Politics /

It was not spectacular, but then EU decisions rarely are. Fudge is often top of the menu in Brussels. But its effects may have long-term consequences both for Europe’s energy sector and its geopolitical position between the US and Russia.

“The new rules ensure that … everyone interested in selling gas to Europe must respect European energy law,” EU Energy Commissioner Miguel Arias Canete said in a statement on February 13.  This meant that existing EU legislation — the so-called  Third Energy Package — thus applies to the controversial Nord Stream II gas pipeline that is being built between Russia and Germany.

Owners of pipelines linking EU and non-EU countries, Canete continued, will be required to allow access for their competitors and Brussels will also have more power regarding transparency and tariff regulations.

With these words, the EU appears to have papered over the cracks appearing along the EU’s east-west axis. For now.

But some in the east still fear being steamrollered by Berlin as it ploughs ahead with the massive extension to the Nord Stream pipeline.

“This case does not contribute to European unity. Several member states have for a variety of reasons expressed deep concerns about this pipeline, and growing dependence of the EU on imports of natural gas from Russia.” Dr. Tim Boersma, Senior Research Scholar Director of Global Natural Gas Markets at Columbia University says.

Germany had fought to block the directive in the European Council, but couldn’t stop the rewrite, which pleases no-one.

A deal with France last week saw Berlin squeezing into the directive’s text the potentially crucial power to decide to ask for exemptions from EU rules.

“The Commission will take the binding decision on whether to grant the exemption,” the Parliament said in a press release. “If the member state’s assessment differs from that of the Commission, it is the Commission’s assessment which prevails.” But this in turn depends on the next Commission, whose composition will be set later this year after Europe elections in May. The key question will be whether future energy and competition commissioners will be sympathetic to Berlin’s views.

The Nord Stream II gas pipeline would concentrate almost all Russian exports to the EU into one route, doubling the amount of gas transported from Russia to Germany to 55 billion cubic meters (bcm) a year. Gazprom accounts for over 60 percent of European gas imports and plans to increase its exports to Europe to 200 bcm.

One man’s politics is another’s economics

After a meeting with the Ukrainian president, Petro Poroshenko, in Berlin, German Chancellor Angela Merkel recently admitted for the first time that the gas pipeline was “not only an economic but also a political project.”

“I think it is important to decode what one means as ‘political reasons,’” says Anna Mikulska, from Rice University in Texas.

“Russia and Germany have been vocal in portraying the revision to the gas directive as ‘political’ while portraying its own doings as “market based,” “economic” measures. On the contrary, many countries in Eastern Europe see the pipeline as a political project. The interesting part is that both sides underscore energy security – but how to achieve this ‘energy security’ is understood very differently. For supporters of the pipeline – transit is the key (i.e. away from Ukraine) and for opposing countries security of supply includes transit but also diverse suppliers.”

The US position

US Department of Energy Secretary Rick Perry has outright said moving US energy supplies into Eastern Europe is one a way of containing Russian influence.

“The Trump Administration supports Europe’s efforts to diversify its sources and supply of energy, reducing the region’s reliance on a single source and mitigating its vulnerability to Russia’s use of energy for political coercion. Therefore, the US will continue our strong opposition to Nord Stream II and a multi-line Turk Stream,” Deputy Secretary of Energy Dan Brouillette said this week.

“We are encouraged by the European Commission’s action to increase European energy security by increasing oversight of the Continent’s offshore energy infrastructure, including Nord Stream II. We hope this move will help our EU partners hold Gazprom accountable to Western standards.”

“The US supports the diversification of infrastructure projects in Germany and throughout Europe, and hopes this will open up opportunities for additional supplies of natural gas imports. As President Trump and Secretary Perry have made clear, the US wants to provide Europe with a reliable energy alternative. We hope to continue working with our allies in Europe on strengthening their energy security and prosperity.”

Last July, European Commission President Jean-Claude Juncker agreed to work towards shipping more US gas to Europe. After a meeting at the White House, US President Donald Trump said: “The EU wants to import more liquefied natural gas, LNG, from the US and they’re going to be a very very big buyer.” Juncker said the EU would build more terminals to import LNG. There are currently about 30 LNG terminals in Europe.

