Europe’s sleepwalk into eastern gas troubles

Last March, Germany has given the final green light to the construction of the Nord Stream-2 gas pipe in its territorial waters, which means doubling capacity through the Baltic Sea to the German gas hub for distribution into West and Central Europe. In the south, the South Stream replacement, Turkish Stream is rapidly being constructed. With both projects in full steam, and other adjustments in the delivery of Russian gas to Europe, it is time to face what it wil mean for the country that will be hit by this: Ukraine.

So what is going on with the gas pipes in Europe, and what are the consequences of ignoring the problematic nature of various Russian Gazprom sponsored projects regarding Europe’s energy policy? There are two major projects stand out: Nord Stream-2 and Turkish Stream. Both are designed to divert Russian gas for the EU market around the main transit country, Ukraine.

Nord Stream-2

Despite EU’s objections against the pipeline which runs against the goals defined in the EU Energy Union policy, Nord Stream-2 has been actively pursued by Germany’s government. Just like the first Nord Stream pipeline, which was pursued by former Chancellor Gerhard Schröder who is deeply embedded in the Russian gas companies Gazprom and Rosneft, as well as the Nordstream pipeline companies. The second pipeline will double the annual capacity from 55 to 110 billion cubic metres, which is enough to replace most of the transit capacity through Ukraine meant for the Central European market. Nord Stream-2 is expected to become operative in 2019-2020.

Yamal-II

The Yamal-II pipeline is a relatively small capacity bypass branched from the Yamal-Europe pipe to diversify Russia’s distribution options in Central Europe, while bypassing Ukraine. Considering the large capacity projects, this is a relatively unnecessary link only targeted at more robust delivery options. The total projected extra capacity of all the ongoing projects is more than enough for Russia to abandon transit through Ukraine.

Turkish Stream

It is the replacement for the South Stream pipe that was blocked by the European Union which was supposed to run from the Russian Black Sea coast to Bulgaria. Quickly Gazprom decided to find an alternative route, which was agreed upon with Turkey. It is expected to commence operation at the end of 2019. In Turkey the TANAP (Trans Anatolian Pipe) was already scheduled for construction (in operation since June 2018), an EU sponsored project as part of the gas infrastructure from the Shah Deniz II field (Caspian Sea) to Europe. This original competitor to South Stream should have connected to the Nabucco pipe through the Balkans, but this project has been cancelled, meaning new opportunities for Gazprom.

Turkish Stream, just like TANAP, will hook up to the Trans Adriatic Pipeline (TAP) that runs from the Greek-Turkish border to Italy. To deliver gas to the Central European gas hub Baumgarten in Austria, the Tesla pipeline is under development, which will run through the Western Balkans. This will be the Russian sponsored replacement for the cancelled EU supported Nabucco project. The Turkish Stream pipeline project is sponsored by Gazprom and coordinated from Amsterdam, Netherlands, by the South Stream company.

Creeping consequences

With all these developments going on it is easy to overlook the consequences that these projects may have for European gas consumers and their respective governments.

First of all, Ukraine is currently a crucial transit country for Russian gas to Central Europe. In 2006 and 2009 with the gas conflicts between Gazprom and the Ukrainian government we have witnessed that in such situations there can be consequences down the line for European consumers as well. For some this would sound like a good argument to divert gas around Ukraine, but isn’t that replacing one liability with another?

Due to the diverted capacity around Ukraine (including the Yamal-II bypass) the country will be reduced to an end customer, making Germany a major direct transit and distribution customer. This will shift the energy powerplay balance in two ways:

1) Ukraine could be blackmailed (and shut off) much more easily without consequences for the rest of Europe. Ukraine will also loose billions in transit fees annually, an amount it can not miss. May we see the EU stepping in? Or not? What will this mean for the (political) stability of Ukraine? It is in the interest of the EU that Ukraine gets stabilized, not politically and financially destabilized by gas conflicts and blackmail through Kremlin backed gas companies. Russia has a long history of politicizing energy delivery.

2) Russia will now have a major distributor of its gas within the EU. This gives leverage to Russia it didn’t have before. It can pull the handle the way it wants. Are the Germans tough on Moscow? Just squeeze the pipe. Demand higher tariffs, or shut the pipe for “emergency maintenance”. We know the tricks we can expect, the scripts have been used in the past. And if the Germans are tough, having the pipe shut as Russian answer, millions of non-German EU consumers will have a cold heater. Asking the Germans to stop shitting with the Russians.

To complicate matters, in a surprise move the Dutch government decided in winter 2018 they aim to stop drilling for gas out of their major Slochteren gas field in the north of the country by 2030. Now a major export source, making the Netherlands self reliant, it means from now on that Netherlands will become annually more reliant on importing gas. The reduction of production precedes the speeds of national energy transition to more sustainable sources.

On a European level, leaders need to step up their efforts blocking both Nord Stream-2 and Tesla projects and preventing a Turkish Stream to TAP connection, as they will make the EU liable to Russian political energy games, increasing Europe’s dependence on Russian gas, instead of lessen it. The EU Energy Union is aimed at diversifying energy sources for energy security, de-carbonizing the economy, reducing energy imports and increasing our energy self sufficiency. All of these projects run against this policy. This needs to be stopped.

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