Nord Stream 2 will increase European energy security – German MP
Nord Stream 2, the gas pipeline from Russia to Germany, is in jeopardy due to strong opposition from Eastern Europe and the US. Will the project survive? We ask the energy speaker of the Christian Democratic Union party in the German Bundestag, Joachim Pfeiffer.
Sophie Shevardnadze: Joachim Pfeiffer, Energy speaker of the Christian Democratic Union party in the German Bundestag, welcome to the show. It’s great to have you with us. Lot’s to discuss. Germany has given the green light to the Nord Stream 2 pipeline, which will bring natural gas from Russia to Germany directly via the Baltic sea. Poland and the Baltic states and other EU members oppose the project. But opposition to the project comes from countries who currently do transit business with Gazprom - and stand to lose it if the pipeline is built. So is it about actually trying to reduce dependence or really about lost revenues?
Joachim Pfeiffer: First of all, I think, it’s good to have a project like Nord Stream 2 because it brings diversification - diversification into transport of natural gas. More routes and more diversification means more liquidity in the European market and it increases security of supply not only for Germany, it increases the security of supply all over Europe. So basically I think, it’s a good idea to have this additional pipeline.
SS: Sure, but why do you think countries in the European Union oppose it? Because they’re losing revenues or because they want to reduce dependence? What is the core cause of the opposition?
JP: I think, it’s a mixture. Of course, maybe in Ukraine the fear that they will lose transit capacity or transport fees. But I personally think that Ukraine will be in the game in the future as well but they also have to invest in their infrastructure because their infrastructure is quite old and there are billions of investments needed. There’s opposition from Poland as well. Poland fears to be even more dependent on the Russian gas. But I think, if we have a diversification, if we have more pipeline routes - we have Nord Stream 1 and Nord Stream 2, we have the Yamal, we have the Ukrainian transit, we have several capacities and pipelines in the Mediterranean Sea and then we have a lot of LNG terminals (at the moment they are not fully used, their capacity is only used by 15-20 per cent) - so, I think, this brings competition to the gas market. We also have storage capacity all over Europe. Competition normally brings lower prices and so the consumer and also our industry can benefit from it. And therefore, we have to convince our other European partners that it’s a good idea.
SS: Gas supplies to Europe have been disrupted several times in the past years because of Kiev-Moscow disputes, over Ukrainian gas import debts. So isn’t Moscow’s goal to avoid the unreliable transit partner legitimate enough - and isn’t Nord Stream 2 going to bring a more reliable gas supply to Europe?
JP: Nord Stream 2 is the shortest way to bring gas to the Central Europe. And in the European Union we’re still working on the combined single market on energy and gas as well. And so we implement, for example, reversed flows so that we can also supply the countries in Southern or Eastern Europe. So, hopefully, we will have an additional increasing of the security of supply.
SS: So, of course, when it comes to gas and oil, and energy in general it often becomes a political thing. For instance, the Polish Prime Minister sees Nord Stream 2 as a political project aimed at undermining Central Europe. There’s a Ukrainian member of parliament who is comparing Nord Stream 2 to the Molotov-Ribbentrop pact of 1939. How are statements like that affecting the project’s perception in your country, in Germany?
JP: We say and we think that it’s not a political project. It’s a private project. It’s privately motivated and privately financed, there’s no public finances. If you look at what the Polish government now tries to establish - they have an LNG terminal and they also want to build a new pipe - this system may be or will be supported by the European Union and I welcome this project as well because it also diversifies the routes and the markets. So it can bring more competition and more security of supply.
SS: The European Commission wants to take over Nord Stream 2 negotiations from Germany and bog them down in bureaucracy and red tape - while the Germans insist it’s their right to handle talks on their own. Will Berlin confront Brussels over this?
JP: We’re negotiating at the moment and, as I mentioned before, we want to have a single European energy market in gas as well. But we also have a national energy mix so far. For example, in Germany we decided to phase out nuclear. Others decided to phase in nuclear or to stay with nuclear. And if the European Commission takes over responsibility or give final approval for pipelines or LNG projects or storage facilities it would affect directly this national sovereignty on the energy mix. So I think, it’s not a good idea to have it from this perspective.
SS: “The Economist” magazine quotes a European Commission official as saying that if it was the “Norwegian StatOil, there would be no problem”. So this has nothing to do with gas - this is a European Commission’s personal grudge match against Gazprom, right?
