Russian Gas Through Nord Stream 2? Demystifying Gas Flow Economics – OpEd

For Vladimir Putin Russia’s natural gas is not just a resource, but it is a political and economic weapon.

Russia is a major player in global energy markets. Russia is the world’s second largest in natural gas production and third largest oil producer after the US and Saudi Arabia. Most of the natural gas supply to the European Union (EU) comes from Russia. In 2020, Russian gas accounted for 43% of the total gas imports into the EU.One third of Russian gas to the EU travels through Ukraine.Several EU countries are, therefore, highly sensitive to Russo-Ukrainian relations. Previous disputes have seen Russia turn off its gas pipelines to Ukraine, leaving millions of Europeans without gas during the winter months in 2006 and 2009.Putin used this Russian gas as a political weapon against the EU and as a political and economic weapon against Ukraine which earns revenue for the passage of the gas through the pipeline laid on its soil to European nations.

Russian President Vladimir Putin formally announced independence of “the Lugansk People’s Republic (LPR)” and “the Donetsk People’s Republic (DPR)” as independent on 21 Feb 2022.  The Donbass region (the Donetsk and Luhansk regions) of eastern Ukraine has been facing a pro-Russian separatist movement since 2014.To a large extent, this is due to Russia’s sense of insecurity triggered by the role played by Joe Biden in 2014 then acting Vice President in the “Color revolution”. Present Ukraine crisis can be termed as the extension of that Color Revolution.In reaction to Moscow’s actions in Ukraine German Chancellor Olaf Scholz put on hold the controversial Nord  Stream 2 gas pipeline from Russia

The situation in Ukraine has its roots in the post-Soviet politics, the expansion of NATO and the dynamics between Russia and Europe, US and the gas. The Ukrainian crisis is less about Ukraine but more about gas supply. It’s about Germany and, in particular, a pipeline that connects Germany to Russia called Nord Stream 2. It is now almost fully-operational and ready to pump. Germans will have a reliable source of gas energy while Russia will get a boost to their gas revenues. This win-win situation for both parties is not liked by the US Foreign Policy establishment. This is why the Biden administration opposes Nord Stream. It’s not just a pipeline; it’s a window into the future bringing Europe and Asia closer while leaving the US on the limb both politically and economically resulting in slowly losing the hold on NATO.

Nord Stream is a system of offshore natural gas pipelines running under the Baltic Sea from Russia to Germany. Nord Stream 2 is 1,23o kms while the older Nord Stream 1 almost parallel pipeline was the longest subsea pipeline in the world before. Nord Stream 2 is expected to pump up to 110b cubic meters.  Nord Stream 2 pipeline is a $11 billion project.

Nord Stream 2 Advantages:

• Represents a shorter route to Europe than through the Ukrainian pipelines because of disruptions.
• Being modern and new, it will be efficient and cheaper to maintain.
• Russia and Germany have claimed that the pipeline leads to economic savings due to the elimination of transit fees through Ukrainian land route.
• The pipeline is more important to Germany than Russia, has the choice to easily sell the gas to China and has signed the deal during the winter games in Beijing.
• Russia’s long-term plan is to exert political and economic influence on Western Europe without affecting gas supplies and yet exert pressure on Ukraine.
• Germany will set up a billion-dollar fund to compensate Ukraine’s loss of the gas transit fees.
• German Chancellor Angela Merkel had backed it for the sake of cheaper gas for the German people and her predecessor Schroeder now works for Gazprom.

Ukraine fears it will lose leverage and high transit revenues with Europe as its pipelines become obsolete. Ukraine sees this as a major threat. Russia pays Ukraine approximately $2 billion in transit fees  to deliver gas through its territory. Has a history of Russo-Ukraine gas wars and supply is highly sensitive to Russo-Ukrainian relations. Some of the pipelines in Ukraine are very old requiring major maintenance and repairs.

American interference in Russian gas:

• The US has opposed on the grounds that direct supply of gas to Europe would strengthen Russia’s economic and political influence over the region.
• The US wishes to sell its liquified natural gas to Europe and therefore the opposition to Russian gas.
• The pipeline is more important to Germany than Russia, has the choice to easily sell the gas to China and has signed the deal during the winter games in Beijing.
• It is also feared that Russian military presence in the Baltic Sea and in the Swedish economic zone. Fiber optic cables and repeater stations along the pipeline could be used for espionage.
• Russia has also been accused of deliberately withholding gas exports through Ukraine gas pipelines in order to obtain clearance from Germany and the European Union for its Nord Stream 2 gas pipeline, built to bypass Ukraine.
• The US has viewed the pipeline as a geopolitical tool for Russia to undermine energy and national security, increasing Moscow’s leverage over Europe, where gas prices have been soaring.

Germany had announced earlier of their decision on matters of principle in spite of the fact that the country itself may be a loser in cheaper gas which was yet to have started coming in. More than German Chancellor Olaf Scholz, US has actually been playing the spoiler “Europe card,” through the NATO influence forcing EU into this loss making step for the European nations and in due course sell American liquid gas to Europe. The leaders of the European major powers have to come forward to reach an understanding with Russia. Europe will suffer more than Russia the losses on account of gas economics as gas prices will double up.

Washington welcomed Scholz’s announcement, saying it had been in close consultation with the German government. The Ukrainian Foreign Minister tweeted, “This is a morally, politically and practically correct step in the current circumstances…True leadership means tough decisions in difficult times. Germany’s move proves just that.”

Europe will bear the brunt of this escalating Ukraine crisis. Nord Stream 2 gas pipeline being kept on hold will depend more on the Americans for as long as they are able to meet the German gas requirement and at what price? This is a huge change for German foreign policy with massive implications for energy security and Berlin’s broader position towards Moscow in the long run. President Vladimir Putin should have avoided sending “Peacekeeping Forces” to the two breakaways LPR and DPR for some time to avoid the German reaction to freeze the Nord Stream 2 gas pipeline which has so far been considered as a win-win situation for both parties. The big question now is when will finally Russian Siberian gas delivery start through Nord Stream 2 pipeline to Germany or will a $11 billion project remain idle! Who finally did use the gas as a political and economic weapon in this gamewith no winners?