Nord Stream 2: high stakes for underwater pipeline lawsuit

Nord Stream 2: high stakes for underwater pipeline lawsuit

That the Nord Stream 2 natural gas pipeline project, which is backed by both the Russian and German governments, is now suing the European Union over what it describes as “discriminatory” rules speaks to the serious issues underlying the project and the risks it poses to European energy independence and security. To its proponents in both Moscow and Berlin, the Nord Stream 2 project is a straightforward way to meet the pressing energy needs of Europe’s largest economy. To Nord Stream 2’s many opponents across the rest of Europe, however, the political and economic leverage Vladimir Putin will gain over the European Union far exceeds the proceeds he can expect from shipping gas via the pipeline.

At its face, the pipeline’s appeal to the Court of Justice of the EU (CJEU) centers on the idea that the European Commission is discriminating against its business model. The Commission first tabled an amendment to the Gas Directive in 2017, and later tweaked it to encompass offshore projects originating in countries outside the bloc. The amendment (adopted this past May) stipulates that all pipelines not completed before its introduction cannot be owned by the same company which supplies the gas running through them. It also demands that at least 10% of its capacity is made available to third parties.

That rule means Nord Stream 2, which is majority-owned by Russia’s state-owned Gazprom and will be carrying Gazprom gas from Russia to Germany, falls afoul of European regulations. While the company claims this European legislation unfairly disadvantages their business model (an allegation resoundingly rejected by the Commission), the real problem is that Nord Stream 2 is not, and has never been, purely a business venture.

An energy venture with ulterior motives

As a tool of Russian foreign policy towards its Eastern European neighbors, Nord Stream 2 is in fact primarily designed to allow the Kremlin to circumnavigate neighboring Ukraine, which currently controls the transit route for nearly 40% of European gas imports and which relies on the transit fees from that gas for roughly 3% of its national GDP. As a 2017 Atlantic Council/Free Russia Foundation report explains, cutting Ukraine out of the transit routes for Russian gas has long been a strategic priority for both Gazprom and the Russian government, going back to the implementation of Nord Stream 1 in the mid-2000s.

By ensuring that Europe’s largest economy remains dependent on Russian gas supplies for decades to come, the pipeline would also significantly constraint Europe’s ability to respond to Russian aggression against Ukraine – or even against its own member states. The existing Nord Stream 1 pipeline already over 50 billion cubic meters (bcm) of gas from Russia to Europe on an annual basis, with Gazprom claiming a total of 201.8bcm in exports to the EU and Turkey last year.

That existential threat to Ukraine has made the issue of countering the pipeline project a cross-party issue for Ukraine. In August 2018, former Ukrainian president Petro Poroshenko described the pipeline as “the Kremlin’s Trojan horse against European energy and, ultimately, geopolitical security.” After meeting EU energy officials in May, Poroshenko’s successor Volodymyr Zelensky insisted his country would be “be grateful for the EU’s solidarity in the matter of countering the completion of Nord Stream 2.”

Institutional countermeasures

The European Parliament has answered that call, with a recent resolution calling for a cessation of work on the project passing by an overwhelming margin of 402 MEPs to 163 (89 abstained). That resolution, penned by Latvian representative Sandra Kalniete, pointed to the dangers of overreliance on Russian gas supplies and its deleterious effects on EU energy policy and the internal market. Other members of the body, such as Green Party MEP Rebecca Harms, have addressed German chancellor Angela Merkel directly, calling (successfully) on her last year to drop her blocking maneuvers against the amended Gas Directive now in question.

Environmentalists have also mobilized Nord Stream 2, recognizing the climate impact of such a major fossil fuel initiative. Law firm ClientEarth has filed a motion to block the Swedish section of the pipeline on environmental grounds. Greenpeace filed legal action in Russia itself against the project, pointing to pollution issues in protected areas of Germany’s Baltic Coast and the damage being done to marine ecosystems and the seafloor by construction work on the pipeline.

“Unreasonable, arbitrary and discriminatory”

Could the Gas Directive ultimately force a rethink of the project? Some controversy has arisen over the contentious wording surrounding the “completion” of the projects involved. Nord Stream 2 CEO Matthias Warnig sees the phrasing of the amendment as “unreasonable, arbitrary and discriminatory” attack on his company, while also claiming that construction work is complete on the 54 kilometers of pipeline in Germany that is affected by the Directive – thus making Nord Stream 2 eligible for exemption.

Even so, the project cannot be realistically viewed as “completed” by any meaningful definition of the word. Denmark, for example, has not given consent for Nord Stream 2 to pass through its territory, and the company recently announced it will have to pursue an alternative route. Of course, the decision to begin construction work without receiving the requisite approvals raises its own questions about the willingness of Nord Stream 2 to respect both local and European regulations.

With no less than five major European energy companies providing financial backing for the project, and with Merkel still ostensibly behind it, powerful forces are in Nord Stream 2’s corner. It remains to be seen whether US sanctions will delay or disrupt the pipeline’s construction, but this matter will not be decided in Washington. Instead, it is up to the CJEU to determine whether the European Commission can exercise its prerogative to defend the EU’s own energy interests and security.

Image source: Wikipedia Commons/Kremlin.ru

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