A sign reading ‘Nord Stream 2 Committed. Reliable. Safe’ hangs above a painted map at the natural gas receiving station in the Lubmin industrial estate in Lubmin, Germany.
Gazprom’s $11bn project to deliver gas from Russia to Germany seems impossible to abandon and impossible to carry forward
The saga of Nord Stream 2, the gas pipeline between Russia and Germany running along the Baltic seabed, has been stuck so long it has been likened to a suitcase at an airport without a handle – impossible to abandon, and impossible to carry forward. Most of the original cast of characters – Jean-Claude Juncker, Angela Merkel, Matteo Renzi, David Cameron, Petro Poroshenko – have left the political stage. Only one politician has survived the entire story: Vladimir Putin, the Russian President, and the master of divide and rule.
First announced in 2015, the $11bn (£8.3bn) pipeline owned by Russia’s state-backed energy giant Gazprom has been built to carry gas from western Siberia, doubling the existing capacity of the Nord Stream 1 pipeline and keeping 26m German homes warm at an affordable price.
But the one thing this pipeline is not, as lamely claimed by the former German chancellor Merkel, is a purely commercial project. It has vast geostrategic consequence, with every inch of pipe a pitched political and legal battle.
Indeed few engineering projects have thrown up so many issues: the restoration of the post-Soviet empire, the climate crisis, American bullying of Europe, Germany’s emotional embrace of Russia, the legal powers of the European Commission, corporate lobbying, energy forecasting, and Gazprom’s monopolistic model. Its fiercest critics have described it as a modern day betrayal on the scale of the Molotov-Ribbentrop pact of 1939.
By handing Putin such potential leverage over European energy security, it is argued, the 1,200 km pipeline leaves Free Europe at his mercy. If Putin wants a new Yalta, a new border settlement with Europe, then gas, and Europe’s dependence on Russian reserves, has become a means to achieve it. Nord Stream 2’s critics say it isn’t so much about creating additional capacity as it is about supplanting the main existing path for Russian gas to Europe, which runs through Ukraine.
Others say this is hyperbole, and Russia would find that if it used gas as a geopolitical weapon that Europe has many alternative sources.
The pipeline’s construction was completed in September after many postponements and legal hurdles straddled. But the Gazprom board is now waiting for final legal permission from German regulators to start sending gas down the pipeline to grateful German consumers. That permission has become the subject of early infighting within the new German coalition, made all the more intense by Putin’s threats to Ukraine’s sovereignty.
Such are the shifting balance of forces, it is just conceivable, if unlikely, that at the last moment the project will be blocked for good, leaving Gazprom and its five European co-investors with a gleaming white elephant at the bottom of the Baltic seabed, a child of a different era, a reproach to Putin’s imperial overreach.
If so, it will be a great victory for Ukrainian independence. Ever since the pipeline was proposed, only one year after the invasion of Ukraine by Putin, Kyiv has ferociously lobbied against the idea.
Ukraine fears that by bypassing its own leaky gas route from Russia to Europe, the new pipeline – part of a wider Russian strategy to cut links with post-Soviet Republics – will deprive it of badly needed transit fees, the equivalent of 4% of its GDP.
Kyiv has also argued that the pipeline will increase Russia’s control and share of the European gas market and therefore give Putin a chance to put his boot on the windpipe of Europe. The pipeline has an annual capacity of 55bn cubic metres – more than half of the 95bn cubic metres of gas Germans consumed through 2019.
Ukraine found ready allies for its cause in Poland, the Baltic States, belatedly Italy, the UK and, critically, the European Commission. They have all pointed to the Russian gas standoffs of 2006 and January 2009, and to Putin’s recent threats to Moldova, to argue Russia will show no compunction about turning the gas taps off to secure geostrategic advantage.
