Yet there is already enough capacity to transport gas from Russia to Europe and the project’s predecessor, Nord Stream 1, is operating at half its capacity. So why is Gazprom embarking on another project? And why is the EU joining in, when Nord Stream 2 will give no access to a new source of supply or a new supplier, and further increase the excess capacity from Russia to the EU?
The argument that the project makes business sense cannot be taken seriously. Rather, Nord Stream 2 is a high-stakes geopolitical game.
The project’s real aim is to completely bypass Ukraine and other gas transit countries in central and eastern Europe from 2019. As such, Nord Stream 2 threatens energy security and competition in eastern Europe.
Over the past decade, European and Ukrainian energy security has been challenged several times by the Russian Federation, especially in 2006 and 2009.
Russia’s military invasion of eastern Ukraine and its annexation of the Crimean peninsula led to new regional challenges for energy security. Sanctions against Russia for its violations of international law have prompted Europe to find new ways to ensure energy security.
In 2014, the European Commission published its first strategy for energy security. It stresses that the most pressing issue is Europe’s strong dependence on Russian supplies and how to reduce it. How is this possible with a pipeline that could double dependence on Russian supplies?
The Commission has in fact taken a highly critical stance against Nord Stream 2. In April 2015, it accused Gazprom of breaking EU antitrust rules by abusing its dominant market position in central and eastern Europe.
Nord Stream 2 would contravene energy market rules established by the EU under the so-called Third Energy Package, whose most interesting innovation concerns “unbundling”. This stipulates that entities that exercise control over an undertaking in the production or supply sector may not simultaneously control or exercise any rights over a transmission system, and vice versa. This applies to any operators that did not exist or which were not a vertically integrated undertaking as of September 3, 2009.
Such operators must obtain from the competent regulatory authority a certification that unbundling rules are complied with, and this certification must be approved by the European Commission. If the operator is controlled by a non-EU entity such as Gazprom, the transit system operator must also prove that the security of supply is not at risk.
Nord Stream 2 will impede competition on the eastern European gas market and weaken the bargaining position of Ukraine and Poland with regional monopolist Gazprom. Both nations have appealed to local and European antitrust authorities.
Gazprom has a dominant position in transmission of gas to Poland, and the planned Nord Stream 2 could further strengthen its position. Poland, which imports most of its gas from Gazprom, has repeatedly objected to the project.
Ukraine’s Antimonopoly Committee fined Gazprom $3.4bn for abuse of its monopoly position in transit through Ukraine. The Committee claimed that for nearly six years from 2009 to 2015, Gazprom violated the terms of its contract with Naftogaz, Ukraine’s state energy company. Due to the sharp decline in the volume of gas pumped by Gazprom to Europe through Ukraine, the loss to Naftogaz was estimated at $6bn.
It makes no economic sense to build an additional pipeline when Ukraine owns a direct, reliable and competitive route for delivering Russian gas to the EU. It is also the only such delivery route that is not controlled by Gazprom.
The Ukrainian gas transmission system is one of the most powerful systems in the world, with entry capacity of more than 288bn cubic meters a year and exit capacity in the European direction of over 151bn cubic meters a year. The system is integrated into the wider European gas network.
The completion of energy sector reforms in Ukraine is of the utmost importance and should be further advanced. There is no better reassurance for Ukraine to remain a transit country and to attract investors than by completing ownership unbundling of state-owned Naftogaz and setting up an independent energy regulator in line with the Third Energy Package. Ukraine has made big progress towards gas market reforms. But it must make more, without the threat of the costly and unneeded Nord Stream 2.
Nataliya Katser-Buchkovska is a Member of the Ukrainian Parliament.
