Mapping Out Scenarios For The Development of a Common EU Policy Towards Nord Stream 2

Summary

Broadly spoken, a common EU policy towards Nord Stream 2 could take three directions: (i) a market-oriented approach that rejects a geo-politicization of the debate and counts on the integration of the European gas markets for ensuring supply security, (ii) a geo-economic approach that puts Nord Stream 2 on hold, uses hard sanctions against Russia due to its aggression on Crimea, and lifts decisions about critical energy infrastructure at the EU’s external borders to an European level, or (iii) a moderate approach that builds on EU-Russian energy cooperation as an important dialogue platform and tackles the supply security concerns of the opposing countries internally.


This week I started researching possible scenarios for a common EU policy towards Nord Stream 2. This blog posts maps out three fundamental directions for such a strategy.

Please be aware that the approaches presented below do not reflect my personal opinion. Instead, they are my interpretation of the suggestions made in the research articles cited below each paragraph.

  1. Market-Oriented Approach

Rejecting The Geo-Politicization of The Debate

Since the 1990s the European gas market has been liberalized progressively. Today, private companies are the major players in the market, while the EU has become the main regulatory power. At the same time, the increasing share of LNG in the market and the trend of moving from long-term supply contracts to flexible spot-market trading have weakened the position of traditional pipeline suppliers such as Gazprom. Thus, the market-friendly approach in natural gas policy taken by the EU has shown its fair share of success. In the Nord Stream 2 debate, several opposing countries are trying to bring back geo-political ideologies to the center of European energy policy strategy.

It must be recalled that Nord Stream 2 is not supported financially by any EU country. On the European side, it is a fully commercial project. Trying to stop Nord Stream 2 would contradict its history of successful and market-friendly natural gas policy. What the EU should do, of course, is ensuring that all energy infrastructure complies with EU market regulations, such as ownership unbundling, third party access, and other competition rules. Market regulations have been helpful in the past, so why should they not be sufficient for dealing with Nord Stream 2?

What the EU should definitely not do is entering a spiral of geo-political trial of strength, while it already has powerful market policy tools at hand.

Source: Fischer, S. (2016): Nord Stream 2: Trust in Europe. In: Policy Perspectives, 4/4, Center for Security Studies, ETH Zurich.   

Accelerating The Integration of European Gas Markets

A possible market-oriented counter strategy is to promote and accelerate the integration of the gas markets of the member states. Supply security does not only depend on the diversification of suppliers and supply routes, but can be achieved by creating an interconnected and competitive EU gas market.  If natural gas can flow completely freely across-borders and between member states, this would (a) eliminate the risk of a supply cut-off of Eastern European countries, (b) make price discrimination by Gazprom against Eastern European countries almost impossible, and (c) allow the EU as the world’s largest gas import market to leverage its joint market power.

Source: Goldthau, A. (2016): Assessing Nord Stream 2: regulation, geopolitics & energy security in the EU, Central Eastern Europe & the UK, Strategy Paper 10, European Center for Energy and Resource Security, King’s College London.           

2. Geo-Economic Approach           

Vihma and Wigell (2016) take the view that Nord Stream 2 has managed to outsmart the EU’s market-liberal principles with its geo-economic motivations and its potential to divide EU member states. They expect that – in case Nord Stream 2 will be completed – EU solidarity and foreign policy towards Ukraine will be hollowed out definitively.

Therefore, the EU and Germany should put Nord Stream 2 on hold, affirm their sanctions, and try to weaken the Russian elites by tailoring the sanctions to their weak points. According to Vihma and Wigell (2016), a market response would not be sufficient for countering Russia’s invasion of Crimea and its efforts to drive a “wedge” between the EU member states. Instead, only strategic confrontation could convince Russia to finally stop its aggressive geo-economic behaviour. In the long-term, decisions about energy infrastructure at EU external borders should be raised to an European level.

Source: Vihma, A. & Wigell, M. (2016): Unclear and present danger: Russia’s geoeconomics and the Nord Stream II pipeline. In: Global Affairs, 2 (4), pp. 377-388.

3. Moderate Approach

A third option is to underline market policy responses with political signals of EU solidarity. While its tradition of successful liberal gas market policies as one of the core principles of EU natural gas policy must not be forgotten, the concerns of opposing countries towards the pipeline should be taken seriously and should be considered in any policy response.

The economic relations between Europe and Russia form the major pillar of their political cooperation. Giving this up could jeopardize the work of many years of building a dialogue platform with Russia. While Nord Stream 2 might indeed be seen as a political win for Russia (in case it is completed despite of the Crimea crisis), it could strengthen energy issues as a reliable platform for cooperation.

The EU’s support of the Ukraine could be demonstrated by other means: Reforming the Ukrainian energy market and linking it closer together with the EU energy market could ensure supply security for the Ukraine, even if the gas transit would decrease or stop. Selling gas to the Ukraine at low gas prices could outbalance the loss of transit revenue. Next to pushing forward the integration of the EU gas market – especially in Eastern and Southeastern Europe -, the supporters of Nord Stream 2 should still work towards a continuation of gas transit through the Ukraine. Also, Germany and the V4 countries could work on multilateral supply security mechanisms that can increase their supply security.

Source: Lang, K.-O., & Westphal, K. (2016): Nord Stream 2: Versuch einer politischen und wirtschaftlichen Einordnung (SWP-Studie, S 21), Berlin: Stiftung Wissenschaft und Politik -SWP- Deutsches Institut für Internationale Politik und Sicherheit. Retrieved from: https://nbn-resolving.org/urn:nbn:de:0168-ssoar-50137-5 (March 8th, 2019).

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