US gas explosion

By the end of the decade the US is expected to have five major LNG export projects operational, becoming the third largest LNG exporter after Qatar and Australia. The US now has two liquefaction plants in operation, Sabine Pass and Cove Point, with a shared capacity of 23.3 mtpa (metric tons per annum). Total exports this year will be around 20 mtpa. The country is launching nine LNG export projects with a collective liquefaction capacity of 36.7 mtpa, boosting capacity to 63 mtpa and in a “second wave,” federal regulators are set to decide on another 13 pending projects by the end of 2019.

Germany bending

Germany’s economy minister, Peter Altmaier, said this week he was confident his country would soon have two terminals capable of receiving shipments of US liquefied natural gas. Altmaier, a close ally of Chancellor Angela Merkel, aded that Berlin wants to resolve its differences with the US over plans for the gas pipeline.

Altmaier insisted that there had been no deal for the US to set aside its concerns about Nord Stream II in exchange for German support for the building of terminals for LNG.

Others are less convinced.  “Germany generally seems to get its way in Europe – it controls the purse strings so the EU will generally do what it wants with the net recipients of German largesse not making their protests too loudly in case it puts the money flow at risk,” an expert on LNG, Andy Flower says. “Macron is probably the only leader who could challenge the German position but the protests by the yellow vests has made him too weak to stop Germany doing what it wants to do.”

“As to Germany and its role, I think there is a concern that Germany’s ability to push through despite opposition can be seen as detrimental to the unity of the EU,” Mikulska says. “This is probably even more underscored by the agreement between France and Germany as to the limited revision of the directive. This excludes other countries where the pipelines crosses from any decision regarding possible exemptions etc. from the EU law. In the case of NordStream it gives say to Germany. In a way we see again the division that exists between generally speaking EU’s Western members and EU’s East (new post-Soviet members). And possibly it can become even more pronounced if Germany unilaterally pushes for exemptions for the pipeline. One thing that I have noticed reading Polish media and listening to arguments of some of energy experts there: there is a great deal of distrust and suspicion toward Germany and actions that are seen as motivated by Germany’s desire to assume a position of hegemony in Europe.  I don’t think this is actually always deserved but nonetheless such strain of thought exists and is quite influential. A unilateral move by Germany to exempt NS2 etc. from the directive would probably created more distrust and add fuel to those theories,” Mikulska says.

German energy needs

With its last nuclear plant shutting down in 2023, coal in terminal decline and the phasing out of Dutch gas, Germany faces a medium-term challenge of how to secure stable energy sources. The Netherlands’ huge Groningen gas field is seen lowering its production, with operations at the field falling to 12 bcm by 2022, and will be terminated by 2030.

Germany announced plans to build a $500-million (€420-million) liquid natural gas (LNG) terminal on the Elbe river in the north. Brunsbüttel would be open by the end of 2022.

The German Ministry of Economy and Energy has said it supports private initiatives for Brunsbüttel. “The terminal could help to avoid dependences and diversify energy supply. Moreover, it would contribute to security of energy supply, since it offers access to the global LNG market for German clients,” German LNG Terminal spokesperson Katja Freitag said.

A final investment decision is expected at the end of 2019, Freitag added.

Not far from an old nuclear reactor, the terminal would be within reach of Scandinavian markets and the Baltic States via the Kiel Canal. It would be able to import as much as 5 billion cubic meters per year, or about 10 percent of Russia’s current annual deliveries to Germany.

Russian gas anyway

Interestingly, Russia also emerged last year as a key player in the LNG market after US sanctions on Iran and its trade spat with China pushed Beijing into increasing imports of Russian oil and LNG. Russia operates two LNG export facilities, including the recently commissioned Yamal LNG project in the Russian Arctic.

Yamal LNG has doubled Russian LNG output to just over 20 mtpa, making the country the fifth-largest LNG exporter in the world.

Compromise?

“The two sources – Russian and American – can be complementary and the more diversification the better,” Kirsten Westphal, senior associate at the German Institute for International and Security Affairs, says. “An LNG Terminal in Germany is interesting, but not a necessity as Germany is well connected to other LNG terminals and thus flexibility in the integrated north western European market is high,” she said. “In the case of natural gas, cheap Russian gas could be used for the baseload and spikes and peaks could be managed using US LNG.”

To confuse matters further, Russian President Vladimir Putin is also now reportedly considering continuing to ship Russian gas across Ukraine, rather than bypassing the country entirely by the end of next year.