Why do the European Union and Germany need Nord Stream?

by Aleksander Thomas

The Nord Stream, previously known as the North European Gas Pipeline (NEGP), is a 1200km long natural gas pipeline, starting in Russia-Vyborg and reaching Germany’s Greifswald through the Baltic Sea. After its final completion, Nord Stream will be among the longest offshore pipelines in the world. It has the capacity to convey a total of 55 billion cubic metres (bcm) of gas annually. The already developed Yuzhno-Russkoye field is the source of the gas. In the future, it will also flow past Shtokmanovskoyes (Shtokman) and Ob-Taz Bay fields.[1]

The Nord Stream will provide direct gas supply to Germany and Western Europe, bypassing the pipeline transit countries of Poland, Belarus, Czech Republic, Slovakian Republic and Ukraine. Its stated purpose is to reduce transport costs, although the countries situated along the route of the old pipeline view the decision with significant political rather than economic concern. The Nord Stream is one of the two new planned pipelines envisaged by Russia, the other being the South Stream.

Two journalists from Der Spiegel, Erich Follath and Alexander Junge, state in their latest book Der neue Kalte Krieg: Kampf um die Rohstoffe, that Europe has entered a new age of intense struggle over growing demands for insufficient natural resources – the ‘new Cold War.’ They claim that the growing tensions in international relations are due to the questions posed by energy security and that the ‘cards that are currently being dealt’[2] create diversity between countries.

In this circumstance, the European Union is in an increasing demand for external energy supplies. One only has to consider the gas dispute, which occurred in 2006 between Ukraine and Russian Gazprom, to see the impact of supply disruption. Ukraine plays an important role for the Russian gas exports into Europe, as 80% of the supply flows through Ukraine. On the 1st of January 2006, due to payment problems Ukraine was experiencing coupled with a dispute over transit fees, Gazprom decreased the gas supplies to Ukraine causing a domino affect on countries in Western Europe. The International Energy Agency stated that ‘about 100 mcm [million cubic metres] that was expected in countries west of Ukraine was not delivered. In addition, Ukraine itself suffered a shortfall of 150 mcm.’[3] Because the shortage of gas lasted only for three days it was easily managed by fuel switching. However, this event acted as a catalyst for the awareness of how important energy security is for Europe.

The supporters of Nord Stream argue that the pipeline is one of the main answers to the growing problem of energy security in Europe. According to an official statement by the Nord Stream AG, ‘it is evident that without Nord Stream, the European Union will not be able to cover its gas needs. Therefore, Nord Stream is an important contribution to security of supply, as it will meet a quarter of additional import needs of Europe.’[4] It can be clearly seen that during the past twenty years, the European Union has had an increasing reliance on imported gas. The European Union’s gas consumption increased by fifty percent in between the years 1990 to 2005 with a forecast of continuous demand in the years to come.

As seen in the below graph, up until the mid 1990s the production and demand increased, whereas from 2002 the consumption level has still been increasing at a steady rate while production has plateaued and then started to decline:

[5]

Europe’s need for gas can also be illustrated by the graph beneath, where gas consumption imports increased from 40% in 1994 to approximately 60% in 2006:


[6]

Moreover, as Dieter Helm pointed out, ‘Gas is the fuel of choice for electricity generation in Europe, and demand is projected to rise steadily over the next decade.’[7]  Simultaneously, the European Union’s domestic gas production – dependent heavily on the North Sea fields discovered in the 1970’s – is decreasing at a steady rate, and the proportion of imported gas will increase in 2005 from 57% to 75% in 2015.[8]

Regardless of the increasing gas demand of gas in the European Union, one has to pay special attention to Germany’s role within the Nord Stream project, as the pipeline’s first contact with Western Europe will be in Germany. It will be the country to gain more from this project than any other state within the European Union.  Back in 2007, the International Energy Agency stated that Germany’s yearly gas consumption was roughly 92 billion cubic meters, where only 20% was of a national source. Out of the total, Russian gas supplies supply approximately 40%; this level has been increasing within the recent years.