JP: I’m not sure if that’s against Gazprom. European Commission and a lot of member states and also colleagues from other European parliaments are afraid to be more dependent on the Russian gas. That’s because the resources we have in the European Union and in the North Sea are shrinking - in the Norwegian or the North Sea, also in Great Britain and in the Netherlands - so there’s the fear that dependency grows. If you have a pipeline you can’t move it, like when you have an LNG ship or an oil tanker it can go from Qatar to Japan as well as to Western Europe, for example, and pipeline is there. So I see, a pipeline brings a both-way dependence. We need the gas and Russia needs the money for the federal budget and to do other things. So I’m not too afraid that that will increase our dependence.
SS: So, like you said, Europe’s gas demand is expected to rise within the next decade, with British and Dutch production falling and Norway freezing some of its oil and gas projects. Brussels wants to pull the plug on Gazprom in Europe, but does it have a backup plan for the day Europe faces a gas shortage?
JP: There are lot of scenarios and a lot of perspectives. If the gas demand increases or stays the same nobody knows exactly. We’re working heavily on the renewable sector, for example. But I think, gas will play a key role even in the renewable age in the future. If you look at electricity we need backup capacity. This has to come out from conventional. And I think, also from a CO2 point - from a decarbonising point of view - it’s better to have gas in the mix in the long run than, for example, hot coal or lignite coal. So I think, gas is an intelligent partner for the renewables. And we can also use this pipeline system for transporting hydrogen, for example, or other things. So this infrastructure is not only limited to the fossil age. Therefore, I think, pipeline system combined with storage capacities and LNG terminals all over Europe is a good thing and a win-win situation for all parties.
SS: The European Commission wants to amend the EU Gas Directive, and the proposed changes will actually harm Nord Stream 2. But Germany is saying that the possible amendments aren’t applicable under European or international law. So why would Brussels come forward with proposals that are known to be bad?
JP: That’s at the moment to be negotiated. There are talks at the moment and some lawyers are working on that. Finally, we have to find a solution. And I hope that we will find a common solution for Europe which increases security of supply for everybody.
SS: And what about the five European companies from Germany, France, the UK and Austria that invested 10 billion euros in the project, shouldn’t Brussels protect their interests as well?
JP: We have a market-orientated approach in Europe. We want to have a single European energy market and we want to mobilise as much private money as possible for increasing and building the infrastructure. That’s the one side and we have to balance it with the other side, of course. The European Commision is concerned, as well as some other states we were talking about, that dependency on Russia and other partners will increase. And therefore, we have to balance this. But basically, I think, it’s good that we have a lot of European companies cooperating and investing in this project with private money.
SS: Mr. Pfeiffer, U.S. Secretary of State Rex Tillerson sees Nord Stream 2 as a threat to European energy security. The pipeline will be able to provide a quarter of Europe’s annual gas imports and will reduce the price of Russian gas by almost a half. Does the U.S. have a proper understanding of the European energy market?
JP: From a strategic point of view I understand that there are fears also in U.S. that they say ok if Europe gets more dependent on Russia that brings a strategic threat. Maybe if we think of the discussions we’ve had in the last years, maybe if you look at Ukraine where Russia violated international law occupying Crimea - that’s not acceptable, we have to talk about this and we will not accept. But the talks must go on and, I think, we have to talk more to each other and to find a solution for a lot of political, economic, technical, cultural issues and initiatives. So, I think, it’s also good to have more diversification in the energy sector. U.S. is now, for example, No.1 gas producer and supplier in the world. And if they transport LNG to Europe we have another possibility and this brings competition and security of supply. So I don’t see that we’re decreasing the security of supply. I see the other way round. Therefore, I think, we should take all pipeline projects, all LNG projects, all storage projects we can get.
SS: I agree with you. But then there’s John McCarrick, from the U.S. State Department’s Bureau for Energy Resources, he dismissed the very idea that Nord Stream 2 can be built. I just wonder, how can Washington assess with this kind of confidence what can and cannot be built in Europe?
JP: Yeah, they have their own interest, they also have their strategic interest. And the U.S. is also heavily investing in energy infrastructure. So it’s natural that they also want to have their share of the cake. And Russia wants to have their share of the cake. Maybe in the future Iran and other countries in the Far East and in the Middle East will have some shares in the cake. That’s the way the market works and I think that’s ok. We should leave it to the market and to the market signals what is good of security of supply, what is good for competition and for the prices, what kind of products we will have, and we shouldn’t decide it in a political way. For me it’s also not acceptable when either Russia or U.S. are deciding what German or European companies are investing in or which infrastructure we’re building in Germany or Europe. I think, it’s a German and it’s a European decision.
