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06/12/2016

Germany-favoured Nord Stream-2 risks strangling Ukraine, US says

Energy

Germany-favoured Nord Stream-2 risks strangling Ukraine, US says

Nord Stream pipeline [Gazprom]

A proposed pipeline to boost Russian gas supplies to Germany risks depriving Ukraine of more than $2 billion in transit fees, and runs counter to the EU’s goal of reducing its energy reliance on Russia, a US official said today (5 November).

The European Union has sought to help Kyiv in the wake of Moscow’s annexation of Crimea and has looked to bolster energy ties with Ukraine as Russia threatens to stop piping gas via its neighbour.

“You have to ask: Why would you support Ukraine with one hand and strangle it with the other,” Deputy Assistant Secretary for Energy Diplomacy Robin Dunnigan told a conference of policymakers.

“Cutting off all gas transit through Ukraine would deprive it of $2.2 billion in annual revenue,” Dunnigan said.

EurActiv reported two months ago that the shareholders’ agreement on the Nord Stream-2 gas pipeline project is hurting Ukraine and bringing Europe closer to Moscow’s energy orbit.

>> Read: Germany helps Russia bypass Ukraine via ‘Nord Stream 2’

Russia’s Gazprom already sends gas to Germany across the Baltic Sea via the Nord Stream pipelines and the proposed Nord Stream-2 project would double capacity to 110 billion cubic metres (bcm) per year.

Gazprom also sends large volumes of gas to the EU via Ukraine but has said it aims to bypass this route, most recently under a plan to build a new pipeline to Turkey.

In September, Gazprom formed a consortium with E.ON , BASF/Wintershall, OMV, ENGIE and Royal Dutch Shell for Nord Stream-2 that could see Russia bypass Ukraine from 2019.

Gazprom has put the cost of the plan at up to €9.9 billion ($11 billion).

While the EU and United States have imposed sanctions on Russia because of its annexation of Crimea and its support for separatist rebels in eastern Ukraine, energy ties between Moscow and Europe remain deep. Russia provides around a third of the EU’s energy needs.

“North Stream-2 actually threatens not only Ukraine’s survivability and their resources, but it is a risk to fuel diversification in Europe, especially southeastern Europe,” Dunnigan said.

Commission concerns

European Commission Vice-President Maroš Šef?ovi? said on Thursday that he had spoken with German Vice Chancellor Sigmar Gabriel to express the Commission’s concerns about whether the project breaches EU rules.

Šef?ovi? noted that as only about half of the pipeline capacity between Russia and Europe was being utilised, there were questions about why more was needed.

“As we showed for previous projects like South Stream, for the European Commission, it’s very clear that such projects must respect European law,” he told the conference.

Russia’s proposed South Stream pipeline to bypass Ukraine by sending gas across the Black Sea to Bulgaria was opposed by the EU, prompting Moscow to propose a new route to non-EU Turkey instead. 

Background

Nord Stream was inaugurated on 8 November 2011, in the presence of then-President Dimitry Medvedev, and Chancellor Angela Merkel.

>> Read: Russian, EU leaders inaugurate Nord Stream pipeline

Led by Gazprom, which has put the cost of the plan at up to €9.9 billion and maybe less due to savings, the group is to build a third and fourth pipeline to transport up to 55 billion additional cubic meters of gas a year (bcm/y).

It would double the capacity of lines 1 and 2, which take the same route. The new pipelines are due to start transporting gas by the end of 2019.

Gazprom, E.ON, BASF/Wintershall, OMV, ENGIE and Royal Dutch Shell formed the consortium for the Nord Stream-2 project.