Nord Stream 2 has caused nothing but controversy since its inception. Construction of the pipeline to transport gas from Russia to Germany, and on to other parts of Europe, began in 2016. The project, finally finished last month, two years later than planned, has suffered massive opposition from very different quarters for very different reasons. The gas crisis is giving the pipeline a potential moment in the sun as politicians panic about ways to keep the lights on and push down gas costs. But increasing reliance on Russia to stop blackouts is not seen by most politicians or energy experts — especially as they grapple with climate change and how to decarbonise power systems — as a long-term solution.
Environmentalists have raised concerns about the 1,230 kilometres pipeline from day one, citing the science showing the world rapidly needs to reduce greenhouse gas emissions from the burning of fossil fuels, including gas, to avoid dangerous levels of global heating. Eastern European countries have opposed it because it will make Europe more dependent on Russian gas imports. Russia’s aggressive actions at home and abroad mean many in Western Europe have taken a similar stance. In January 2021, the European Parliament passed a resolution calling for the pipeline to be blocked after the arrest of Russian opposition leader Alexei Navalny.
It was the US, however, which managed to delay construction for more than a year. The US Congress threatened sanctions on companies involved in the pipeline’s construction ostensibly in protest against Russia’s invasion of Ukraine. Yet, Washington only introduced them on 19 January 2021, Donald Trump’s final full day in office. As a result, various companies suspended work on the pipeline. In May, Joe Biden lifted the sanctions in a bid not to compromise US relations with Germany — Angela Merkel’s support for the project never wavered.
While geopolitics are part of the story, economics also likely played a role in these decisions. The US is keen to export large shipments of liquified natural gas (LNG) to Europe. Russian gas piped under the Baltic Sea is a competitor to that vision.
Germany remains reliant on Russia for gas — the country imports almost all the gas it consumes, with roughly a third of it coming from Russia, Norway and the Netherlands — and Russia is mainland Europe’s biggest gas exporter. The UK imports less than 5 per cent of its gas from Russia, but it is not insulated from supply shortages and price hikes. The fact Russian state-owned supplier Gazprom did not auction extra gas in Europe despite high demand last winter, and has supplied less gas to north-western Europe this year than in previous years, has helped push up prices everywhere.
A variety of voices including 42 members of the European Parliament and climate campaigners have said the squeeze in supply was intended to pressure Europe into speeding up the launch of the Nord Stream 2 pipeline. (The original pipeline was finished in 2012.) And indeed the German government is expected to give its final green light soon. Tests are already being carried out on the pipeline, but these “can take weeks if not months” and any gas is unlikely to make it through from Russia to Germany until the end of the year, says Andreas Jahn from the Regulatory Assistance Project, a not-for-profit organisation working on the energy transition.
Nord Stream 2 will therefore in the very short-term have no effect on gas prices. “Filling up gas storage facilities from existing supply and the weather this autumn,” will be much more important in determining whether gas prices fall, says Jahn.
From the UK’s perspective, business secretary Kwasi Kwarteng told a parliamentary committee on 22 September that the UK was not supportive of Nord Stream 2, and played down its significance for the country. “We are not exposed to Russian supply as many of our EU counterparts are,” he said. However, in the longer term, the pipeline will increase the amount of gas coming to Europe from Russia — and potentially to the UK given that there are various existing pipelines between it and the continent.
“The crisis shows that gas markets are totally indifferent to populistic political promises,” says Julian Popov, a UK-based energy expert and former environment minister of Bulgaria, referring to promises made by Trump and “repeated by naive politicians in Europe” around cheap LNG supplies from the US. “LNG gas simply follows brutal commercial logic and goes to the higher bidder not to political allies. In this case the higher bidders are in Asia, and LNG tankers do not have a sense of political loyalty to Europe.”
As China emerged from the pandemic, it bought up vast amounts of unreserved LNG stock and Brazil added to the shortfall as it turned to LNG to produce electricity normally generated by hydropower dams. LNG spot prices reached record highs at various points this month. According to Jack Sharples, a research fellow at the Oxford Institute for Energy Studies, 30 per cent of UK gas imports are in the form of LNG, mainly from Qatar, with around 25 per cent of them shipped from the US and Russia, and the remaining 10 per cent from Algeria and Trinidad and Tobago.
“Russia is naturally following the same brutal commercial logic and we don’t have reason to expect anything else,” says Popov. “We can expect even less sympathy from President Putin and Gazprom. Even if they could have supplied more gas to Europe earlier they would not have done it simply as a friendly favour.”
Instead of seeing how much gas it can wring out of various countries, “the lesson for Europe is that we have to increase our energy demand resilience and decrease our reliance on gas,” says Popov. “We should redefine the role of gas, treat gas as a fuel of last resort and prepare better for high gas price volatility. We also need to finally take seriously building efficiency and invest in more in storage, including in research of future storage technologies.”
The UK’s recently announced commitment to produce zero-carbon electricity by 2035 “is an excellent first step towards ending the imported gas addiction,” says Phil MacDonald from energy think tank Ember. “Other countries should see that such transitions are one of the key diplomatic levers they have to push back on continued Russian interference”.