germany⁴. Running parallel to Nord Stream 1, their collective capacity will be 110 billion cubic meters (bcm) per year. It is important to note that this would entail over 70% of Russia’s gas supplies to the EU being transited through a single system to one country, which according to the EU, runs counter to the Energy Union’s goals which stipulate the need for source and supply diversification⁵. More specifically, Nord Stream 2 violates the 2009 EU Gas Directive, which requires reserved capacity for alternative suppliers, along with additional EU competition rules further defined in the EU’s Third Energy Package ⁶. The South Stream pipeline, political in nature and canceled by Russia for similar reasons in December 2014, provides a useful precedent to which EU officials should refer.

Business meets Disinformation: Ukraine

A recent Gazprom presentation, created to convince would-be dissenters that Nord Stream 2 is critical for EU energy security, made full use of the types of disinformation for which the Kremlin is so well known. The presentation claimed that the Yamal-Europe, Blue Stream, and Nord Stream 1 pipelines are all currently working at over 90% of their capacity, and that should energy demands increase, the “politically sensitive Ukrainian route” will be left as the only option. Likely a deliberate miscalculation, Gazprom undervalued the actual transmission capacity available to them by 30-40 bcm per year⁷.

Common rhetoric planted by the Kremlin, and cultivated by Nord Stream 2’s proponents, is that the Ukrainian transit system is unreliable. The statistics disagree. In the last two decades, the incident rate has never surpassed 0.06 incidents per 1,000 km. To put this number in perspective, Russia maintains a rate of 0.22 per 1,000 km. Moreover, of the incidents occurring in Ukraine, a high percentage of them happened in the Donetsk and Luhansk regions which 1) contain no transmission pipelines, and 2) are the result of the war currently being waged by Moscow and its proxies ⁸.

Attempts to undercut Ukraine are nothing new. In 2017, a decision by the Court of Justice of the European Union temporarily allowed Gazprom to use the full capacity of the OPAL gas pipeline, which connects Nord Stream 1 to Germany’s gas network. The company promptly rerouted a large portion of their gas from their Ukrainian transit routes to Nord Stream 1. In addition, on 2 March 2018, following a Stockholm arbitration court’s decision that Gazprom would be forced to pay $2.56 billion to Naftogas after “failing to uphold contractual obligations regarding volumes of transit gas through Ukraine,” Gazprom announced that it would be terminating all gas contracts with Naftogaz ⁹. Cutting Ukraine out of the European gas market would result in Kyiv losing over $2 billion, annually ¹⁰.

Uncoincidentally, Nord Stream 2, with a proposed capacity of 55 bcm, and Turk Stream to the south, with a capacity of 31.5 bcm, carry a collective supply roughly equal to the current amount being transited through Ukraine ¹¹. Herein lies one of the main reasons Russia is pursuing this project – to directly impact Ukraine’s economy and security. Should Nord Stream 2 be completed, Russia’s goal to deprive Kyiv of its role as a gas transit hub could easily be accomplished considering the country would only be left with 10-15 bcm of gas transit to Turkey and the Balkans¹².

Furthermore, although Ukraine has since ceased the practice of buying gas directly from the Russian Federation, the gas they do buy from their European neighbors remains Russian – coming from reverse-flow pipelines which run west to east. Therefore, if Gazprom decided to reduce deliveries to Poland, Slovakia, and Hungary, then the EU may not be able to supply Ukraine with the gas that it needs¹³.

Enter NATO: Military Applications of the Pipeline

Apart from direct economic and political consequences, there are military applications for the pipeline which would concern NATO. Nord Stream 2, costing roughly $12 billion, provides a useful excuse for the Russian Federation to further militarize the Baltic Sea to protect its investment¹⁴. Or, as Moscow would likely say, the energy security for all of Europe. Furthermore, the pipeline can be used to deploy intelligence gathering capabilities. Evidence claims Russia has already done so with Nord Stream 1 and Turk Stream¹⁵. Sandra Oudkirk, the U.S. Deputy Assistant Secretary of State for Energy Diplomacy has reiterated such concerns stating, “The planned Nord Stream 2 gas pipeline from Russia to Germany raises U.S. intelligence and military concerns since it would allow Moscow to place new listening and monitoring technology in the Baltic Sea.” The Nord Stream pipelines lie, on average, 80-110 meters underwater – a depth well-suited for underwater surveillance equipment. Without further need to speculate, in 2016 the Russian Ministry of Defense began the deployment of their global underwater acoustic surveillance system, with the goal “to detect and identify all surface and underwater objects, as well as low-flying aircrafts, in the key areas of the World Ocean.¹⁶” Even without the Nord Stream pipelines, Moscow views the Baltic Sea as geographically important. Therefore, NATO can be sure that this will be one such “key area,” especially when coupled with a recent statement by the Kremlin’s chief foreign policy advisor, Sergey Karaganov:

“Now, fears in countries like Poland, Lithuania, and Latvia are to be allayed by NATO stationing weapons there… In a crisis, we will destroy exactly these weapons. Russia will never again fight on its own territory… We currently find ourselves in a situation where we don’t trust you in the least… You should know that we are smarter, stronger, and more determined.”

