What is Nord Stream 2 and can Biden kill it?

CNN

By Ivana Kottasová and Charles Riley, CNN Business

President Joe Biden said Monday that natural gas will not flow through Russia’s Nord Stream 2 pipeline to Germany if Moscow orders an invasion of Ukraine.

What does an $11 billion undersea pipeline between Russia and Germany have to do with Ukraine? And why is it such a big deal? The answer has everything to do with how Europe gets its energy.

From Russia to Germany

The 750-mile pipeline was completed in September but has not yet received final certification from German regulators. When up and running, it would boost deliveries of gas directly from Russia to Germany.

The United States, the United Kingdom, Ukraine and several EU countries have opposed the pipeline since it was announced in 2015, warning the project would increase Moscow’s influence in Europe.

Nord Stream 2 could deliver 55 billion cubic meters of gas per year. That’s more than 50% of Germany’s annual consumption and could be worth as much as $15 billion to Gazprom, the Russian state owned company that controls the pipeline, based on its average export price in 2021.

Energy is politics

Energy is a major political issue in central and eastern Europe, where gas supplies from Russia play an essential role in power generation and home heating. Natural gas prices are already near record highs in Europe, and a conflict in Ukraine could bring more pain to consumers.

As Russia’s biggest gas customer, Germany has tried to keep Nord Stream 2 out of global politics. But the issue has become unavoidable after Russia amassed over 100,000 troops near its border with Ukraine.

There’s lots of history here.

Disputes over energy prices have plagued the relationship between Russia and Ukraine ever since the collapse of the Soviet Union in 1991, with Russia cutting supplies of gas to its neighbor on a number of occasions.

Russia has in recent months denied using energy to put pressure on Europe. But the International Energy Agency has blamed Moscow for contributing to the current European gas crisis by supplying less than it could.

Nord Stream 2 could help change the balance of power in Europe when it comes to energy. At the moment, Russia needs Ukraine, because a large amount of the gas it sells to Europe flows to the rest of the continent through the country.

What are the key players saying?

Nord Stream 2 was a major focus when German Chancellor Olaf Scholz visited the White House on Monday.

“If Russia invades … there will no longer [be] a Nord Stream 2,” Biden said during a joint press conference with Scholz. “We will bring an end to it,” added the American president.

Scholz said Germany was ready to act together with the United States. Asked specifically whether Germany was prepared to pull the plug on the pipeline, the chancellor said “we are absolutely united.”

“We will do the same steps, and they will be very, very hard to Russia,” Scholz told reporters.

Can the United States kill Nord Stream 2?

US officials have made clear that they would move to suspend Nord Stream 2 if Russian President Vladimir Putin orders an invasion of Ukraine. They’ve been much less specific on how that would be accomplished.

“I promise you, we’ll be able to do it,” Biden said Monday when pressed for more details.

Sanctions are one potential tool.

The United States targeted the pipeline with sanctions legislation in 2017, 2019 and 2020, according to the Congressional Research Service. In January 2021, the Trump administration even imposed sanctions on a pipe-laying barge that Gazprom used to build Nord Stream 2.

Still, the pipeline was completed, raising questions about whether additional sanctions would be effective in preventing it from coming online.

“US officials have suggested the administration’s ability to prevent the pipeline from becoming operational is limited, even with additional sanctions,” Congressional Research Service analysts wrote in December.

Germany has much more control over the project. But it also has much more on the line.

The view from Berlin and Moscow

Russia accounts for more than half of Germany’s gas imports.

The relationship goes back decades. Former Chancellor Gerhard Schröder committed in 2000 to phasing out Germany’s nuclear power plants, a policy that continued under his successor, Angela Merkel.

Schröder also helped orchestrate the deal to construct the first Nord Stream pipeline, which runs parallel to Nord Stream 2, and took a job as head of the shareholders’ committee shortly after leaving office. He was nominated last week to join the board of Gazprom.

The Russian gas giant is the sole shareholder in Nord Stream 2 but 50% of the total cost of the project is being provided by five European energy companies, including Wintershall and Uniper of Germany. The other financial backers are Britain’s Shell, Engie of France and OMV of Austria.

Ulrich Speck, a visiting senior fellow at the German Marshall Fund, said that Germany invested in Russia over the past two decades in hopes of modernizing the country and bringing about political change.

“Now all of these economic relationships are becoming geopolitically problematic and [Germany has to] revise its attitude towards Russia,” Speck said during a panel discussion at the Hudson Institute on Monday.

Still, it would be legally complicated for Germany to drop Nord Stream 2, according to Kadri Liik, a fellow at the European Council on Foreign Relations. She also said the importance of the pipeline is “totally overblown.”

“Putin might want Nord Stream 2, but he doesn’t want it so much. He definitely wants Ukraine more than that pipeline, so it’s not something you can use to deter Putin,” Liik said during a panel discussion hosted by the Carnegie Endowment.

Huge consequences

The United States and its allies are racing to draw up contingency plans in case supplies of Russian gas are choked off by conflict in Ukraine.

The White House said last month that it was talking to countries and companies about ramping up output. They’re also trying to identify alternative sources of natural gas that could be rerouted to Europe.

“We are building a partnership for energy security with the US, which is primarily about more LNG gas supplies,” European Commission President Ursula von der Leyen said Monday. “We are talking to other gas suppliers, for example Norway, about increasing their supplies to Europe,” she added.

But Europe would struggle to survive for long without Russian gas, and finding alternative sources presents a huge logistical challenge.

New pipelines and gas liquefaction facilities take years to build. And redirecting large volumes of the fossil fuel at a time when the global market and transport networks are already stretched would require cooperation from major gas exporters like Qatar, which may not have much wiggle room.

Nikos Tsafos, an energy expert at the Center for Strategic and International Studies, told CNN Business recently that minor supply disruptions would bend but not break the system. A worst-case scenario in which Russian gas disappears completely, however, would be a different story.

“A cutoff of gas flows through Ukraine is painful but manageable,” Tsafos said. “A total cutoff of Russian energy exports would be catastrophic. There’s no way for Europe to replace those volumes in any meaningful way.”

— Julia Horowitz contributed reporting.

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