Kyiv’s lobbying led in December 2019 to the introduction of US sanctions under the Protecting Europe’s Energy Security Act (PEESA). It meant construction on the pipeline was suspended for a year and a half, as the Swiss-owned contractor laying the pipeline backed off. Such was the German government’s concern that in a private letter of 7 August 2020 Olaf Scholz, then finance minister and now German chancellor, proposed to the then US Treasury secretary, Steven Mnuchin, that Germany would fund the construction of two liquid natural gas terminals in Germany with as much as €1bn (£856m) in exchange for the US ending its hindrance of Nord Stream. The US has long lobbied for more LNG exports to Germany.
Donald Trump rejected the German offer, telling Merkel she had to stop feeding the beast. At a Nato summit in 2018 he complained: “Germany will have almost 70% of their country controlled by Russia with natural gas. You tell me, is that appropriate? We’re supposed to be guarding against Russia and Germany goes out and pays billions and billions of dollars a year to Russia.”
Initially the Biden administration’s approach was one of continuity, copying the firm line adopted by Trump and urging Europe not to make itself vulnerable to Russian energy blackmail.
But by May, the line had softened. German diplomacy was at work. On 19 May Antony Blinken, the US secretary of state, waived sanctions on Nord Stream’s chief executive, Matthias Warnig, chair of Nord Stream 2 and a close friend of Putin, explaining he wanted to give time for diplomacy to work. By 7 June Blinken said the pipeline was a fait accompli, and on 21 July, a week after meeting Merkel at the White House, Biden lifted sanctions altogether in a farewell gift to her.
Complaining he had been stabbed in the back – not the first US ally to make this point about Biden – Ukraine president, Volodymyr Zelenskiy, said Ukraine had been carved out of the decision making process, something the US contests.
Under the agreement Merkel had reached with Biden, Germany promised to push to extend a Russian-Ukrainian gas transit agreement for 10 years as well as contribute $175m to a new green fund for Ukraine to improve its energy independence with renewables. “Should Russia attempt to use energy as a weapon or commit further aggressive acts against Ukraine”, the statement also read, “Germany will take action at the national level and press for effective measures at the European level, including sanctions, to limit Russian export capabilities to Europe in the energy sector, including gas”. Merkel said these assurances applied not just to her administration, but to her successor’s.
Amos Hochstein, Biden’s senior adviser for global energy security, later justified Biden’s pragmatism, saying: “The idea of reaching the joint statement with Germany was recognising the reality of the completion of the pipeline itself, understanding that aggressive action by the United States would probably not have changed the outcome and perhaps only would have delayed it. So looking at reality, understanding it, and fashioning something with an arrangement with Germany that would allow us to continue to defend the significant interests that Europe has, that the United States have, to defend the security of Ukraine while addressing and mitigating the bad effects and the threats that Nord Stream 2 could pose”.
This judgment has been repeatedly questioned, including in the UK. Biden decided to give the pipeline his reluctant blessing this spring, precisely at a time when Putin had first started to mass troops on the border of Ukraine. He also gave the go-ahead just as the German Green party, adamantly opposed to the pipeline and determined to take Germany in a new foreign policy direction, had climbed in the polls to become the largest party ahead of the September election. It was an odd time for Washington to send a defeatist signal to Annalena Baerbock, the Green party leader, and she did not hold back in criticising Biden’s decision as one that would divide Europe.
Biden had also done little to square off angry Republican Senators that support sanctions on Gazprom as a national security necessity. Senator Ted Cruz, the Texas Republican who authored the bill mandating US sanctions on the pipeline project, rejected Biden’s logic. “It was 95% complete in December of 2019 when we passed the sanctions, and we stopped it. And a 95% complete pipeline is 0% complete. And we saw, for a year, it remained a hunk of metal at the bottom of the ocean until Biden got elected”.
By way of reprisal, Cruz sent letters to German firms working on the project threatening sanctions that will destroy their companies. He also issued a blanket hold on all of Biden’s nominations for senior state department posts, hobbling US diplomacy. The move put more than nearly 30 nominees in limbo, leaving many countries without confirmed US ambassadors. The standoff only ended when Cruz was promised a Senate vote on reimposing sanctions by mid-January. Cruz will need 60 votes in favour.
