Development / Economics

“The Nord Stream knot” or CEE’s Sisyphean task

Piotr Popęda analyses the subtle conflict in the energy sphere between Poland and the Baltic countries versus Russia and Germany. He raises questions about the controversial judgment passed in Hamburg and how the German lawsuit affects European geopolitics and solidarity.

“The Nord Stream knot” or CEE’s Sisyphean task

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In 2006, the Russian company Gazprom and German companies E.ON Ruhrgas and BASF signed a final agreement in Moscow, concerning the construction of the North European Gas Pipeline and the establishment of the Nord Stream consortium. The investment was created with the aim of connecting Russia and Germany through a gas pipeline, aiming to distribute natural gas in Western Europe. The project ran along the Baltic seabed, giving rise to numerous controversies – related to costs, European dependence on Russian gas, bypassing Poland and Baltic countries as countries of transmission, and environmental issues.

 

Despite the objections, flowing mainly from Central and Eastern Europe, two lines of the Nord Stream were completed in 2012 and Nord Stream II is presently at planning stage. The project is a strong blow for Central Europe – besides blocking the development of Baltic ports to the south of the Nord Stream, it also strengthens the German-Russian friendship, and weakens the political and economical position of Poland. The Baltic states, Poland and Ukraine have been attempting to stop the development of this project, but their struggle remains futile.

 

The Nord Stream affects energy routes, energy dependence and economic policy across Europe, and conditions the depth of immersion of the pipeline and the development of maritime countries. December 17th 2015 marked a turning point in Central Europe’s energy market affairs, when the Administration of Sea Ports in Szczecin and Swinoujscie (associations of Polish ports) sued the Federal Maritime and Hydrographic Agency of Germany (a German public institution responsible for approving offshore installations). Given its major implications, the trial was expected to cause uproar in media outlets on both sides of the conflict, yet this did not happen. This is striking, given the impact of the decision on the European energy market and geopolitical balance of power.

 

The defining factor in the dispute is the depth of the Nord Stream gas pipeline – currently amounting to 16 meters. The ports of Szczecin and Swinoujscie, presently medium-sized Baltic centers, have expanded and various Polish institutions have demanded that fast growing ports should undertake necessary steps to suit ships of a 16-metre immersion. This requirement is due to the inefficiency of 13.5 metres of immersion (maximum length), when immersion of naval units to the Danish straits already encompasses 16 meters. From an economic standpoint, the Polish – Baltic conclusion seems justifiable; statistics suggest that maritime trade in Polish, Latvian and Estonian ports is ever growing. The famous Polish analyst and lawyer, consultant of American think thanks, Jacek Bartosiak contends that sea lanes are the cheapest means of transport in the world. Countries with access to sea routes quickly get richer. This is how the United States, with a major maritime base controlling the Strait of Malacca, retains its role as international super-power.

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Despite the factual and rational basis in support of its cause, the German court rejected the requests put forward by the Administration of Sea Ports in Szczecin and Swinoujscie. The court appeared reluctant to provide a coherent verdict, leaving representatives of the Polish Association of Ports in a state of confusion. Economically and politically, it should be noted that the Polish Association of Ports encompasses large offshore centers in Gdańsk, Riga, Tallinn and Klaipeda. The Nord European gas pipeline hinders the development of Baltic ports and the increase in the tonnage of vessels; hence the position of Szczecin and Swinoujscie appears self-explanatory.

 

Importantly, the issue of Nord Stream does not concern only Germany, Russia, Poland and the Baltic countries, but also other distant countries and entrepreneurs. The Nord Stream and The Nord Stream 2 formally united, until very recently, the whole array of European energy companies, such as Gazprom, OMV, E.on and BASF, Gasunie, Royal Dutch Shell, and Engi from i.e. Austria, Netherlands, UK or France. It shows, that German-Russian initiative is “discreetly” supported by business from Western Europe.

 

A crucial factor, affecting the Poles’ maritime affairs, was made public. On December 11th 2015, the new gas terminal in Swinoujcie, under an agreement among Qatargas Operating Company Limited, PGNiG (large Polish state-controlled oil and gas company) and the Polish LNG (company estabilished to build and operate the terminal in Swinoujcie), created a special type of ship – Q-flex of 210 000 m3 of gas. The new terminal is the only construction of this kind in Central Europe and was established due to the Poles’ intention to diversify gas supply. The Nord gas pipeline does not impair any gas trade agreement between Polish and Qatari companies. Still, a deeper locus of the pipeline would incentivise delivery of larger quantities of gas for Polish and central European countries, especially relevant for countries without access to the sea. The project is currently being commissioned to commercial operations, scheduled to start in the second quarter of 2016. PGNiG will take LNG supply on the basis of a 20-year contract, under which Qatargas will supply 1 million tonnes per annum of LNG to the terminal in Swinoujscie.

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Presently, the Nord Stream holds major implications for Europe’s energy sector. The issue has long formed a source of discord between Russia, the CEE region and Germany. The first accusation is that the Nord Stream consciously avoids Central Europe, where the pipeline’s creation would have been more expensive. The second issue is Scandinavian consent regarding the course of the pipeline, which deteriorated negotiating powers between the Baltic countries and Poland. Finally, an environmental issue exists with the Baltic Sea, which forms a graveyard of waste and war-era bombs from World War I and II. This increases the risk of a gas leak or explosion. After stepping down from his position, former German Chancellor, Gerhard Schröeder, became the new member of the board of the Nord Stream AG company.

 

While the European Union is thought of as an embodiment of equal interests and European solidarity, European politics remains a battlefield for personal gain. The energy market is a great example of this, when taking into account energy projects’ expenditure, made possible through corporate financing and involvement of politicians and international institutions. The EU energy market should function in accordance with European law. Unfortunately, energy projects hold geopolitical consequences and spark controversy, often poltical in nature, rather than stemming from sound economic strategy. In this battle of interests, Berlin’s and Moscow’s stand out more than those of the European Union.

 

The Nord Stream situation is precarious, especially when considering former Russian actions, such as turning off the tap in Ukraine, and engaging in a full-scale war in the area. This unstable scenario leaves Germany as the main decision-making center of Europe, a problematic position to adopt. During the impementation of the energy project, Germany seemed inclined to suit Russian interests, which left the Nord Stream project in a shaky position. This cannot positively impact on the negotiating stance of Central and Eastern European countries. What is inconvenient for them is beneficial for opponents, which deploy the passage of time as an argument.

The Nord Stream I and II form a Gordian knot. Poland, Ukraine with the Baltic countries are destined to pursue a Sisyphus myth in this duel. The alternative is a Silk Route 2.0 and creating huge deposits of shale gas – at which point, “the Nord Stream knot” will not be worth solving.

Piotr Popęda is a Polish economist, with an educational background in international management and trade law. Scholar at the University of Cambridge and Charles University in Prague, his fields of interest range from economics to politics, law and energy markets.

 

 

 

 

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