By VITALY PORTNIKOV
KYIV
Differences between German Chancellor Angela Merkel and U.S. President Joe Biden went unresolved at White House talks. The nearly completed Nord Stream 2 pipeline due to carry Russian gas to Germany proceeded without disruption as Biden saw no way of stopping the project.
Germany and the United States, during Merkel’s final visit as Chancellor to Washington, concentrated their efforts not on whether the pipeline should be completed but rather on how Ukraine might be compensated if it loses its status as a transit country for Russian gas. And on just how that status might be guaranteed – as demanded by both Biden and Merkel.
It was abundantly clear that Merkel’s position on the pipeline under the Baltic Sea was all but unchanged – the question is then why did she invite Ukrainian President Volodymyr Zelensky to Berlin on the eve of her Washington visit?
Their dialogue in Berlin produced no results – both leaders said differences over Nord Stream 2 remained. Zelensky has long argued that the pipeline is a matter of national security to Ukraine – and not an economic matter – as its completion could allow Moscow to exert undue pressure on Kyiv.
But the Berlin meeting allowed Merkel to tell Biden with a clear conscience that she had become fully aware of Zelensky’s concerns on the matter. And, naturally, found that they were not serious in nature.
Regardless, even if the Nord Stream 2 route along the Baltic is completed, the future of Ukraine as a transit country is far from settled.
COURTS, REGULATORS AND PIPELINE CAPACITY
On the eve of Merkel’s visit to Washington, Germany lost a court case definitively to Poland about the full use of the Opal gas pipeline – one of the branches of land-based Nord Stream 1. For more than a decade, there have disputes over the capacity and use of the pipeline.
The German national regulator had demanded that Gazprom sell half of its transit volumes – but Gazprom refused, and half of the pipeline’s capacity was frozen.
Gazprom secured access to a further 30 percent of the pipeline in 2016 when the European Commission permitted it to take part in actions on gas supplies. But Poland challenged that ruling, and in 2019 the European Court of Justice came down on Warsaw’s side, and Gazprom again lost access to 50 percent of the pipeline’s capacity.
It was from that moment that Gazprom managed to take full control of the capacity of Nord Stream 1 (in 2020, 59 billion bcm of gas was shipped through it) solely because volumes of gas were being redirected through it from the yet to be completed EUGAL pipeline (European Gas Pipeline Link) being constructed parallel to the existing OPAL gas pipeline. EUGAL is to be connected at the Baltic Sea landing point of Nord Stream 2 and continue south through Germany to the Czech border.
Once Nord Stream 2 is completed, the shortfall in capacity within OPAL will become more apparent.
And most importantly, the situation with land-based Nord Stream 1 being used short of its capacity could serve as a precedent for Nord Stream 2. For Gazprom, the crux of the matter is not so much completion of Nord Stream 2, but rather the need to secure access to 100 percent of its capacity – and not just 50 percent.
THE GERMAN ELECTION AND NORD STREAM 2
And time is of the essence – Gazprom wants that done by October, while the coalition of the CDU-CSU and the Social Democrats are still in power under Angela Merkel. After Germany’s federal election, the chances are good that the CDU could form a coalition with the Greens – who oppose Nord Stream 2 and favour limits on Gazprom’s control over the pipeline.
Gazprom launched its first attempt to secure 100 percent control of the pipeline when the company operating Nord Stream 2 asked a court to agree to an exemption from the norms of the EU’s Energy Charter on the grounds that as of May 2019, the pipeline was completed “in investment terms” – meaning, on paper.
The Duesseldorf Court is expected to make a ruling on 25th August – the day after Ukraine marks the 30th anniversary of its independence from Soviet rule. Analysts suggest that Gazprom’s chances of securing such a ruling are very slight.
In the meantime, Gazprom has sought to accredit itself in Germany as an independent operator with the court ruling pending.
This would be a form of separating its spheres of activity in Germany – as permitted under the EU legislation — and would allow Gazprom to remain the owner of Nord Stream 2, subject to restrictions. But the procedure also would mean Gazprom undergoing certification in Germany, in agreement with the European Commission. And there is by no means any guarantee that agreement would be forthcoming.
For the moment, Gazprom is permitted to use only half the capacity of the Opal branch of Nord Stream 1. And if the same restriction applies to Nord Stream 2 – enabling the Russian gas giant to use only half – it will not be able to do without the transit offered by the Ukrainian gas transport system.
The key issue is almost certainly the certification of Nord Stream 2 – sure to become the main area of agreements and disputes between the United States and Germany.
GUARANTEES FOR UKRAINE. WOULD THEY WORK?
Berlin could, for instance, agree to certification of Nord Stream 2 – in exchange for an extension of Russia’s transit agreement with Ukraine either pending that certification or with both in effect at the same time.
But to what extent can Ukraine trust such guarantees?
If, for instance, all sides agree, Nord Stream 2 could operate at full capacity while at the same time Ukraine and Russia clinch a new transit agreement overseen by Germany and the United States. That would amount to solving the issue of compensation to Ukraine for lost transit volumes.
But Ukraine would be unwise to crack open the champagne in such an instance.
Within months of such an agreement, Russia could, for instance, declare that an accident had occurred on the pipeline carrying gas through the Ukrainian system and call for repairs.
Arsen Avakov, who resigned as Ukrainian Interior minister last week, suggested while in office that the pipeline could be put out of action by an act of sabotage.
If such a breakdown occurred in winter, when European countries need Russian gas supplies, a decision would have to be taken to boost supplies on alternative routes pending completion of repairs.
Gazprom has already used this tactic in its relations with Turkmenistan, obliging Ashgabat to abandon plans to raise the price of gas shipped through Russian pipelines. And Russia could do the same with the European Union.
This is the gist of Ukrainian President Zelensky’s argument that the completion of Nord Stream 2 is a security issue. It is a matter of understanding why no one in Berlin –and to some extent in Washington – has been listening to this argument.
Zelensky could, in theory at least, persuade Biden to listen during his forthcoming visit to Washington.
But it would be hard to find a more experienced politician than Angela Merkel. And in the case of Nord Stream 2, she struck first.