Donald Tusk, the president of the European council, called it a mistake, while the US president, Donald Trump, has branded it very inappropriate and a “very bad thing for Nato”.
The Nord Stream 2 pipeline to take Russian gas to Germany is arguably Europe’s most controversial energy project, drawing opposition from Ukraine, which it will bypass, and uniting the US, eastern EU states and the European commission, which fears it will undermine the bloc’s ‘energy union’ plans.
But this month a compromise deal on pipeline rules was forged by Germany and France, which should allow the scheme to proceed.
Dmitry Marinchenko, an analyst at the credit ratings agency Fitch, said the agreement was welcome. “This is a good compromise which may work for all the parties – Russia, the EU and Ukraine.”
Nord Stream 2 has been eight years in the making so far, with 434 miles of pipe out of a total of 746 laid across the Baltic Sea alongside an existing pipeline between Russia and Germany. The Russian state gas firm Gazprom and five western energy companies, Uniper, Wintershall, Shell, OMV and Engie, are behind the scheme.
The project has sparked serious geopolitical concerns and the threat of sanctions. Critics in Brussels and the US have warned it risks deepening Europe’s reliance on gas imports from Russia, which already provide about 40% of the continent’s consumption.
Germany and Russia have defended the pipeline and shown little sign of a willingness to rethink their plans. Angela Merkel, the German chancellor, has argued that the project does not increase its reliance on Russian gas, as Germany is also looking to increase imports of ship-borne gas from countries such as the US.
“Do we become dependent on Russia due to this second gas pipeline? I say ‘no’, if we diversify at the same time,” she said this month.
Under a deal agreed earlier in February, the pipeline must meet four EU rules, including a telecoms-style unbundling requirement whereby other suppliers be allowed access to the pipeline. However, Germany will be the ultimate arbiter of how the regulations are applied.
The final text of the agreement has not been published and it still needs to be formally approved by governments and the EU parliament, although that is expected to be given.
“I think we can safely say that the pipeline cleared a major hurdle this month,” said Tim Boersma, the director of global gas markets at the US-based Center on Global Energy Policy, after the compromise pact.
It is hard to see what would block the project now. Denmark is the only country yet to issue permits, although that is thought unlikely to be a deal breaker.
Boersma said: “One could argue that what the Danes always wanted was a European solution, and so now that there is one, they can grant permits to the project and move forward. If they do not, or not soon, the company [Nord Stream 2] has to decide to change the route of the pipeline. It has been planning accordingly but this would still mean a delay.”
The consortium behind Nord Stream 2 said the project was proceeding according to schedule, which should mean it is completed late this year. A spokesperson said the company would “refrain from speculation” on the compromise deal, given it was yet to be formally approved.
Ukraine has been one of the most vocal critics of the project, as it stands to lose out on revenues from being a “transit country” for pipelines carrying Russian gas to the rest of Europe.
Experts said that because of the new regulations for Nord Stream 2, it would be underutilised in its first few years. That means the amount of gas transported through Ukraine would not reduce as much as previously feared.
Volumes through Ukraine could fall from around 80 billion cubic metres a year to as low as 30bcm, cutting transit fees from $2.5bn to $1bn a year, according to Marinchenko.
“Germany would obviously be interested in having the [Nord Stream 2] pipeline built but it would also want to keep Ukraine as a transit country for political solidarity,” he said.
In the longer run, Nord Stream 2 is expected to give Gazprom enough excess capacity to accommodate an increase in Russian gas supplies as Europe’s domestic gas production winds down.
However, the pipeline faces a new rival in coming years – tankers full of supercooled gas from the US fracking boom. That would give Europe more leverage in negotiations with Gazprom.
“German authorities have been talking about liquefied natural gas for quite some time. But it is not a coincidence that one, or maybe two, of the discussed projects now seem to be moving forward,” Boersma said.
He believes there is room for both Russian gas and US LNG, despite the latter being more expensive because of shipping and liquefaction costs. “The highly politicised environment can be misleading but it is not either/or. It is and/and.”
