Foreign Policy Research Institute

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Foreign Policy Research Institute

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Cheap gas for Europe can only be in Russia’s geopolitical trap


In May, Joseph Biden announced a decision to change his position on the construction of the Nord Stream 2 gas pipeline. As a legacy from the previous administration, the new leadership of the United States inherited tough sanctions against the Russian-German project, approved by Congress and President Donald Trump. However, in order to strengthen transatlantic ties with Germany, a country that, according to the President of the United States, should take a leading role in American European strategy, Joe Biden made concessions on an issue regarding which there is no unity either within Europe or within the United States. The Biden administration announced that the sanctions would only be imposed on the pipeline contractors, but not against the company controlling the project, Nord Stream 2 AG, or its CEO Matthias Warnig, a German citizen with close ties to Vladimir Putin. Three months later, the Russian Federation announced the completion of the gas pipeline. However, the completion of construction does not mean the end of the struggle against its commissioning, so the events around Nord Stream 2 are increasingly appearing on the agenda of European and American politics.

The gas pipeline has not yet been commissioned, and the countries opposing the Russian-German geopolitical project continue their struggle through legal means. In July, the European Court of Justice ruled in Poland's favor in a dispute over the capacity of the Opal pipeline, which is an onshore branch of Nord Stream. The court ruled that Opal must comply with EU energy rules and there should be no exceptions, which means that the decision on the possibility of using the pipeline only by 50% is final. At the end of August, the Dusseldorf court ruled that Nord Stream 2 «Must comply with the EU gas directive and 50% of the pipeline's capacity must be reserved for alternative suppliers. The pipeline now has yet to undergo appropriate certification before commissioning. This process could take about 4 months. Meanwhile, in Washington, Congress continues to work towards reimposing sanctions on Nord Stream 2. In opposition to Joe Biden's policies, the Lower House approved amendments to the defense budget to impose sanctions on the pipeline, despite the fact that the majority of the House of Representatives are Biden's party members. Now the Senate must adopt the decision.

Countermeasures against Nord Stream 2 cover economic and defense factors. The term of the agreement on the transit of Russian gas to the EU through Ukraine, signed at the end of 2019, ends on December 31, 2024. In addition, the Russian Federation has already agreed with Hungary on gas supplies bypassing Ukraine from October 1. Also, there is a possibility that after the certification of Nord Stream 2, Russia will be able to completely abandon gas transit through the Ukrainian territory. According to the Minister of Finance of Ukraine, the state in this case will lose $ 1.5 billion a year. Also, in the absence of transit of Russian gas, the GTS will only meet the needs of Ukrainian consumers, which amount to approximately 30 billion cubic meters of gas per year. At the same time, in order not to shift the additional financial burden onto the household consumer, the GTS will be optimized to meet the needs of the domestic gas market exclusively. If something happens to the "northern" or "Turkish" streams, Ukraine will not be able to provide additional volumes of gas transit to Europe. And this will be a problem for Europe.[1]

During the entire construction period of Nord Stream 2, Ukrainian officials warned about the security threats posed by this project not only for Ukraine, but also for the European Union as a whole. However, according to the plan of German politicians, the completion of the construction of the pipe will strengthen the position of their state as a transit country and a gas hub and, in the future, will make it possible to influence the price formation of gas in Europe. However, the events that took place during September clearly demonstrate that the cost of Russian gas is measured not only in monetary units, but also has a political price. Now wholesale prices on the European gas market are hitting records: in mid-September they exceeded $ 800 per thousand cubic meters, on September 22 they came close to $ 1,000, and on September 28 they exceeded the $ 1,000 threshold. The jump in prices is taking place against the background of insufficiently filled EU gas storage facilities with Russian gas: by two-thirds of their volume, which is not typical for the autumn season. The least filled are individual gas storage facilities in Germany: precisely those owned by Russia's Gazprom, the region's largest gas supplier. Now they are filled with only a few percent of the total volume of blue fuel. The Russian leadership explains the rise in the cost of gas with an explosion on the territory of one of the enterprises of «Gazprom» at the same time the press secretary of the President of Russia Dmitry Peskov said that the new gas pipeline «will significantly balance the price parameters for natural gas in Europe, including on the spot market».

So, the Russian leadership directly offered to lower the gas price if Nord Stream 2 starts working without appropriate certification. The desire of the German leadership to strengthen the geopolitical significance of their state leads to an increase in the dependence of the entire European Union on the Russian Federation. The Russian-German project plays into the hands of Vladimir Putin, who has decided to kill Europe with the cold, devastating European gas fields. It can be expected that the more Putin puts pressure on Europe, the more concessions he will receive from governments that will try to avoid the problems that could arise from energy shortages this winter. A blow to the economy can lead to instability within countries, and, consequently, undermine the position of the ruling governments. Moreover, Germany, so actively promoting Nord Stream 2, itself has already suffered from Moscow's energy blackmail. Recently it was reported that the German company «Deutsche Energiepool» has stopped supplying gas to its customers due to high market prices. According to the company management, they can no longer continue to supply gas due to economic impracticability. Therefore, they are forced to break many of the concluded contracts.

The lack of proper coordination and coherence of foreign policy actions between the member states of the European Union, as well as the individual states neglect of the common European interests, leads to a weakening of the organization from within. The Nord Stream-2 geopolitical project primarily plays into the hands of the Russian Federation, which is spreading its influence in Europe and successfully implementing its gas expansion strategy. The scale of the crisis, which was artificially created by the Russian Federation in the European gas market, by restricting the supply of natural gas, makes European governments vulnerable and dependent on the decisions taken by the Kremlin. At the same time, this situation reminds the European Union and Ukraine of the need to increase their own gas production and energy diversification.