Baltic States – CIS, Direct Speech, Energy, EU – Baltic States, Gas, Legislation

At that time, Nord Stream was accused of destroying European solidarity. In reality, Nord Stream was built and none of the doomsday scenarios panned out. It turned out that Nord Stream was just another pipeline. Europe should learn from that experience and let Nord Stream 2 go ahead. After all, the case against it rests on three flawed claims.

Claim 1: It deepens Europe's dependence on Russia

At first glance, this argument seems reasonable: companies build pipelines to transport gas, and this pipeline will transport Russian gas into Europe. Moreover, since it is a point-to-point pipeline between Russia and Germany, Nord Stream 2 could be seen as "locking in" Germany and other parts of Europe. Yet the reality is different: the volume that Russia exports to Europe depends on market forces, not pipeline capacity. Pipeline capacity, of course, places a ceiling on exports, but it does not place a floor. Russian exports to Europe are below their pre-Nord Stream level; Algeria's exports are way down relative to the time before it built a new pipeline to Spain; and Norway's exports are up, even though Norway has barely added to its export capacity. In short, in an environment where Russia has ample spare capacity to deliver gas to Europe, a new pipeline will not impact Europe's dependence on Russia.

Claim 2: It's a political project that is costly and unnecessary

Nord Stream is certainly a political project – but that does not mean that the project does not have commercial merit. What supplier would not want to reduce the risks of delivery for their product? Of course, Nord Stream is costly because it involves new infrastructure. But cost is a relative term: when compared to the tariffs that Ukraine and other transit countries charge Gazprom, Nord Stream is competitive (see this 2010 paper for an open-source explanation).Even if Nord Stream were a costly boondoggle, the Europeans should still welcome it: after all, prices in Europe are set by market forces, not by production and transportation costs. If transport costs set prices, then the countries closest to Russia would have the cheapest prices (they do not). In other words, in a competitive market, a costly project would merely eat into Gazprom's margins. The price that the European consumer pays depends on market fundamentals, not the cost of transport.

Claim 3: It threatens Central and Eastern Europe and Ukraine

Nord Stream 2 will re-route gas, and so countries that generate revenues from transporting Russian gas will lose. But their energy security is not necessarily hurt. The Czech Republic, for instance, had to adjust to Nord Stream 1 and now gets most of its gas via Germany rather than via Slovakia. Is that a threat to its energy security? Hardly. In fact, even Ukraine is now getting Russian gas via Nord Stream, transported via Germany, the Czech Republic and Slovakia; and this gas is sourced from the open market and, having no “strings" attached, it contributes to Ukraine’s energy security. In fact, within a few years, Ukraine might have no need for Russian gas because it can access gas from the West. Ukraine will lose transit fees, of course; but the Russo-Ukrainian gas relationship is opaque, and getting rid of it will remove a source of friction and, at times, corruption. This should be welcome in Europe, especially since the energy security implications for Ukraine are non-existent.

In short, there is no real reason to oppose Nord Stream except that it is a pipeline from Russia, and many Europeans instinctively judge anything that Russia does as undermining European energy security. In a continent where demand is shrinking and where companies hesitate to undertake major infrastructure investments for gas, the European Commission should be applauding any new infrastructure that reaches Europe. As long as Europe keeps progressing the work to complete the internal market, Nord Stream 2 does not pose a threat. Cooler minds should prevail.

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