OSCEs Parlamentariske Forsamling 2017-18
OSCE Alm.del Bilag 19
Offentligt
NORD STREAM 2
Position paper
February 2018
Divisive project of the Russian government
NS2 remains fully controlled by the Russian government,
co
trar to its supporters’ arrati e
about it
ei g a Europea proje t.
Gazprom owns 100% of Nord Stream 2 AG.
Its partners on the project are to provide loans to
fund it. For this financing, Gazprom offers rates way above the market level. The arrangement
therefore incentivizes lobbying and politi
al support fro Gazpro ’s part ers.
The partners on the project are gas suppliers, not gas transmission system operators.
If the
project falls under the EU legislative regime, such arrangements are illegal unless specific
exemptions are granted.
No commercial or operational sense for Gazprom
NS2 makes no commercial sense for Gazprom.
It requires dozens of billions of investment in
Russia, the Baltic Sea and the EU. After NS2 completion, the transmission costs for Gazprom via
NS2 are going to be several times higher than via the UA system.
NS2 increases risks for Gazprom.
NS2 will divert transit gas flows from the Ukrainian system and
eventually eliminate it. Therefore, Gazprom risks losing a versatile and reliable route, which has
excessive back up capacities, for the fragile underwater NS2.
Unlike with the Ukrainian system, in the case of NS2, Gazprom will carry the full responsibility for
any emergencies (incl. potential terror attacks and accidents with WWII munitions buried in the
Baltic Sea).
Gazpro ’s arket apitalizatio
reflects the view that NS2 and other recent pipeline investments
pursued by the company
are o
er iall u reaso a le. I
, Gazpro ’s shares ere alued
at US$150bn, whereas by the end of 2017 its market capitalization dropped to US$50bn.
The o ly purpose justifyi g Gazpro ’s active e gage e t i
redundant pipeline projects aimed
at circumventing the traditional gas transmission routes across Ukraine, Slovakia, Poland and
Hungary is the geopolitical agenda of the Russian government.
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 OSCE, Alm.del - 2017-18 - Bilag 19: Ukraines positionspapir af Nord Stream 2
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NORD STREAM 2
Energy security, national security and environmental concerns
February 2018
NS2 will affect European energy security.
In 2016, Germany, most countries of CEE (except Czech
Republic, Romania and Ukraine), Southern Europe and Turkey were reliant on Gazprom for more
than 40% of their gas imports. A number of CEE and Balkan countries depend on Gazprom for
100% of their gas supplies.
Lau hi g NS ill rei for e Gazpro ’s do i a t positio i these ou tries. The dependent
countries, already susceptive to the Russian influence in their political agenda, will face much
higher risks of coercion.
The project creates national security risks for countries in Northern Europe.
By concentrating
nearly 80% of Russian gas supplies to the EU, the Nord Stream 1 and Nord Stream 2 pipelines will
become infrastructure of strategic importance.
With both the pipelines and the gas they carry owned by the Russian state-owned company, one
can expect that Russia will propose
rei for i g its ilitar prese e i the Balti Sea to prote t
the fragile infrastructure.
The prospect of the additional Russian military deployment in the EEZ of a number of EU member
states and NATO members will lead to undesired tensions within these alliances.
WWF, NABU and other influential organizations emphasize environmental risks
of NS2. In the
same time, the European Commission has repeatedly stated that NS2 serves no public interest and
is not essential for the EU energy security. Given this position, there is no justification to set aside
the threats of the project to the Baltic Sea wildlife and Natura 2000 sites.
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 OSCE, Alm.del - 2017-18 - Bilag 19: Ukraines positionspapir af Nord Stream 2
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NORD STREAM 2
Threat to a free and competitive gas market in Europe
February 2018
Gazprom remains a major single supplier of gas to Europe.
In 2016, the Russian state-owned
monopoly has supplied nearly 50% of gas consumed in the region.
With the falli g produ tio i Nor a a d EU e er states, Gazpro ’s positio is a le to
strengthen its position even relying on existing pipeline infrastructure.
NS2 will concentrate Russian gas delivery routes to Europe under control of Gazprom.
This will
provide Russia with an exceptional ability to fluctuate between price dumping to discourage LNG
supplies and halting supplies to enforce its political agenda.
The NS2 supporters often say that the US opposes the project because it wants to win the
European market for the US LNG suppliers. In reality, LNG accounted for less than 9% of gas
consumption in Europe in 2016, and US LNG has covered less than a negligible 0.1% of the total
demand.
Given the decrease of gas production in Europe, diversification of gas supplies falls fully in line
with the energy security interests and agenda of the European allies of the US.
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 OSCE, Alm.del - 2017-18 - Bilag 19: Ukraines positionspapir af Nord Stream 2
NORD STREAM 2
February 2018
Three combat arenas to stop the project: US sanctions, EU legislation revision,
Ukrainian unbundling
The upcoming 6 months are crucial for the NS2 fate.
Should Gazprom fail to start physical
construction before the fall 2018, the project is not likely to be implemented in its current shape
and will be critically behind the schedule, if not cancelled.
The threat of US sanctions is one of the efficient ways to prevent the NS2.
The bipartisan bill
adopted the US Co gress last su
er has alread aused a iet a o g the proje t’s EU
partners. In particular, raising the necessary funding remains at risk.
In private discussions, some of Gazpro
’s
closest allies
oi e o er s of ei g o errelia t o
their cooperation with the Russian company and seek ways to diversify their partnerships.
The energy security, national security and geopolitical risks posed by NS2 to US allies in Europe
fully justify the introduction of the sanctions. While they are not in place, it is important to
preser e a redi le threat of su h a possi ilit to dis ourage the proje t’s part ers a d suppliers
from participation.
The initiative of the European Commission to expand the Gas Directive
so that it covers export
pipelines like NS2 is another important counter measure. If the European Parliament and the
Europea Cou il support the i itiati e, the proje t’s i ple e tatio ha es are leak.
The lobby of NS2 in Germany, Austria, the Netherlands and Belgium actively opposes the adoption
of the proposed resolution by the European Parliament. Bulgarian and Austrian presidencies in
2018 are likely to use available formal instruments to delay the decision making on this issue.
It is therefore crucial to convey a unified public position in support of the Gas Directive expansion
by as many parties as possible in the US, EU and individual member states. The support is
necessary both on political and expert level.
Finally, the gas market reform process in Ukraine is an important dimension in preventing NS2.
In particular, the unbundling of the gas transmission function from Naftogaz and engaging a
reputable Western transmission system operator to co-manage the system will make European
gas shippers comfortable using the Ukrainian gas transmission system. It is therefore important to
actively monitor and support the gas market reform process in Ukraine.
Currently, the Ukrainian system is used exclusively by Gazprom. The Russian company illegally
blocks interconnectors between Ukraine and the EU. By doing so, it cuts European competition
from the markets of Turkey, CEE and the Balkans. If the Ukrainian system is unblocked and
managed by a reputable Western operator, the European suppliers will have a clear business case
to negotiate with Gazprom to move gas transfer points to the eastern border of Ukraine and
compete in the markets now fully dominated by the Russian company.
Contrary to the Russian narrative, the Ukrainian system does not need external investment and is
in a robust operating condition. It generates sufficient operating cash flow to finance necessary
repairs and maintenance. In 2017, the system has delivered a record high 93 bcm of Russian gas to
the EU, nearly �½ of total Russian gas exports, in full compliance with the contract.
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