Why Nord Stream 2 matters
Last fall, my team at the Lauder Institute had the chance to interview energy policy experts on Nord Stream 2. They clashed on whether the pipeline was a necessity, but agreed that its construction would have large ramifications for geopolitics and energy policy on the continent. Now that Germany took the huge step of halting its certification, it remains to be seen how this changes the geopolitical calculus, or simply raises gas prices for consumers. Written in October ‘21 but published today, it is interesting to see how the facts and their implications have shifted in the past several months. Excerpts from the article can be found below, with the full article available here.
Nord Stream 2 and Europe’s Bumpy Energy Transition
Russian state-owned Gazprom announced the completion of its Nord Stream 2 pipeline in early September 2021, on the heels of an energy supply crunch and sky-high prices across Europe, as reported by The Wall Street Journal. Operators hoped to start transporting Russian liquified natural gas (LNG) to Germany and the rest of Europe before the year’s end, as soon as German regulators and the European Commission grant final approval to the pipeline. In the meantime, Gazprom continued to offer limited capacity, sending gas futures for the coming winter months ever higher. The current energy supply crisis roiling Europe appears to confirm the prescience of the project’s Russian backers. Russia and Gazprom have consistently maintained that LNG is critical to the stability of European energy supply so long as renewable source technologies lag in production output and storage capacity. The Nord Stream 2 pipeline, Russia insists, is essential to the physical security of that LNG supply to Western Europe.
Nord Stream 2 and the previously completed Nord Stream 1 run in parallel directly from Russia to Germany under the Baltic Sea, bypassing traditional gas transit countries Poland and Ukraine. Since 1992, Russia has repeatedly reduced or shut down gas transit through Ukraine in response to Ukrainian payment defaults and allegations that the transit country siphoned off gas destined for its western neighbors. Nonetheless, despite the surge in European demand, existing pipelines through Poland and Ukraine are transporting significantly less Russian LNG to Europe than their capacity. Gazprom sharply reduced gas flows along its Polish transit route beginning in July 2021 to as low as 25% of its average daily amount by mid-August, according to Tom Marzec-Manser, lead European gas analyst at Independent Commodity Intelligence Services. Instead of exporting more gas to meet increased demand, Gazprom is meeting Europe’s previously contracted needs by depleting its forward-located reservoir stores, as reported by Deutsche Welle. This raises the question: Can Europe successfully transition to a more sustainable and independent energy policy while avoiding the economic havoc that a frayed relationship with Russia inevitably brings?
Read more, here.
