Pipeline Politics
The US Is Exposing Europe’s Divide on Nord Stream 2

The U.S. Senate voted to expand sanctions on Russia today, and part of that expansion will target European countries who cooperate with Moscow’s efforts to build out its pipeline infrastructure into Europe. The FT has the details:

The most prominent target is the contentious Nord Stream 2 pipeline, which is set to start pumping gas from Russia to Europe in 2019, and is a flagship project for Kremlin-controlled gas monopoly Gazprom. “It sanctions those who . . . invest or support the construction of Russian energy export pipelines,” Mike Crapo, a Republican senator from Idaho who co-authored the amendment, said of the new proposal.

That’s a big deal, because Nord Stream 2 is being financed by a consortium of five European energy majors. ENGIE (based in France), OMV (based in Austria), Royal Dutch Shell, Uniper (based in Germany), and Wintershall (also based in Germany) collectively agreed back in April to pay for half of the pipeline expansion in the form of loans to Gazprom. This was the work-around decided upon so that the project might avoid running afoul of EU anti-competition rules. These new U.S. sanctions, however, could hit these companies.

Predictably, (some) European countries are upset. The WSJ has more:

Germany and Austria on Thursday sharply criticized the U.S. Senate’s plan to add sanctions on Russia, describing it as an illegal attempt to boost U.S. gas exports and interfere in Europe’s energy market. […]

“We cannot accept a threat of extraterritorial sanctions, illegal under international law, against European companies that participate in developing European energy supplies,” [German Foreign Minister Sigmar Gabriel and Austrian Chancellor Christian Kern said in a joint statement]. “Europe’s energy supply is Europe’s business, not that of the United States of America.”

Nord Stream 2 would double the capacity of a pipeline link between Russia and Germany (that transits the floor of the Baltic Sea). Critics say it will increase Europe’s dependence on Gazprom supplies of natural gas and leave the region more vulnerable to Moscow’s bullying. Proponents—led by Germany, which stands to gain the most from the construction of this project—see a chance to beef up their energy security by accessing more supply volumes.

On the sidelines of this debate sits Ukraine, which stands to lose the most if Nord Stream 2 goes forward. Much of Russia’s access to the European market has historically depended on pipelines that transit Ukraine, but after Moscow’s annexation of Crimea, Gazprom has actively sought alternative routes for getting its wares to its European customers, thereby depriving Kyiv of lucrative transit fees.

While many capitals in Europe are protesting the pipeline through the lens of checking Russian aggression and as a means of showing solidarity with Ukraine, the arguments ginned up by the pipeline’s supporters—Germany and Austria, for example, are accusing the U.S. of using these sanctions to aid its own LNG sales in the European market—underscore just how badly fractured Europe’s supposed consensus on energy policy has become. After all, many other European leaders have publicly clamored for U.S. LNG imports as a way to ease their dependence on Gazprom.

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