SS: You’re right, but the U.S. has its own interest and it’s openly calling for European states to reject Nord Stream 2. What kind of leverage can it exert over European states, who can Washington sway?
JP: They are talking to the national governments, they are talking to the members of parliaments. We’ve also had some exchange with the American representatives, with the members of the State Department. We were exchanging views and I, at least, tried to explain why I see more pipelines bringing more security of supply and what is the reason of our decision. And so at least we were more or less 90 per cent at the end of discussion at the same meeting. But there’s still a gap and we have to talk about it as well. Finally, we decide what infrastructure we build and what we don’t build.
SS: The Americans are imposing sanctions against Russian companies involved in Nord Stream 2. From the German side, how is Berlin planning to work around those?
JP: There’s, and not only in the energy sector, a tendency to protectionism and that bothers me. I think, open markets and free trade are key to growth and increasing welfare of participating nations. I personally oppose any protectionism in the energy sector as well as in other sectors. So we have to keep on working hard to keep the markets open. I think multilateral approaches in the WTO is the right approach. If this is not working, because we saw in the last years that it’s very slow. If we are quicker and faster with bilateral approaches then we should do that. But open markets are key to prosperous development.
SS: Nord Stream 2 promises tens of billions in potential welfare increase for all 28 EU states - which means in those who are arguing against it. Are these potential profits big enough to silence the naysayers?
JP: Nobody knows what will finally be the profit. But if we have a shorter route with Nord Stream 2 it’s potentially cheaper to bring the gas to Central Europe and then everybody can benefit. So we will see what will happen.
SS: Nord Stream 1, remember, met similar, strong opposition in its time, the same concerns were raised - about the political influence and gas dependence - but the pipeline is working fine and Europe is still independent, last time I checked. Why are the same arguments raised against Nord Stream 2, is there anything drastically different about this project?
JP: Well, the geopolitical situation is different. Nord Stream 1 took place before we had the developments in Ukraine and so on. That concerns a lot people in Europe and especially in Eastern Europe, in the Baltic states as well, in Poland, in Ukraine, Romania and so on. They fear a kind of a new Cold War and a war in energy. So maybe these concerns are also fed by the Russian behavior in the last years. But if you think what’s the alternative then, I think, it’s for both…
SS: That’s my whole point! The first pipeline, Nord Stream 1 didn’t cause a Cold War, did it? Why would the second one be? It’s all about money, it’s all about the profit each side gets.
JP: I didn’t say that Nord Stream 2 is causing it. But the Russian behavior against Ukraine and other things changed over the last years. There are also hostile activities in the Baltic Sea and in the air which we thought that we haven’t any more. I grew up during the Cold War so I know what happens there. And I think Russia should change its behavior in this sector.
SS: I feel like there are double standards here. Of course, I understand that Europe or Germany are worried about the whole political situation but you’re still buying the gas…
JP: I think, it’s a two-way dependency. Russia wants to sell the gas and if there’s a pipeline it only can sell the gas via the pipeline. And Europe and Germany need the gas, so it’s a win-win situation for both. There are political problems we have to talk about and, therefore, we’ve also implemented sanctions on various sectors so hopefully we will get back to the table and talk. And I think that the Russians didn’t behave the right way in the last years way and it’s also a reflection in public and on the political arena in Western Europe or U.S.
SS: All I’m saying is that both agree that we’re sort of interdependent when it comes to gas. So why generate extra-trouble? It doesn’t really make any sense. I mean, political thing is a political thing. But this is all about gas and money and we both need each other here...
JP: Yeah, that’s true. But we are also not naive. Of course, energy is always a political issue.
SS: But didn’t you just say that it wasn’t a political issue? That it’s a market issue?...
JP: No, I mean, energy… Of, course, it’s both. The pipeline project is privately initiated and privately financed. But energy discussion, for example, the fulfilment of the European single market in energy is, of course, a political issue. And dependency and fears of security of supply are also political issues. The energy issue is a political issue because without energy economies are not able to work. If you remember what happened in the beginning of the 70s it affected a lot of countries and the whole world economy and brought it in a crisis. So it would be naive to say that energy is not a political issue.
SS: Alright, Mr. Pfeiffer, I really hope all sides can work out their differences and the pipeline will actually start to function. Thank you for this interview. We were talking to Joachim Pfeiffer, Energy speaker of the Christian Democratic Union party in the German Bundestag, discussing Nord Stream 2 pipeline project and what it means for the European energy market. That’s it for this edition of SophieCo. I’ll see you next time.