Nord Stream 2: The Pipeline Controversy Enters its Fifth Year.

160816_nord-stream_2_route-map_colour_rgb_eng.png.1920x0_q90_detailWe are now entering the fifth year of the Nord Stream 2 pipeline controversy. I suspect  that President Putin imagined when he launched the project in June 2015 at the St Petersburg International Economic Forum that by now gas would be flowing through Nord Stream 2 along the floor of the Baltic Sea. The delays and controversies are in large part due to Gazprom taking the procedures and tactics that worked for Nord Stream 1 and then seeking to apply them again in a very different and far less benign political and legal environment.

Gazprom overlooked several key factors. First, the Central and Eastern European States were no longer newcomers to the European Union who had only recently joined. By 2015 most CEE states had been in the Union for almost a decade. As a consequence, they had a far better understanding as to how the rules worked and how to build alliances than in the 2008-2011 period. They were much more effectively able to raise objections to the project and co-ordinate opposition than with Nord Stream 1. Second, the political environment had changed profoundly, Russia had not invaded eastern Ukraine and annexed Crimea, nor was it waging hybrid war against the West. In such circumstances the willingness of states to seek to stop Nord Stream 2 was far greater than in 2008-2011. The third factor, was that the legal regime. Unlike in 2008-2011, the third energy package is far more deeply embedded with established case law and decisional practice to draw upon. A four factor, which i discussed in my Atlantic Council paper was the increasing realisation in Brussels and a number of key EU capitals the scale of the damage that Nord Stream 2 would do to the single market in gas and EU ambitions for energy union.

All these factors have resulted in much more delay and controversy than in the 2008-2011 period when the Nord Stream 1 project was planned, launched and executed. Nevertheless Gazprom is relentlessly continuing with the project. Pipeline is being laid in ┬áparts of the Baltic sea route, even though there is as yet no permission to access Danish waters, which is necessary to complete the project. Gazprom is clearly seeking to build an ‘aura’ of inevitability round the project.

However, there are a number of reasons why notwithstanding the bold move of beginning to lay pipelines even without permitting being available for the whole route, Nord Stream 2 may well be in jeopardy. The first reason surrounds the question of Danish permit permission of the pipeline. New Danish legislation which allows Denmark to block infrastructure in its territorial sea on grounds of national security. As a consequence Gazprom has filed another permit for a route which avoids Danish territorial waters and instead runs through the Danish exclusive economic zone where the new legislation will not apply. It is unlikely that any decision will be forthcoming from Copenhagen from much before the end of 2019. One consequence is that Gazprom is likely to ultimately enter into some arrangement with Ukraine to continue high levels of gas transit flows via the Brotherhood pipeline.

A further and perhaps more fundamental problem for Nord Stream 2 is this: The Danish delay gives the US authorities the time to ultimately adopt sanctions against Nord Stream 2. One major reason why Congress may impose sanctions is that more evidence is likely to come out from the US in 2019 from both the Special Counsel investigation and via investigations by the House Committees of the scale of Russian interference in the US Presidential election in 2016. Such evidence would be likely to increase pressure in Congress for further sanctions against Russia. Given the existing controversy over the pipeline, Nord Stream 2 remains a first order target of any new sanctions.

There is also finally the dog that has not yet barked. A further issue hovering over the pipeline is the prospect that either EU energy law or EU antitrust law may be deployed against the pipeline. There is the ongoing parliamentary debate on whether EU energy law applies to import pipelines. That debate however overlooks the rather salient fact that EU energy law has been applied to an import pipeline, notably the Yaman-Europe pipeline. Any legal challenge, as I explained in my International Energy Law Review article would jeopardise the prospects of the pipeline. It cannot be discounted that such a challenge will be launched in 2019.

So notwithstanding the laying of pipelines the prospects for the completion of Nord Stream 2, the completion of the pipeline is not inevitable. We should however, finally find out this year whether Nord Stream 2 is ever to be completed or whether it will turn into a classic study of political pipeline overreach for generations of students of energy geopolitics yet to come.