- The Writer holds an MSc in Eurasian Political Economy & Energy from King’s College London and also an MA in European Studies from Sabancı University.
Russia’s Gazprom has been under considerable pressure in recent years not only at home due to increasing pressure put on the gas giant to share its monopolistic market with local companies, but also with the emergence of a strong global LNG market that threatens its market share in Europe. To accommodate this fierce competition, Gazprom has implemented a new hedging strategy by considering various gas projects like the Nord Stream 2.
The Nord Stream 2 pipeline, which will follow most of the same transit route as the Nord Stream pipeline, is expected to circumnavigate the Ukrainian transit network rendering it redundant, and therefore, allowing Gazprom to have a greater choice of export routes without making compromises to reach its final destination.
Although it is not yet clear whether Gazprom will totally cut off gas transit via Ukraine in 2019, some leading gas analysts claim that it would cost Ukraine as much as $2 billion if Russia decides not to renew this transit agreement. Consequently, Ukraine and other East European countries, such as Poland and Slovakia, which argue that Russia could breach anti-monopoly laws with the pipeline, have raised their concerns over the project.
As one of the world’s largest undersea pipelines, the Nord Stream 2 pipeline will stretch over 1,200 kilometers to carry natural gas from Russia’s Baltic coast all the way to northeast Germany’s Greifswald. Together with the Nord Stream pipeline, the Nord Stream 2 is estimated to carry 110 billion cubic meters of gas without the need for compressor stations.
This project caused a heated debate from the moment it was signed in 2015 during the Eastern Economic Forum in Russia’s Vladivostok city.
Fears over Russia’s market dominance in the EU once the project is completed have emerged raising the question as to whether the project is purely commercially-motivated, and if not, will the project bring about dire political ramifications should the relationship with Russia and its supplier countries deteriorate.
Security concerns have also been raised over the project, based on the belief that Russia, as a more dominant EU gas supplier, could potentially use greater leverage in gas supply disputes. Consequently, many view Russia as trying to exert more influence with its dominant role in shaping Europe’s energy mix, and in turn becoming ever more assertive in forming its foreign policy.
Central and East European countries are among those that would be hit the hardest in the event of supply disruptions from Russia. As 2014’s stress test discovered, Poland, Hungary, Bulgaria, and Romania remain the most vulnerable countries should long-term supply cuts arise.
As more alternative export route options become available through the Nord Stream project, Gazprom will be able to manage gas shipments in a more flexible fashion, and critically, to the extent that cutting off natural gas from Eastern European customers without harming its market share in Western Europe would become possible. Gazprom’s export options will be further enhanced with the Nord Stream pipelines, by placing the company at a more advantageous position when deciding which route to choose to meet the demands of favorable customers.
A letter sent by an East European leader to President of the European Commission, Jean-Claude Juncker in 2016 is a testament to the concerns shared among East European countries of Russia’s more dominant role as Europe’s preferred gas supplier. While they view Norwegian gas supplies and LNG as a safer option, they worry that Russia could use gas as political leverage over them. As a result, Eastern European countries have shown the greatest resistance to integrating their gas markets with the aim of enhancing energy supply security.
The upshot was seen in decisions taken in Hungary and Poland to keep the status quo in its respective gas markets. Hungary re-nationalized its gas sector and Poland’s decision to safeguard its state-owned corporations against a more liberal gas market that could potentially lower prices and increase competition within the Union. Their protectionist stances against Gazprom’s new export strategy have ironically brought a threat to their own energy security with their lack of cooperation in embracing cross-country gas market integration.
With its complex and multi-faceted dynamics, the Nord Stream 2 pipeline will strengthen Gazprom’s hand by offering more route options for the pipeline’s delivery destination points. When the pipeline is completed, Gazprom is set to become an even more pivotal gas supplier for Europe. To temper Gazprom’s control in Europe’s gas market and against the company’s attempts to abuse its power, the only viable mechanism is through the European Commission in applying anti-trust rules.
Market integration would ensure that any dominant supplier would not be able to misuse their strong position against their customers. However, the inconsistent policies adopted by countries like Hungary, Poland, and Bulgaria, with their segregated national markets and with their aim to protect their state companies’ status quo, only plays into Gazprom’s hands unless strong market integration policies are adopted.
- Opinions expressed in this piece are the author’s own and do not necessarily reflect Anadolu Agency's editorial policy.