Germany should stay with Nord Stream 2 despite Navalny poisoning

Akademic Chersky pipe layer is observed in the Gulf of Gdansk in the Baltic Sea. According to Russian Energy Minister Novak, Akademik Chersky could be involved in the construction of the Nord Stream 2 gas pipeline.

Vitaly Nevar | TASS | Getty Images

Germany is under increasing pressure to unplug its controversial giant gas pipeline project with Russia, following the alleged poisoning of Russian opposition politician Alexei Navalny.

Experts say Berlin is unlikely to do so at this time, however, given that the Nord Stream 2 project is over 94% complete after nearly a decade of construction, involves large German and European companies and is necessary for the current and future energy needs of the region.

In this case, economic and commercial interests could outweigh political pressure to punish Russia.

“I don’t see Germany pulling out of the project yet,” Carsten Brzeski, chief eurozone economist and global macro manager at ING, told CNBC on Thursday.

“But the national debate of the past few days has made it clear that patience is running out. Many are still in favor. But they will need Moscow to clearly demonstrate that pragmatic cooperation is possible and can really bear fruit – for example with regard to management the situation in Belarus, “he said.

German Foreign Minister Heiko Maas hinted last Sunday that Russia must play its part in the investigation into the Navalny attack.

A fierce critic of Russian President Vladimir Putin, Navalny has fallen into critical condition after suspected poisoning with a Novichok nerve agent.

“I hope the Russians will not force us to change our position on the Nord Stream 2 gas pipeline,” German Foreign Minister Heiko Maas told the Bild am Sonntag newspaper.

Germany has so far been reluctant to link the fate of its involvement in Nord Stream 2 to the Navalny incident, and Maas has acknowledged that stopping construction of the pipeline would harm not only Russia but businesses. German and European.

“Anyone who calls for the project to stop should be aware of the consequences. Nord Stream 2 involves more than 100 companies from twelve European countries, of which around half are from Germany, ”he said.

Jane Rangel, gas analyst at Energy Aspects, told CNBC on Wednesday that she and her colleagues “are monitoring the situation as it evolves” and noted that the poisoning of Navalny “puts Germany in a difficult position”.

“This is another challenge for the project to be completed and it certainly increases the risk that Germany may take action, one of the most obvious solutions could be for Germany to refuse to grant regulatory approval “for the gas pipeline,” she added.

German Chancellor Angela Merkel could choose to tell the Bundesnetzagentur, the official body responsible for authorizing the pipeline, not to approve the project, Rangel said.

“At this point, we would assume that Gazprom would take it to court if it didn’t get regulatory approval. Then the court could possibly overrule it and that means the German government is making its political point but the project ends up being approved. “

Politics vs. Trade

For its part, Russia, which denies any involvement in the Navalny incident, played down any impact on the Nord Stream 2 project. Kremlin spokesman Dmitry Peskov said on Tuesday that Russia saw no risk in that Germany suspends the pipeline.

“There is no basis for considering this issue at the political level,” he said, according to Bloomberg. “It’s more of an international business project. Why should we talk about measures with a minus sign regarding the international project where German companies are also involved? That doesn’t make sense.”

In summary, Nord Stream 2 is a collaboration between the Russian state gas company Gazprom and five major European energy companies, including E.ON, Shell and ENGIE, although Gazprom is the main shareholder.

The pipeline, estimated to cost around 9.5 billion euros ($ 11.3 billion) to build, will double the amount of natural gas that can be transported to Germany under the Baltic Sea (to around 110 billion cubic meters). per year) and will run parallel to an existing pipeline, Nord Stream 1, which was completed in 2011.

Russia was the EU’s largest supplier of natural gas in both 2018 and 2019, according to the European Commission.

One of Russia’s main goals with the new pipeline is to allow it to bypass Ukraine, a country with which Russia has strained geopolitical and trade relations, as it transports gas to Europe. Ukraine, like the United States, vehemently opposes Nord Stream 2 because the country claims that it strengthens Russia’s energy influence in Europe and compromises the region’s energy security, which Russia and Germany deny.

Nonetheless, opposition to the project has affected its progress, especially with the US sanctions announced last December against ships laying submarine pipelines for the project. It prompted a Swiss-Dutch offshore services group, Allseas, to suspend its participation in the project.

US lawmakers are considering further sanctions on the project although, with 2,300 of the 2,460 kilometers of all pipelines (Nord Stream 1 and 2) having already been laid, there is not much time for those. – these have a significant impact if they are approved.

A spokesperson for Nord Stream 2 told CNBC that as a developer of a business investment, he could not comment on political debates.

“Our project is based on investments from six major energy companies, five of which are from EU countries. The implementation of the project is based on building permits issued by the authorities of four EU countries and the Russia in accordance with the legal requirements of national legislation, EU law and international conventions, ”said spokesman Jens Mueller.

“Nord Stream 2 and the companies supporting our project remain convinced that the fastest possible commissioning of the gas pipeline is in the interest of energy security, climate objectives, the competitiveness and prosperity of European companies and households .

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