US – German deal paves the way for Nord Stream 2 completion

On July 21, Germany and the United States struck a deal to allow the completion of the controversial Nord Stream 2 Russian gas pipeline that runs from Russia to Germany through the Baltic Sea. The project, now almost complete, spans 1230 kilometers, cost $11 billion, and will supply Germany with relatively cheap natural gas. The pipeline is owned by Russia's state-controlled energy company, Gazprom, and will run next to the Nord Stream pipeline, which opened in 2011. The aggregate capacity of Nord Stream and Nord Stream 2 is 110 billion cubic meters of gas per year. Yet, the deal has elicited widespread opposition particularly from Ukraine, but also from Poland, the Baltic countries and the United States, where several US lawmakers have opposed the project based on its environmental, energy security, and geopolitical implications. Nord Stream 2 has, however, been backed by Germany and Austria.


The agreement includes several promises made by Germany to soothe Ukrainian opposition to the pipeline. These consist of hundreds of millions of dollars in donations to bolster a transition to green energy in Ukraine and other countries in Central and Eastern Europe, a Ukraine Resilience Package to support the country's energy security, and financial support for regional security projects like the Three Seas Initiative.


Moreover, Berlin will appoint a special envoy to aid in the negotiations for extending the Russia-Ukraine gas transit agreement through 2034. Germany has pledged to take a number of further actions, such as pressing for sanctions against Russia (at both national and EU level) should Moscow decide to weaponize the use of energy against Ukraine, as well as committing to assessing Nord Stream 2’s compliance with EU gas liberalisation rules. In exchange, the US has allowed the completion of the pipeline, which entails a renunciation of any new sanctions against the companies involved in the project.


Nevertheless, the agreement has been received with dismay in Ukraine. Ukrainians fear that the project will reduce their transit fees, allowing Russia to bypass the existing pipeline that runs through Ukraine to supply Europe. The two countries reached a 5-year agreement in December 2019 on the supply of Russian gas to Europe that will allow Ukraine to continue to collect transit fees worth around $7 billion for the whole period, but what will follow is unknown. Kyiv is especially worried that Moscow could be emboldened by the completion of the project and will be less restrained when it comes to actions that might undermine Ukraine’s sovereignty. Especially since Ukraine would lose the capacity to disrupt Russian gas exports to Europe, which is a potential deterrent against further Russian aggression. These concerns are shared by the Baltic countries and Poland, who are intimidated by Russia’s use of energy as a weapon against European countries through the use of price hikes and gas cut-offs.


In the days following the announcement of the US-German deal, Kyiv expressed its disappointment. A joint statement between Ukraine and Poland was released which harshly criticized the agreement. Furthermore, Ukraine invoked two provisions in its Association Agreement with the EU demanding consultations with the European Commission and the German government with the aim to stop the completion of the pipeline. The articles referred to by Kyiv are related to the security of energy supplies and solidarity in case of an energy crisis. The latter point is particularly relevant, since a recent decision by the EU Court of Justice suggests that the term ‘solidarity’ has a specific legal weight in the context of energy policy.


Countries in Central and Eastern Europe are not the only ones opposed to the pipeline. The European Commission does not support the project either, but asserted that without a clear violation of EU law, they cannot intervene. There are ongoing legal challenges to assess whether the pipeline must comply with amended EU rules that would require the unbundling of network ownership. This would be a problem for Gazprom which would be the owner of the pipeline and the gas supplied through it. Moreover, the project has been criticized by environmental activists who point out the contradiction between the EU’s goal of carbon neutrality and such a long-term investment in fossil fuel infrastructure.


In the US, the announcement of the agreement was met by a bipartisan backlash, with lawmakers concerned that the project is a reward for Putin and will encourage aggressive behaviour from Moscow, as well as increase Europe’s dependence on Russian energy. The previous US administration unleashed sanctions for companies involved in the project. However, the current administration under President Joe Biden (who has been a critic of Nord Stream 2) waived off further sanctions in May 2020, resigning to the completion of the project. According to Biden, it was too late to halt the project and sanctions would have only damaged US-German relations, which were already strained since the Trump era.


By reaching this agreement, Washington appears to have prioritized its relationship with Berlin over the concerns of its allies in Eastern Europe. Indeed, the deal removes a major hurdle for a closer partnership between the US and Germany in the years ahead. Meanwhile, in Germany the pipeline is considered necessary to ensure a continuing supply of cheap energy against the backdrop of the closure of its last nuclear reactor in 2022, its commitment to ban coal-fired electricity production by 2038, and the consequences of receiving less gas supplies from the Netherlands by 2030.


Yet, the agreement disregards the security concerns of several Central and Eastern European countries, deepens European dependence on Russian energy, jeopardises the EU’s ambition of energy diversification and strategic autonomy, and raises doubts about some countries' determination to reach carbon neutrality by 2050. In contrast, Nord Stream 2’s completion will be seen as a geopolitical win for Moscow that succeeds in overcoming previous attempts by the US to halt the pipeline project altogether.