With the defeat of Nord Stream 2, it’s time to start defanging Gazprom in Europe.
The Nord Stream 2 pipeline is dead. Following the adoption of the latest round of sanctions by veto-proof majorities in both houses of Congress, the pipeline cannot be completed. And yet despite the failure to deliver the pipeline, Gazprom remains a dominant player in much of central and eastern Europe. As a consequence, it still provides the Russian state with significant political leverage across the region. The question that therefore faces the incoming Biden Administration is how to advance US-EU cooperation to protect those EU and non-EU European states still vulnerable to Russian energy aggression.
In its Communication on a New EU-US Agenda for Global Change, published on December 2, the European Commission indicated that the EU was open to deepened cooperation on energy, climate change, data, trade, and security issues. Within the scope of that agenda, the EU and the United States could together develop a program to enhance the supply security of the states of central and eastern Europe. Such a program would seek to fully integrate those states within the common European energy market. Enhanced electricity interconnection, boosted by Green Deal funding, the completion of single energy market interconnections, and the development of a single legal platform would significantly reduce Gazprom’s hold on the region. The ultimate fruit of such US-EU cooperation would be to deliver Gazprom’s worst nightmare: it would be rendered into being just another energy company.
The sanctions levied on Nord Stream 2 in last year’s National Defense Authorization Act (NDAA) in December 2019 had already stopped any construction of Nord Stream 2 at any depth greater than 100 feet in its tracks. Approximately 160km of the undersea pipeline of the total 1200km length remains unfinished. Despite endless maneuvering by the Nord Stream 2 consortium, no significant further construction of the pipeline has taken place this year. The sanctions against Nord Stream 2 contained in NDAA 2021, approved earlier this month, finish off any possibility that the pipeline will be completed. Section 6231 of the NDAA 2021, on top of Section 7503 of NDAA 2020, ensures this. Section 6231 extends the broad scope of the application of sanctions from just “pipe-laying” to include also “pipe-laying activities.” The provision goes on to specifically bring within the fold of sanctions the provision of underwriting or insurance or reinsurance services, services or facilities for technology upgrades, installation of welding equipment, or providing services for the testing, inspection, or certification — all necessary for the operation of the Nord Stream 2 pipeline.
Constructing underwater natural gas pipelines is an extremely complex and technical operation. Necessarily it involves hiring a number of specialist international contractors. Given the nature of the work, there are only a small number of contractors that can undertake this work globally. The most recent sanctions work with that reality, undermining the consortium’s ability to procure the services necessary to complete the pipeline. All that’s left is PR moves, and we can count on the Kremlin to try them all. But the pipeline now won’t be completed.
But while Nord Stream 2 is dead, Gazprom remains dominant in a large part of central and eastern Europe. Although interconnection between national gas markets is better than it used to be, it is still limited, providing opportunities for Gazprom leverage and Russian influence. Gazprom also gains leverage from the lack of alternative sources of energy which states can rely on. The Russian gas giant is likely to seek to maximize its commercial and political leverage to limit further integration of these markets in the wake of Nord Stream 2’s collapse.
Gazprom is most vulnerable to the enhancement and integration of the electrical power networks across the region. A high degree of cross-border interconnection, deeply resilient networks, and cheap renewable power generation across the region would have a very positive impact on regional supply security. It would provide an alternative energy supply to Russian gas. In addition, enhanced interconnection of the EU and non-EU gas networks would make it possible for all states in Central and Eastern Europe to obtain alternative sources of gas supply, further undermining Gazprom’s leverage.
There is now a real potential for EU-US cooperation to achieve all these goals. Greater interconnection of the electric and gas networks across the region will require not just joint financing, but also copious technical support. Modern, resilient networks will need to be capable of dealing with the intermittency of renewable energy flows. Furthermore, the EU’s energy single market regime will need to be strengthened. Outside of the EU proper, all the nonmember states (save Belarus) are also bound by the EU’s energy single market regime through their membership of the Energy Community Treaty, but the Energy Community Treaty lacks the tools available within the EU to enforce open market rules. Complete synchronization between the two regimes will be vital.
Developing and implementing an energy security strategy that finally relieves central and eastern Europe of overbearing Russian energy influence is a great prize. It is now within the capacity of the United States and EU to deliver it. With EU willingness to boost cooperation with the incoming Biden administration, now may be the time it is delivered.
December 18, 2020