Ukraine gets compensation in exchange for US-Germany deal on Nord Stream 2

Following the agreement between Germany and the US over the contentious Nord Stream 2 pipeline, Ukraine may just become a major hydrogen exporter. EPA-EFE/Alex Edelman / POOL

Germany and the US struck a compromise on Wednesday (21 July) over the construction of the Russian-backed Nord Stream 2 gas pipeline. According to the deal, Germany will provide assistance for Ukraine’s energy security, with an initial donation of €148.3 million.

“Germany buys its way out,” titled German newspaper FAZ following the Germany-US deal over Nord Stream 2.

The agreement sees Germany funnel money towards Ukraine in exchange for the US withdrawing its threat to sanction the companies involved in the construction of the pipeline, which Washington sees as a menace to Europe’s energy security.

“It is good that we are once again pursuing our common goals and convictions with the USA, including in Russia and energy policy, and that we have also been able to agree constructive solutions on the issue of Nord Stream 2,” said Heiko Maas, Germany’s foreign minister.

For Ukraine, there is €2 billion of Russian gas transit income at stake. “For us, ‘energy security’ is not just a word,” said the Ukrainian president Volodymyr Zelensky as reported by FAZ.

The agreement does not foresee Germany matching those €2 billion in their entirety. However, it does commit Germany to uphold Ukraine’s role as a gas transit country and “utilise all available leverage to facilitate an extension of up to 10 years” of the country’s current gas transit arrangement, which expires in 2024.

Washington sees the agreement as a pragmatic way to settle the dispute, since the pipeline is already 98% completed and of strategic importance to Germany’s future gas supply.

The deal also comes as a follow-up to the climate partnership that Germany and the US signed on 15 July, which laid out the objective to further “Ukraine’s energy transformation, energy efficiency, and energy security”.

“Obama, Trump, nor Biden could convince Germany to abandon the project. It was going to be built. Unfortunate but true,” tweeted Chris Murphy, a Democratic senator. Without this deal, Ukraine would have got nothing, he added.

US, Germany to vow action on Russia in Nord Stream 2 deal

The United States and Germany will take action against Russia if it uses the Nord Stream 2 gas pipeline to harm Ukraine or other Eastern European countries, according to sources familiar with a bilateral agreement expected on Wednesday (21 July).

Ukraine and Poland condemn the deal

In a joint statement, Ukraine and Poland condemned the deal, saying Nord Stream 2 “has created political, military and energy threat for Ukraine and Central Europe, while increasing Russia’s potential to destabilise the security situation in Europe, perpetuating divisions among NATO and European Union member states.”

“We call on the United States and Germany to adequately address the security crisis in our region,” the statement continued, adding that “Russia is the only beneficiary” of the situation.

“Ukraine and Poland will work together with their allies and partners to oppose NS2 until solutions are developed to address the security crisis created by NS2,” the statement concluded.

Ukraine’s gains

Compared to the €2 billion annual revenues that Ukraine gets from being a gas transit country, Germany is putting relatively little money on the table: an initial donation of $175 million (€148.3 million) for a yet to be established Green Fund as well as the nomination of a special envoy to help Ukraine phase out coal with $70 million (€59.3 million) of funding.

The Green Fund has the stated aim of supporting Ukraine’s energy transition, energy efficiency and energy security. The Germany and the US commit to attract $1 billion (€847.4 million) in investments, including from the private sector. 

The US, for its part, does not offer financial assistance to Ukraine but commits to support the Green Fund with technical assistance and policy support “consistent with the objectives of the fund”.

The fund will also support the development of hydrogen in Ukraine, which German politicians see playing a “key role” in Europe’s future hydrogen supply. 

Germany has already been in talks with Ukraine over investments in hydrogen infrastructure. Economy Minister Peter Altmaier said in May that Germany had €2 billion ready for international investments in hydrogen projects, a move that he brought up with his Ukrainian counterpart. 

Another gain for Ukraine is the prospect of full integration into the European electricity grid, the world’s largest. As of now, only small parts of Ukraine are integrated into the grid, but the agreement foresees that Germany will provide technical assistance to do that, in coordination with the EU and the US Agency for International Development. 

EU accession is a long-term policy goal for Ukraine, which has taken steps to integrate more closely with Europe.

Kyiv also signed a partnership with the EU earlier this month to develop its supply of raw materials for the EU’s battery industry.

EU, Ukraine sign ‘strategic partnership’ on raw materials

Kyiv will be invited on Tuesday (13 July) to join EU industrial alliances on batteries and raw materials, with a view to develop an entire value chain of the extraction, refining and recycling of minerals in Ukraine to supply the EU market for electric cars and digital equipment.

[Edited by Frédéric Simon]

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