Summary
Nord Stream 2 “is a project with neither economic rationale nor political backing” from an EU policy perspective. Since only half of the available gas import capacities in the EU were used in 2015, Nord Stream 2 will most probably lead to stranded assets. Furthermore, the pipeline conflicts with EU gas diversification strategies, efforts for a fully integrated and jointly regulated Energy Union, and supply security strategies due to the resulting increase of EU dependence on Russian gas and a further concentration of supply through the Baltic corridor. Nord Stream 2 challenges the coherence of EU foreign policy towards Russia and Ukraine, as well as the solidarity between member states with regard to the coordination of energy policies.EU efforts to obtain a negotiation mandate for the operation of the pipeline were not successful. The proposed amendment of the EU Gas Directive has initially aimed to extend the scope of the directive to external pipelines, such as Nord Stream 2, without exception. However, this has only been partially successful and the currently discussed amendment will most likely not be sufficient for enforcing EU interests, since Germany might be allowed to grant an exception for Nord Stream 2

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In line with our research plan, this post provides further insights into EU energy and natural gas strategies. The research focused on strategies related to natural gas. Other strategies, such as renewable energy strategies, were not considered in detail. Based on this strategy overview, the main motivations for the EU position towards Nord Stream 2 are summarized.

Recent Developments

For an overview of past and recent political developments on the EU level with regard to Nord Stream 2, including the discussions around the amendment of the EU Gas Directive, please consult the older posts here, here, and here.

EU Energy And Natural Gas Strategies

The EU is heavily dependent on gas imports. Overall, 70% of its natural gas is imported from non-member states. Russia is by far the biggest supplier of natural gas to the EU, accounting for 40% of the imports in 2017. In 2009, the Russian-Ukrainian gas dispute cut off some member states from gas supplies. This was perceived as a “wake-up call” and initiated the development of more ambitious strategies for a common EU energy policy that would make the EU energy supply structures more resilient.

The present and future EU energy policies for a secure, affordable, and sustainable energy future are built on a range of different strategies.

The EU is building an Energy Union that aims at deepening the cooperation, interconnectedness and solidarity between the member states in energy related issues, as well as at decarbonizing the EU economy and retaining leadership in renewable energy technologies. The Energy Union could be called the overarching master plan for future EU energy policy.

In May 2014, the European Commission released its Energy Security Strategy. It lays out short-term and long-term measures for ensuring supply security in the future.

Recently, the EU has published a long-term strategy paper for “a prosperous, modern, competitive and climate-neutral economy by 2050”, which is built on the ’Clean Energy for all Europeans’ package and shows pathways towards a decarbonized energy future.

A complete overview of the most relevant energy strategy packages can be found here.

The following paragraphs summarize the most fundamental energy policy principles and strategic goals that directly concern natural gas as a source of energy in the EU.

• Diversify Gas Supply And Enhance Solidarity Between Member States (Security Perspective)

A key instrument for achieving gas supply security is the diversification of gas supply sources and routes, in order to reduce the dependence of member states on one or only a few gas suppliers. Therefore, the Energy Union works on expanding the Southern Gas Corridor which will transport gas from the Caspian Region, the Middle East, and Central Asia to the EU, e. g. through the TANAP pipeline and TAP pipeline. Secondly, the EU has identified Northern African countries (e. g. Algeria) and Eastern Mediterranean countries (Israel, Egypt) as possible future gas suppliers. Building a “Mediterranean Hub” is envisioned for diversification purposes. Increasing imports from Norway is seen as another alternative for reducing the share of Russian gas in EU imports. Lastly, increasing the share of LNG in the gas supply is seen as a possibility to further diversify gas supplies by establishing supply relationships with North America, Australia, and Qatar. The EU expects LNG supply to increase by 50% and prices to decrease significantly in the next few years. This will help to establish LNG as an alternative to (Russian) pipeline gas.

When talking about diversification of gas supplies, the EU most commonly refers to reducing the share of Russian gas in the EU. A stress-test, carried out in 2014, simulated a halving of Russian gas imports to the EU and an interruption of the transit route through the Ukraine. This showed that several Eastern European countries would have been affected drastically by such a scenario and reveals the rationale behind the EU’s diversification plans.

In order to prevent an energy crisis resulting from disruptions in the respective export countries, terrorist attacks, natural hazards or similar events, the Energy Union aims to build a fully integrated internal gas network so that gas can flow freely between member states. Thus, in supply crisis gas can and must always be transported to the member state, where it is most needed (see Security of Gas Supply Regulation 2017). Disruption risks are further limited by carrying out joint risk assessments and emergency plans and reverse-flow possibilities at all cross-border pipelines. Increased gas storage capacities will further help to deal with interruptions in supply.

Increasing energy production in the EU through the extraction of unconventional shale gas sources (Fracking!) and the deployment of CCS in the coal power sector are considered to be back-up strategies.

• Create a Competitive and Integrated Internal Energy Market (Market Perspective)

By connecting the energy markets of different member states with each other, building an integrated energy market with common energy market rules and cross-border energy infrastructure will increase competition and consumer choice, thus ensuring competitive energy prices in the long-term.

The Trans-European Networks for Energy strategy funds new energy infrastructure projects in the EU. Priority gas corridors within the EU AND between non-member and member states have been identified. By establishing new pipeline connections between member states, single member states gain access to new supply routes and can reduce their dependence on single suppliers.