Biden’s calculation was understandable. He wanted to mend fences with Germany, and seek its support over China. In the process he knew he would be upsetting Ukraine, but, as he showed with Aukus – the Indo-Pacific security pact that excluded the French – Biden’s national security team is quite willing to disoblige allies in the interests of focusing on the great strategic competitor, China.
The German Greens were also deeply disappointed the state department had swallowed the German diplomat’s argument that the pipeline was unstoppable. Yes, Gazprom was almost within touching distance of the finishing tape, but there were still significant regulatory hurdles ahead within Germany and the EU.
But since then, Merkel’s carefully constructed equilibrium has been disturbed by three events: skyrocketing gas prices in Europe, fuelled by booming demand in Asia; the renewed massing of Russian troops on the border with Ukraine; and the arrival of Greens in the coalition government. Nord Stream 2 is back in the cross hairs. Scholz, now German chancellor, remains a supporter of the project, but he, Biden and the G7 leaders, in search of ways to deter Putin, have united in saying any invasion of Ukraine will lead to its suspension, not cancellation. That is hardly controversial.
The real question is whether the Greens, ironically aligned with the US Republicans, can kill the project altogether. To do this will require a dramatic challenge to the way Germany views Russia.
In his book Germany’s Russia Problem, John Lough, Chatham House fellow, has studied how Germany’s emotional connection with Russian society and culture has contributed to a German willingness to misread the direction in which Russia has been heading. Speaking at Chatham House recently he argued “a strange combination of emotions is at play – an historic fear of Russia, a sense of guilt for the crimes of the Nazis, a gratitude to Moscow for permitting German unification to happen when it did and with such speed, and a large measure of sentimentality based on a liking of Russian culture. Then there was an economic logic – historically Germany has had the technology and Russia the resources, and that creates some sort of natural complementarity between the two countries. Finally there is a widely held perception that Ostpolitik [the normalisation of relations between the Federal Republic of Germany and Eastern Europe] from the late 1960s and 70s brought an end to the cold war. By relaxing tensions, building contacts, trading more, somehow in the end Russia will be a rational actor”. There is an almost religious belief that since Russia needs markets and Germany needs Russian gas, the mutual dependence will ensure stability.
Lough argues Germany finds it very difficult to accept that Russia has been steadily moving in an authoritarian direction. “To do so you would have to shift policy and recognise you are dealing with a much more difficult partner”.
Indeed Merkel’s instinct, according to her long term chief foreign policy adviser Christoph Heusgen in Der Spiegel, was always to keep in mind what was tolerable to Russia. For that reason she opposed the Nato action plan for Ukraine, the provision of offensive weapons and continued to argue Nord Stream did not threaten Europe’s energy security.
That mindset, according to Ralph Fücks, director of the German Centre for Liberal Modernity and close to the Greens, comes close to providing Russia with a veto power.
But with Baerbock installed in the foreign ministry, and Robert Habeck, her ally, in the giant climate change department, he argues a new generation of powerful voices opposed to the decades long dominance of the so-called Russlandversteher have come to the fore.
To win the Greens have to take on their senior coalition partners, the SPD. Gerhard Schröder, the 77-year-old former German SPD chancellor, is chair of Nordstream’s shareholders committee, a post he took up within weeks of leaving public office. Schröder’s defence of the project is unconditional. Asked, for instance, about the relationship between the pipeline, something he describes as a European project, and the poisoning of the Russian dissident Alexei Navalny, he said: “One has nothing to do with the other,” adding nothing had been scientifically proven about the poisoning. Not surprisingly, Navalny describes Schröder as “Putin’s errand boy”. He points out the true beneficiaries of Nord Stream 2 will not just be morally corrupt Germans, but US-sanctioned Russian oligarchs.