The European Union’s concern about the supply of natural gas has been a major topic of discussion, due to the recent harsh increases in energy prices as well as the provisional reductions in the supply of gas from Russia. One has to take into account that the European Union is defenseless against such radical changes in supplies and prices, as it simply cannot afford these changes, as it only is in possession of less than 2% of world reserves, despite accounting for “about one quarter of its [European Union] gross domestic energy consumption.”[9]

The increasing gap between the consumption and production of gas in the European Union is a serious problem, and the situation is only going to get worse. The European Union is in no position to demand changes in the supply and prices of gas, as Russia is not lenient towards the European Union and the west. Policy-makers from the European Union are therefore concentrating on providing alternative measures such as including an effective common energy policy for the European Union, which would include alternative energy sources, developed energy efficiency. One alternative discussed by the policy-makers is supplying liquefied natural gas (LNG) by the use of sea and specialized ships, rather than a pipeline.

LNG is viewed as a promising means in the struggles to diversify and assure European Union’s imports of gas, as the geopolitical supply of LNG varies from that of pipeline supplies. The two dominating countries in Europe consuming LNG in the European Union are France, which consumes more than a quarter of the total imports of LNG, and Spain, with more than one half of total LNG imports. The main supplier of LNG is Qatar, which being located in the Arabian Gulf has its own political risks when supply security is considered.

Another source of gas being developed is Libya, which has been a major supplier of Italy and others through a sub-Mediterranean pipeline up to the Arab Spring, which deposed the Gaddafi regime. Active engagement of Italy and France is taking place to redevelop and expand production capacity.

Poland and UK are developing shale gas as alternative sources of gas, although the size of extractable deposits is difficult to confirm at this stage.

One then has to pose the question as to the real importance of Nord Stream for both Germany and Russia. Not only is Germany going to benefit from the great amounts of gas pumping their economy, but as Germany’s Foreign Minister stated, that “Europe needs to deepen its energy and trade relations with Russia in order to ensure amicable relations. Not unlike Willy Brandt’s Ostpolitik of the 1970s, the mantra seems to be ‘engage Russia’ to create harmony.”[10] Using this notion, one can see the relevance of the Nord Stream in strengthening the economic relations of both countries in a coexistence manner (coexistence is a state in which two or more groups are living together while respecting their differences and resolving their conflicts nonviolently). This can be asserted by the comment made by the prior Swedish ambassador to Russia, Sven Hirdman, ‘The more economic and industrial cooperation we have in Europe, the better. Nord Stream is comparable to the European Coal and Steel Community [ECSC] back in the days.’’[11]

It can be concluded, that there are several interpretations of the importance of the Nord Stream.  As discussed, this project is not just an ordinary ‘pipeline.’ It raises discussions about the fact that the supply of gas is not required so much by the European Union, as by German, who needs gas supply for its own security. In fact countries in the eastern belt of the European Union could well suffer as Russia plays the gas card in its political game with countries such as Belarus and Ukraine. There have been many attempts to find supplementary sources of energy in order to ease the tension between countries, as well as to prevent any further pressure, which could have serious political and economical consequences.

Aleksander Thomas is a scholar of International Relations and Diplomacy. He is currently completing his thesis on energy security in the context of the European Union’s Eastern Partnership Project. Additionally, he is an analyst at the European Student Think Tank (http://studentthinktank.eu/author/aleksander/). His interests include the role of supranational organizations, conflict resolution, and international co-operation.


[1] Facts and Figures.’ Available at: http://www.nord- stream.com/facts_figures.html

[2] Follath, Erich and Alexander Jung (eds.) (2006). Der neue Kalte Krieg. Kampf um die Rohstoffe. München: Deutsche Verlags-Anstalt.

[3] Energy Policies of IEA Countries: 2006 Review. Paris: International Energy Agency / OECD.

[4] ‘Secure Gas Supply.’ – http://www.nord- stream.com/16.html?&L=0

[5] Historical data from 1965-2006.’ – http://www.bp.com/liveassets/bp_internet/globalbp/globalbp_uk_english/re ports_and_publications/statistical_energy_review_2007/ST AGING/l ocal_assets/downloads/spreadsheets/statistical_review_full_report_w orkbook_2007.xls

[6] Historical data from 1965-2006.’ – http://www.bp.com/liveassets/bp_internet/globalbp/globalbp_uk_english/re ports_and_publications/statistical_energy_review_2007/ST AGING/l ocal_assets/downloads/spreadsheets/statistical_review_full_report_w orkbook_2007.xls

[7] Helm, Dieter (2007). The Russian Dimension and Europe’s External Energy Policyhttp://www.dieterhelm.co.uk/publications/ Russian_dimension.pdf

[10] ‘Germany and Russia: A Special Relationship.’ The Washington Quarterly Vol.30 No.2: 137-145

 

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