Pipeline politics

Leaders of Germany, France, the Netherlands, Russia and the European Union gathered on Tuesday to inaugurate the Nord Stream gas pipeline, a controversial 7.4-billion-euro ($10.2-billion) project that links Russia with western Europe beneath the Baltic Sea.

These days, the fields of politics and energy are becoming more and more deeply intertwined. As a result, it can be difficult to tell whether business or geo-political concerns are the main motives driving investment. The Nord Stream gas pipeline is no exception.

"It's not a political, but a commercial project, which has been heavily politicized," says Russia expert Alexander Rahr from the Berthold Beitz Center of the German Council on Foreign Relations (DGAP) in Berlin.

"I would say it's both," says energy expert Josef Auer from Deutsche Bank Research in Frankfurt am Main. "It's both a political and a commercial project, and it makes sense on both the economic and the political level."

Konstantin Simonov, head of Russia's National Energy Security Fund (NESF), is convinced that politics and business can't be separated - especially in the field of energy. Simonov admits that there are projects that make no economic sense. But the Nord Stream pipeline is not one of them, he says.

Critics of Nord Stream argue that the pipeline is motivated by politics just as much as it is by commercial interests. They say construction of an undersea pipeline costs substantially more than an overland link. Even if money can be saved by avoiding fees levied by transit nations, the break-even point is not going to be reached for several years. Such high investment costs are only tolerated by decision-makers with political objectives in mind.

'Nord Stream is accepted today'

Initial criticism was particularly high among Russia's and Germany's neighbors along the Baltic coast. Warsaw suspected Russia and Germany had formed a secret anti-Polish alliance. Stockholm raised concerns that an offshore operations platform located close to the Swedish border could serve as a base for intelligence gathering and military operations. Meanwhile, some German politicians were worried the pipeline could increase the nation's dependence on Russian gas so much so that Moscow would be in a position to dictate prices and blackmail Berlin.

These concerns have long since been eased. The controversial offshore platform was never built. Most Polish, German, Scandinavian and Baltic skeptics have since been brought around or at least calmed down. In the summer of 2011, Polish Prime Minister Donald Tusk said news of the Nord Stream project combined with difficulties accessing Polish harbors had initially stirred emotions among the general public in Poland. "And so we got the confirmation from the highest political level - the documents clearly state that - that as soon as Poland launches measures to deepen the harbor entries in Świnoujście and Szczecin, the German side would launch corresponding measures to clear away any impediments," Tusk said, stressing that the Polish population felt this was an important statement.

It was, to a large extent, former German Chancellor Gerhard Schröder who convinced all the Baltic Sea nations to approve the Nord Stream project and ensured the pipeline was actually built, according to Russia expert Alexander Rahr. "I think his biggest achievement was that he managed to come to an agreement with Sweden and Denmark," he said.

"Nord Stream has long become European infrastructure. Nord Stream is being accepted today," says Günther Oettinger, EU Commissioner for Energy. By declaring it a project of European interest in the year 2006, the EU made Nord Stream more attractive for investors on an economic level. In addition, Brussels allowed gas to be pumped through the Nord Stream link at higher tariffs than most other operators of gas pipelines in the EU. That made Gazprom attractive for businesspeople from European countries and consequently their circle of shareholders expanded and diversified.

European or European-Russian?

Russian energy expert Simonov believes the strategy devised by German and Russian partners to internationalize the project was the most important political achievement. "The Nord Stream project is neither Russian, nor is it exclusively Russian-German. Ever since companies from Holland and France joined in, it's become a European project," Simonov stressed.

German Chancellor Angela Merkel sees a slightly different focal point and calls Nord Stream a "European-Russian" project. "It's a win-win situation. For Europe it's an important factor in guaranteeing gas supply security, and for Russia it means stable demand for gas from Europe," she said.

Ukraine loses

An estimated 80 percent of Russian exports currently still flow through Ukrainian pipes to the West and Southwest. So European politicians are not completely right when they say Nord Stream is not directed against anybody. In actual fact, Ukraine is clearly disadvantaged.

Visiting Vyborg on September 6, 2011 to witness the pipeline being filled with natural for the first time, Vladimir Putin said:"Ukraine has traditionally been our partner for a very long time. Any transit country might be tempted to take advantage from its transit position. But that exclusivity is no longer there."

Josef Auer from Deutsche Bank says that "if you see it from a Western European point this clearly has some political advantages. The Ukraine is of course now faced with the challenge of making gas transport and payment more stable in the future."

Dependence on transit via the Ukraine is still unacceptably high, according to former German Chancellor Gerhard Schröder, who is now head of Nord Stream's supervisory board. Speaking to Wintershall employees in Kassel in the summer of 2011, he said: "This is the true reason why this pipeline project came into being in the first place."

Authors: Andrey Gurkov, Markian Ostaptschuk / nh
Editor: Sam Edmonds