Nord Stream 2: What’s at stake for Central and Eastern Europe?

Warsaw, Poland- The signing of the US-German deal in late July paving the way for the completion of the controversial Nord Stream 2 gas pipeline has spurred widespread criticism; not only among Ukrainian officials fearing an additional threat to the country’s energy security, but also in neighboring Central and Eastern EU member states. 

In response to the US-German agreement, the chairman of the US Senate’s Foreign Relations Committee, supported by a significant number of European parliaments, reaffirmed their opposition to the pipeline. Due to long-standing geopolitical and commercial concerns, the Visegrád Four and the Baltic States, signatories to the statement, have also fiercely condemned the pipeline’s completion both at the domestic and EU level. 

The laying down of the 1,200 km pipeline between 2018 and 2021 has raised concerns among both Western and Eastern countries. Since its grandiose announcement in 2015 at the St Petersburg International Economic Forum, policymakers have also debated the venture’s compatibility with EU law and the EU’s commitments towards establishing an internal energy market in response to the current geopolitical climate. 

Following the path of its predecessor, Nord Stream II will stretch from the Russian Baltic coasts, pass through Finland and Sweden’s maritime space, and land in the German port of Greifswald. The venture envisages two pipelines with a respective capacity of 27.5 bcm. Nord Stream 2, initially financed by Gazprom, its main shareholder with a 50% stake in the project, involves five other Western partners – Shell, Wintershall, Engie, E.ON, and OMV – each holding a 10% share.

Three main issues to consider

Firstly, Nord Stream 2 may violate the provisions of the EU’s third energy package, which prohibits a company from providing both energy supply and generation from the operation of transmission networks. To put it simply, Nord Stream 2 has the potential to encourage monopolistic behaviors from the Russian gas colossus Gazprom. Over the past few years, the Polish competition authority has vehemently rejected the project in its ruling due to its estimated negative impact on the Polish domestic energy market. Indeed, the Western partners have also acknowledged potential legal risks stemming from the ruling and have put on hold their participation, leaving the project entirely in Gazprom’s hands.  

Secondly, the operationalization of the pipeline betrays the spirit of the groundbreaking EU Green Deal and its set of energy policies calling for decarbonizing gas by 2030.  

Thirdly, the EU has concretely sought to reduce its long-lasting energy dependency from Russia and diversify gas supply routes, including by cooperating with the Balkan countries over the past few years. If the EU truly seeks to diversify its gas suppliers, the completion of Nord Stream 2 should not proceed any further. Furthermore, in light of the recent conflicts between Russia and Ukraine culminating with the illegal annexation of Crimea in 2015, the EU has fully supported the Ukrainian cause becoming its primary gas importer. 

Unsurprisingly, the V4 have shown a scant enthusiasm in entering an international agreement with Gazprom. Conversely, Germany views the project in purely economic terms in light of its groundbreaking decision to phase out nuclear energy, leading the Visegrad four to accuse Germany of double standards towards the Central and Eastern European countries.

The Visegrad Group’s stance towards Nord Stream 2

To the V4, Germany is keen on cooperating with Russia for the sake of national interest, notwithstanding its potential undesired impact on the energy market in Central-Eastern Europe. Nonetheless, the V4 has graduated stances towards the project. On the one hand, they share similar concerns over the future of gas transit in the neighborhood, and consequently the political consequences in the Russian-Ukrainians relations; on the other, the Czech Republic and Hungary have pragmatically considered the merits of an additional gas entry point. 

Going deeper into market considerations, Polish energy regulators reject the project claiming that it poses an indirect threat to the domestic gas market and its future expansion. Specifically, the transit of cheaper Russian gas to Germany is detrimental to the commercial aspirations of the Polish LNG terminal, and would prevent the latter from exploiting its potential as a diversifying gas hub in Central and Eastern Europe. Similarly, Polish critics contend that Nord Stream 2 would pose non-negligible logistical barriers to shipping in the areas of Świnoujście and Szczecin. Poland has not only sought to delay the lay down of Nord Stream 2 but has pursued its own diversification strategy. The Polish gas supplier PGNiG has prioritized constructing an offshore Baltic pipeline, connecting a greater supply of Norwegian gas through Denmark to Poland.

Alongside Poland, Slovakia is believed to be one of the losers of the project. Slovakia has signed until 2028 two crucial contracts with Gazprom, respectively with the semi-state owned transmission operator Eustream and the Slovakian gas supplier SSP. Similarly, the agreements contain clauses defining minimum contractual volumes. Slovakia fears that Nord Stream 2 would push Gazprom to renegotiate such contracts leading to falling gas volumes and even shut down the Ukrainian route on the grounds of technical dysfunctions. 

On the other hand, Prague does not entirely reject the venture. The Gazela pipeline transiting in the Czech Republic plays a crucial role in transporting gas of Nord Stream 1 to Bavaria. The Czech Republic may also benefit as a transit route from Nord Stream 2. Aware of the scarce gas supply from both Slovakia and Ukraine, the Czech government has expressed a conciliatory stance towards the project and has maintained its commitment to ensuring the best solution possible for gas transit in Ukraine. 

In Hungary, Nord Stream 2 is less an object of debate when it comes to foreign policy concerns, but is seen through Budapest’s eyes as a project potentially competing against the South-Corridor, a project in which Hungary is keen on pushing forward. Nevertheless, Hungary does consider Nord Stream 2 as an additional point of access to gas supply and thus an attractive diversification option. 

Nord Stream 2 as a Russian political weapon

Nord Stream 2 is perceived as a potentially disruptive project in the eastern neighborhood. Ukraine has alleged that Nord Stream 2 does not only affect its energy security, but is nothing but a Russian weapon to further destabilize the country’s geopolitical security and prevent vital structural reforms.

Upon completion, gas transit from Russia through Ukraine directed to Central and Southern Europe will cease, likely causing significant repercussions for Ukraine’s leverage and foreign and energy security for the CEE countries. Nord Stream 2 is also bound to undermine the Yamal Pipeline connecting Belarus and Poland. To Ukrainian officials, the general stance is that Russia has heavily invested in Nord Stream 1 and Nord Stream 2 as a form of hybrid aggression against its neighbours unwilling to gravitate towards its sphere of interest.

Russia asserts that bypassing Ukraine is nothing but a geoeconomic choice of allowing Gazprom to supply its largest market in Western Europe and minimizing transit risks stemming from Ukrainian less modern infrastructures. The Kremlin is nevertheless aware that for the time being, the project would not be operational without its compliance with the third energy package, more importantly, with the mechanism of unbundling.

Already in the framework of the Energy Community, Ukraine should be offered attractive business models to renovate its energy market. The Ukrainian route should be preserved as it constitutes a vital energy entry point for CEE countries and a viable opportunity for energy diversification for the EU. Therefore, should Nord Stream 2 be certified, new contracts ought to be negotiated between Gazprom and Ukraine to redefine a minimum transit volume for the eastern route with the EU acting on the Ukrainian side.

By Francesco Miano

Francesco is a junior data analyst at Accenture in Warsaw and has recently graduated from the College of Europe, obtaining an advanced MA degree in European Interdisciplinary Studies. He also holds a double master’s degree in European Studies and Political Science from Jagiellonian University and Kobe University.