Pipeline Quarrels Breaking the Nord Stream 2 deadlock

German business is urging Berlin to broker a deal over the controversial project to pump Russian gas directly to Western Europe. Ukraine fears being cut out of the picture.
Quelle: dpa
A big stack of problems.
(Source: dpa)

As Germany’s economics minister, Peter Altmaier, embarked on his first official visit to Russia and Ukraine, a leading business group called on Angela Merkel's government to break a deadlock in the controversial Nord Stream 2 pipeline project.

Michael Harms, director of the Ost-Ausschuss (German Committee of Eastern European Economic Relations), said Germany and the EU should mediate to solve the political tensions threatening the pipeline, currently under construction and due to go online by 2020.

Nord Stream 2, owned by Russian gas producer Gazprom, is exacerbating the already-frayed relationship between Russia and Ukraine. The latter fears the pipeline, which would circumvent land-based links in Ukraine by running underneath the Baltic Sea, will cut into transit fees it charges Russia to pump natural gas across its territory.

Ukraine and Russia have a long history of gas quarrels. Even before the first Nord Stream pipeline was finished in 2005, some Ukrainians feared that Russia would use it as a bargaining chip.

Our strategy is to diversify energy sources, and not be so dependent on Russia. Margrethe Vestager, EU competition commissioner

In a significant policy shift last month, German Chancellor Angela Merkel acknowledged that Nord Stream 2 faces political and commercial issues. She said Ukraine needed reassurance that it would retain its major transit role. Two German companies, including energy firms Uniper and BASF's Wintershall, are partners in the scheme alongside Anglo-Dutch oil giant Shell, French energy company Engie, and Austrian oil company OMV.

Mr. Altmaier said the Nord Stream project, which would deliver gas to around 26 million households, was intended “to safeguard Europe’s energy supply, including guarantees to Ukraine.” However, US and European critics of the 1,225-kilometer (760-mile) pipeline say it will make Europe more dependent on Russian gas, and therefore on Vladimir Putin's regime.

“This is also about security," said Margrethe Vestager, the EU’s competition commissioner. "Our strategy is to diversify energy sources, and not be so dependent on Russia.” But Richard Grenell, the new US ambassador to Germany, warned of growing Russian influence, saying the United States was “very concerned” about that strategy.

At the moment, around 90 billion cubic meters of Russian natural gas flows through Ukraine every year via a land-based pipeline. Gazprom, the state-controlled Russian energy giant, initially planned to abandon the Ukraine gas link but now says it will simply reduce annual flow to around 10-15 billion cubic meters. That's well below the 40 billion cubic meters being discussed by the Ost-Ausschuss, Mr. Harms said.

"In order to keep this system alive, a relevant amount [of gas] must flow through these pipes," he continued, adding that Russia and Ukraine must agree on a new gas transit contract.

The problematic pipeline isn't the only talking point on Mr. Altmaier's agenda during his three-day visit to Russia and Ukraine. He will also address the wobbling Iran nuclear deal and new US sanctions on Russia. In both cases, numerous German companies will be impacted by widened economic sanctions.

If Mr. Altmaier cannot make headway on Nord Stream 2, the task will fall to Chancellor Merkel, who is set to meet Vladimir Putin in the Black Sea resort of Sochi later this week.

Dana Heide is a political correspondent for Handelsblatt in Berlin. Brían Hanrahan adapted this article into English for Handelsblatt Global. To contact the author: [email protected]