Every two years, the EU identifies projects of common interest. An energy project is of common interest, if it contributes to the establishment of the priority energy corridors. The selected projects benefit from additional funding and faster authorization mechanisms. Nord Stream 2 is not a project of common interest, according to this definition.

A regulation that turned out to play a central role in the Nord Stream 2 discussion is the ownership unbundling which is part of the Third Energy Package and prescribes the separation of energy supply from transmission operations. Soon, this will be applicable to pipelines from non-member states as well. The rationale behind this regulation is led by market considerations: If energy supply and pipeline operation were possible for only one company at the same time, access to the respective infrastructure would be difficult for competitors. This could potentially lead to higher energy prices for consumers.

• Decarbonize The Economy And Reduce The Demand For Natural Gas

The Energy Union aims to decarbonize the economy, in order to contribute to the achievement of the climate goals of the Paris agreement and to make the EU independent from fossil fuels. The targets for emission reductions, the increase of the share of renewable energies, and improvements of energy efficiency are laid down in the 2020 climate & energy package and the 2030 climate & energy framework.

In its recently published long-term vision of a climate-neutral Energy Union in 2050, the EU expects the share of natural gas in the primary energy consumption to decrease from 21% in 2015 to somewhere between 3 – 9% in 2050.

Improved energy efficiency, e. g. in heating, will decrease the demand for natural gas. However, due to a declining natural gas production in EU countries, the natural gas imports are likely to be stable until 2030. The EU sees the role of natural gas in the long-term as difficult to estimate. While the EU calls it a necessity to reduce emissions from natural gas usage, e. g. by storing CO2 or substituting it with green gas, LNG has great potential as a low-emission fuel for long transport. Furthermore, natural gas is likely to be used as a medium-term alternative for coal in the power sector and will play a key role in the energy transition.

• Coordinate Energy Policies of Member States And Speak With a United Voice

The EU endorses moving discussions about new energy infrastructures and national investment decisions from a national to an European level, in order to avoid conflict between member states and an undermining of EU energy strategies. The (voluntary) application of EU regulations to agreements between member states and third countries is advocated. Another important strategic goal is to align the energy policy of member states with a coherent EU foreign policy. To use the words of the European Commission: “It is clear that decisions on energy mix are a national prerogative, but the progressive integration of energy infrastructure and markets, the common reliance on external suppliers, the need to ensure solidarity in times of crisis, all imply that fundamental political decisions on energy should be discussed with neighbouring countries. The same holds true for the external dimension of EU energy policy.” Furthermore, bundling the (gas) demand of several member states would strengthen the negotiation position towards non-EU energy suppliers.

For achieving a better coordination of EU policy and the policy of member states, the EU has recently introduced new governance mechanisms, such as the so called Integrated National Energy and Climate Plans (NECPs). These require member states to submit an outline of how their national energy policies will contribute to the goals of the Energy Union. The Commission may then make suggestions on how to adapt national strategies, in order to harmonize it with EU strategies.

Reasons For The EU Position Towards Nord Stream 2

Again, details on past EU policies towards Nord Stream 2 can be found in older posts, tagged as “EU”. In the following, the EU position towards Nord Stream 2 is summarized with special regard to its rooting in EU energy strategies.

• The additional capacities of Nord Stream 2 are not necessary

Since only half of the available gas import capacities in the EU were used in 2015, Nord Stream 2 will most probably lead to “stranded assets”. Nord Stream 2 does not make sense from an economic perspective. The existing gas network is sufficient.

• Nord Stream 2 will lead to a further concentration of gas supply

Nord Stream 2 will increase the volume of gas supplies through the Baltic corridor. Furthermore, it strengthens Russia’s position in the EU gas market. Therefore, Nord Stream 2 does not contribute to enhancing supply security in any way. This conflicts with EU plans to diversify suppliers and supply routes, in order to improve supply security.

• Nord Stream 2 could increase Russia’s political influence

Even though the EC has called Nord Stream 2 a “commercial project” in the beginning, it later became obvious that the EU feared an increase of Russia’s political influence in the EU. EC President Juncker said that “the Energy Union cannot be held hostage by pipeline politics, and any new project must comply with European rules and align with European interests”.

• Nord Stream 2 contradicts EU principles of solidarity and community

Claims for an EU negotiation mandate made clear that the EU demanded a strong voice in determining the conditions for the operation of the pipeline. Since Nord Stream 2 undermines EU strategies, it should have been negotiated on an European level. Bypassing the EU violates the vision of an united Europe which is built on the values of solidarity and trust.

• Nord Stream 2 endangers the coherence of EU foreign policy

It contradicts the rationale of EU sanctions against Russia that have been in place since the annexation of Crimea. It jeopardizes EU efforts to modernize the Ukrainian gas network and EU plans to support Ukraine as a transit country. The poor coordination of Nord Stream 2 with EU foreign policy weakens the position of the EU on an international stage.

Next Steps

According to our research plan, I will continue my work with a blog post that explores the political motivations behind Denmark’ opposition towards Nord Stream 2. Denmark is “the last man standing” against Nord Stream 2. It will also contain insights into Danish natural gas strategies for the future.

As a basis for the later development of a common EU strategy, it will be necessary to look into the position of all the different EU institutions/stakeholders, e. g. the European Parliament.