Schröder’s advocacy of the project is wholly typical of SPD opinion. For many years Trump’s bullying of Germany made this an easy argument to run inside a party determined to defend German sovereignty. It provided a shield for those in the SDP who defended closer relations with Russia on the basis of Wandel durch Handel, change through trade.
Frank-Walter Steinmeier, the German president, for instance, defends the project by citing Henry Kissinger’s dictum that good diplomats look for points of contact in foreign policy “in order to transform a bad present into a better future”.
“Both sides have to think about whether this bridge can be demolished completely and without replacement,” he recently said. “I think breaking bridges is not a sign of strength. How are we supposed to influence a situation that we perceive as unacceptable, when we cut the last connections?”
The former German foreign minister Heiko Maas, also from the SPD, presented the pipeline as a means of staying in touch with Russia. A “strategy of burned bridges”, he said, is not only wrong but also dangerous, since this would push Russia into close economic and military cooperation with China.
Sometimes this approach tips into outright appeasement. The former Brandenburg state premier Matthias Platzeck, a Social Democrat, landed in hot water in 2014 when he said “the annexation of Crimea must be retroactively arranged under international law so that it’s acceptable for everyone”. Platzeck was also chair of the German-Russian Forum business lobby.
But the greatest enthusiast has been Manuela Schwesig, the prime minister of Mecklenburg-West Pomerania, who has repeatedly clashed with the Greens. The pipeline makes landfall in her state at the seaport of Mukran, in the very north-east of Rügen. She has been a leading advocate, celebrates Russia Day every year and even set up a foundation to protect firms from US sanctions, which bears the title Foundation for Climate and Environmental Protection. Schwesig’s personal popularity has not been dented by this support for the pipeline.
“If we want to get out of nuclear energy and coal power, we need gas at least for a transitional period,” she has said.
So to win Baerbock not only has to take on her coalition partners, but also win an argument with the German public, many of whom agree with Scheswig and are sceptical that the country can afford to wean itself off nuclear power, coal and gas all at the same time.
But Bearbeck has influential allies among energy forecasters. Dirk Messner, head of Germany’s environment agency UBA, in August said NS2 could soon be outdated for climate policy reasons. “Nord Stream 2 could quickly become something of a dinosaur among energy projects, because we want to have [net] zero emissions by 2045”.
Baerbock’s most important potential ally is the European Commission and the law. For years the commission and Gazprom have been at odds. The Russian company has tried to avoid the EU’s regulatory net by arguing that a 2019 energy directive did not apply to the pipeline. Gazprom failed, and now the German regulator along with the EU will take six months to decide if the pipeline meets EU law. Other companies have been given permission to make their case to the German regulator, including Ukraine’s gas grid operator GTSOU and Poland PGNiG.
A whole series of EU regulatory requirements on third-party access, ownership unbundling and tariff transparency come into play. The unbundling requires pipeline owners to be different from the suppliers of the gas flowing in the pipes, something Gazprom opposes.
“It is clear that European energy law also applies to this project, the separation of trade and transport is clearly specified,” said Sven Giegold, Germany’s new influential state secretary for economic affairs in the ministry of climate change.
In a land where the rule of law matters, Habeck also sees a way to kill the project: “The aim of the laws is to prevent monopolies and dependencies. The network and operations must be separate for this pipeline as well, and that is not the case. There was a lot of political pressure under the last federal government to approve Nord Stream 2. Even so, it is not in operation. The Federal Network Agency will check the documents in accordance with the law – as it should do”.
In a possible bid to strong arm the regulator, Schmidt said, Gazprom has not been cashing in by providing additional volumes through the Belarus, Poland or Ukrainian route. “They have ample pipeline capacity that they could be using right now, but they are not. They have not broken their contracts, but nor have they followed normal market dynamics by booking additional capacity.”
A mother of all legal battles awaits, and in the meantime, the suitcase without the handle awaits its fate.
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