As these targeted strikes would require sufficient intelligence capabilities, the Baltic Sea is a sure bet in locating their origin¹⁷.

Economic Implications: Central and Eastern Europe

In addition to being politically problematic and economically nonsensical for Europe, Nord Stream 2 does not appear to be an immediately profitable venture for Gazprom either. The pipeline does not seem to divert from Moscow’s tendency to use corporations to pursue projects which are politically beneficial yet make little business sense. Requiring large amounts of investment, Gazprom will have to sell at market price to Germany and other Western European countries – leading to low returns in the near-term. To recoup some of these losses, Gazprom will likely look toward states more dependent on Russian gas such as Poland, Hungary, Slovakia, Bulgaria, Belarus, Moldova, Serbia, and Ukraine. Increasing gas prices for these countries will allow Gazprom to profit in the future¹⁸, and are therefore an additional reason for the current split in opinion regarding Nord Stream 2 in the EU. Gazprom insists that the pipeline is a purely economic project. Jens Mueller, the spokesperson for the project stated, “Nord Stream 2 is an important contribution to the security of gas supply to Europe¹⁹.” However, in recent years, the maximum volume per year exported by Gazprom to the EU was 155 bcm. With an additional 100 bcm available through current Russian pipeline infrastructure, this argument quickly loses traction.

Russia may claim that Nord Stream 2 is designed to contend with future increases in Europe’s demand for natural gas. However, BP recently produced a study predicting that by 2040, while the EU’s natural gas consumption will increase, it will only be by 1%. That 1% increase, however, will be represented in an overall decrease in energy consumption by 11%. In contrast, there will be upwards of a 160% increase in renewable energy sources. Even if EU energy demands were to increase, as indicated above, in 2017 Russia only exported 61% of its capacity to the EU. The remaining 100 bcm sat idle due to lack of demand, not lack of infrastructure²⁰. It is easy to see that Nord Stream 2 was designed for reasons other than just good economics.Concerning the 11% decline in EU energy consumption, it should also be noted that European oil and gas production is estimated to fall by over 60% by 2040, rising the EU’s gas import dependence from 72-89%. Seemingly a large amount, this statistic could easily be distorted and used by proponents of the pipeline. Although significant in terms of percentages, this increase merely represents an uptick of 29 bcm per year²¹. With the remaining 100 bcm available in Russia, in addition to liquified natural gas (LNG) expected to take up an increasingly large share of the market in the coming years, the need for more supply remains an untenable line of argumentation. Russia, knowing well that LNG supplies may soon be flooding the European market at competitive prices – free of the ulterior motives attached to Russian gas – is attempting to lock down the market before LNG has a chance to supplant Russian supplies.

Moving Forward

With only three staunch supporters in the EU – Germany, Austria, and the Netherlands – transatlantic partners must do what they can do stop this project. The “Countering America’s Adversaries Through Sanctions Act²² “passed in the U.S. Congress in 2017 was a good start. Since then, recent efforts opposing the project included a bipartisan resolution in the US House of Representatives on 11 December which, although nonbinding, called for European governments to both oppose Nord Stream 2, and support US sanctions against the project. The following day, the European Parliament passed its own resolution calling for the cancelation of the pipeline as it “poses a threat to European energy security.” The financial aspects of Nord Stream 2 are by far the weakest link which may be exploited. Without adequate funding, construction cannot move forward. Targeting EU contractors – companies in Sweden, Finland, and Germany which are producing materials for Nord Stream 2²³ – would send a message to future would-be partners in the project. There should be no question that Nord Stream 2 will only benefit the Kremlin and those involved.

With tense debates ongoing at all levels of government, in many ways the Kremlin has already succeeded in unraveling the harmony of rhetoric within the EU regarding their views on Russia. Furthermore, the security ramifications for Ukraine, among other states, are clearly disconcerting. A unified strategy moving forward must be adopted by the West. There is no need to further endanger the very principles upon which the EU was founded, upon which transatlantic partnerships were formed, and upon which states such as Ukraine depend. R

Jonathan Hall

Jonathan Hall is a Washington D.C.-based intelligence consultant and doctoral candidate. His research focuses primarily on Chinese and Russian political-military strategy, private military contractors, and cyber operations. He can be found on Twitter@_JonathanPHall

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