Game Changer Nord Stream?

The brackish Baltic Sea is at its calmest this time of year. For some observers, though, current developments under its surface may portend rougher seas in energy relations in certain quarters of Central and Eastern Europe. In a few weeks, consumable natural gas will begin flowing under the Baltic from a Russian town with a Swedish name (Vyborg) to a German town with a Slavic name (Lubmin) via the recently completed first of two lines of the Nord Stream pipeline. Many questions remain unanswered about how the special gas relationship between Russia and Germany will impact the political and resource dynamics of this region.

First the basic facts about Nord Stream. The Vyborg-Lubmin connection is a joint venture between Gazprom, the Russian gas giant and controlling stakeholder of Nord Stream AG, two German utilities (Wintershall and E.ON Ruhrgas), the national gas utility of the Netherlands (Gasunie), and GDF Suez of France. It will supply Western European customers with gas originating in the Yuzhno-Russkoye field in western Siberia, supplemented by gas from the Yamal field and eventually probably the Shtokman megafield in the Barents Sea. Once the second line is completed in late 2012, the combined capacity of the Nord Stream will be 55 billion cubic meters (bcm) of gas, or roughly two-thirds of the Germany’s current imports (though as the nationalities of the investors suggest, not all of Nord Stream gas is intended for Germany).

To its critics, among them just about anyone in Poland, Nord Stream symbolizes what is wrong with the current fractured system of energy provision in the European Union. But beyond regulatory and market integration questions, geopolitical concerns have been raised about the prospect of “energy blackmail” being perpetrated by Gazprom or the Russian state since they will not rely nearly as much on transit states such as Belarus, Poland, and Ukraine to get prized natural gas to lucrative markets in Western Europe. Supply disruptions to the Baltic states in the early 1990s, to Ukraine and other downstream states in the mid-90s and again in 2006 and 2009, and Belarus in 2010 are cited as historical precedents for this fear.

Indeed, geography plays a substantial role in current thinking on gas in Europe. For Gazprom and its most important customers, securing transit route diversity is priority number one. The point here is to diversify the paths from source to consumer by bypassing intermediary territories that present either risks of disruption or require too much in the form of transit fees or tap-in rights. Nord Stream is a central player in this bypass strategy since it gets gas to “dickes Deutschland” (i.e. the largest gas consumer in the EU) without using the existing major transit pipelines of Yamal-Europe, which crosses Belarus and Poland, or Brotherhood, which traverses Ukraine, Slovakia, and Czechia before arriving in Germany. Another part of this strategy is the proposed South Stream pipeline, which would in the eyes of Gazprom and partners reduce transit risk by passing from Russia beneath the Black Sea to Bulgaria and beyond. This strategy of course assumes Russia as a reliable source of gas and that the problem lies in the intermediary states.

*Cartography by Matt Derrick

Of more long term interest for the EU, especially smaller member states and those who feel sidestepped by projects such as Nord Stream, is the geographical strategy of seeking source diversity. While Russia looms large as the supplier with the largest proven reserves of gas in the world, a number of smaller states in Central Asia, Southwest Asia, and North Africa have gas and the added benefit of not being Gazprom. Ongoing discussions about the Southern Corridor and which new pipeline if any should be built to bring Azeri, Turkmen, and Iraqi gas to Europe (often likened to a New Silk Route for resources) are part of this complex of issues. There are many open questions about the Southern Corridor, about source diversity, and about the necessity of such an expansion in infrastructure capacity, that remain to be answered (some clarity may come in the coming weeks!).

Back to Nord Stream: In the near term, no one will likely notice any difference when it comes online in late October. There may be some ribbon cuttings (or whatever is cut when a pipeline goes into service), and a few op-eds may appear calling for more supply diversity in Europe. But Germany and other Central European countries still need (and can pay a premium for) the gas coming overland, so Gazprom will not suddenly begin slipping notes to Ukraine and Poland demanding terrible concessions or else. But it does raise a number of questions for policy makers and scholars alike, some of which I will be grappling with at the Transatlantic Academy this year.

1. With geopolitical metaphors running rampant, including a supposed “Great Game,” the competition for the “heartland,” central Eurasia as a “chessboard,” and territorial scrambles (the list goes on and on), the obvious conceptual question is to what extent a networked pipeline infrastructure fits within a geopolitics of intrigue that so many observers seem almost to want to will into existence? Does a geopolitical conceptualization that emphasizes proximity, territorial hegemony, and a very traditional notion of state-centered international relations fit the world in which we live?
2. How do intermediary countries—those situated between gas suppliers and the biggest consumers in Western Europe—fit into the picture? What are their policy options? And importantly, to what extent do prospects for shale gas discoveries in Poland, Ukraine, and Romania change the previous calculus of their reliance on imports via conventional pipeline infrastructure?
3. And related to the previous question, how much pipeline capacity does Europe really need? The decision to build Nord Stream was made in an environment very different from today’s. It was before anyone spoke of a “shale gas revolution” in North America that dried up potential markets in the US for Liquefied Natural Gas (LNG) from the Middle East and Russia practically overnight; before the economic crisis; before the discovery of shale gas potential in several countries in Europe; and before the formal decision to build a pipeline between Turkmenistan and China. Indeed, about the only thing that has remained the same is the leadership in Russia.

Nord Stream is interesting because it alters the political geography of networked infrastructure in Europe and is the first European example of a “bypass” strategy. But it hardly changes the game in any fundamental way. Plenty of other prospects on the horizon, however, have that potential. Stay tuned!