Germany’s Russian gas pipeline smells funny to America

LIKE vinyl records and popped collars, rows between the United States and Europe over Russian energy are making a comeback. In the early 1980s Ronald Reagan’s attempts to thwart a Soviet pipeline that would bring Siberian gas to Europe irritated the West Germans and drove the French to proclaim the end of the transatlantic alliance. The cast of characters has shifted a little today, but many of the arguments are the same. In Nord Stream 2 (NS2), a proposed Russian gas pipeline, Germany sees a respectable project that will cut energy costs and lock in secure supplies. American politicians (and the ex-communist countries of eastern Europe) detect a Kremlin plot to deepen Europe’s addiction to cheap Russian gas. They decry German spinelessness.

NS2, which its backers hope will come online at the end of 2019, would supply gas directly from Russia’s Baltic coast to the German port of Greifswald, doubling the capacity of Nord Stream 1, an existing line. Its defenders, including a consortium of five European firms that will cover half its cost of €9.5bn ($10.6bn), say that it will help plug a projected gap between Europe’s stable demand for gas and declining production in the Netherlands and North Sea. Germany’s government, especially the Social Democratic Party (SPD), the junior coalition partner, shares this view. (Gerhard Schröder, a former SPD chancellor of Germany, chairs NS2’s board.) Some Germans quietly hope that NS2 could transform their country into a European energy hub.

Such arguments strike sceptics—countries like Poland and the Baltic states, energy experts at the European Commission, foreign-policy hawks and a handful of German renegades—as myopic. NS2, they say, might lower fees for Germans but raises them for eastern Europeans further down the chain. It undermines the European Union’s stated aim to diversify its sources of energy (Russia accounts for 34% of the EU’s overall gas market, but far more in some countries). It allows Gazprom, the Kremlin-backed energy giant, to bypass existing pipelines in Ukraine, depriving the Ukrainians of lucrative transit fees. By squeezing existing supply routes, NS2 might also leave Ukraine obliged to negotiate cap-in-hand with its arch-enemy (Kiev has not imported gas directly from Gazprom since 2015). Gazprom has proved willing to wage energy wars before. Why contribute to its arsenal?

To this fiery brew has now been added America’s toxic Russia politics. Earlier this month the Senate passed a bipartisan bill that would, among other things, allow the Treasury to slap sanctions on foreign companies that invest in Russian pipelines. (The bill is not yet law: it awaits debate in the House of Representatives, and Donald Trump has yet to opine on its merits.) The move spooked Europe’s firms and enraged some of its politicians. “Europe’s energy supply is Europe’s business, not that of the United States of America,” thundered Germany’s foreign minister, Sigmar Gabriel, and Austria’s chancellor, Christian Kern, in a joint statement. The pair were particularly incensed that the bill included a call to increase American exports of liquefied natural gas, implying that blocking Russian gas was partly an effort to help American energy companies. Angela Merkel, Germany’s chancellor, let it be known that she supported her minister.

The timing of the Senate bill is awful. On June 26th the EU’s 28 governments will begin debating whether to allow the European Commission to negotiate the terms of NS2 directly with Russia. Mrs Merkel argues that EU institutions have no business intruding in a purely commercial enterprise. But countries like Sweden and Denmark, which must grant environmental permits if the project is to proceed, want the commission to get involved so that they are not left alone to stare down the Kremlin. Foes of NS2, like Poland, think bringing in the commission might be a way to slow the project down. The discussion will be a fascinating test of Germany’s ability to sway opinion inside the European club.

Don’t look back to Angie

For observers who see Mrs Merkel as Vladimir Putin’s main European adversary, her stance is perhaps the biggest puzzle. The chancellor helps broker negotiations between Russia and Ukraine. Against domestic and foreign opposition, she has held the line on the EU’s sanctions against Russia over its land grabs. Her strategy looked like a textbook case of European leadership, placing German interests to one side for the greater cause of EU unity and resistance to outside aggressors.

But the chancellor’s tacit yet clear support for NS2 suggests that a correction may be in order. Her commitment to Ukraine is not in doubt, and she is infuriated by Mr Putin’s lies. But Germany has never accepted the mantle of European or global leadership that so many would like to thrust upon it, especially when it comes to the politics of energy. Outsiders should not be surprised to see it behave like any other European country favouring its own consumers and firms (two of the five companies investing in NS2 are German). American intervention may only strengthen Germany’s resolve to protect its commercial interests.

Those hoping to slow NS2 would do better to look to Brussels. The commission will be happy to smother the pipeline in bureaucracy, should the EU’s governments give it a chance. Its legal brains say that EU energy law does not apply to offshore pipelines outside the internal market. But the commission dislikes NS2 and distrusts Gazprom, which it thinks abuses market dominance. “If Gazprom was Statoil [Norway’s national energy firm], we wouldn’t have a problem,” says one official.

So NS2 may yet be asked to obey parts of EU law, including third-party access to the pipeline and transparency on pricing. Ukrainian anxieties might be allayed by insisting that Gazprom commit to maintaining supply through existing pipelines after 2019, when the current contract expires. This might ease fears that NS2 will leave parts of Europe in hock to the Russians for decades to come. But before then a thousand things can go wrong.