Nord Stream 2 is a danger to Russia as much as Europe

US Secretary of state Rex Tillerson has in a speech delivered today in Warsaw warned that the planned Nord Stream 2 Baltic Sea gas pipeline between Russia and Germany presents a major threat to European energy security. Tillerson’s concerns are justified, to a smallish degree, but the language is alarmist, and hides the fact that when it comes to the oil and gas industry Russia is its own worst enemy.

Tillerson’s anxiety concerning Nord Stream 2 gives me an excuse to plug an article I wrote in 2007 for leading industry journal Offshore Technology. That piece (an unsolicited commission into which I put a considerable amount of research time, for I am not an energy specialist) may be a little dated now, but the background detail remains valid, and the article should provide context for those attempting to understand Tillerson’s geopolitical hand-wringing.

The first thing to note is that Nord Stream 2 is way behind schedule. Originally due to come onstream in 2010, the pipeline will be fed largely from the Shtokman field which lies some 550 kilometres north of the Arctic city of Murmansk. However, the first line between Vyborg and Greifswald was not actually laid until May 2011, and it will be 2019 before the full design capacity is reached. So much for Russia’s grand plan to control Europe’s energy supplies. The entire project, managed by a special purpose company, Nord Stream AG, of which the Russian state owns 51% of the shares, has been beset with political, economic, security, environmental and other problems.

Opposition to Nord Stream 2 has to a large degree focused on a perceived attempt by Russia to bypass and as an intended consequence politically and economically damage traditional transit countries such as Ukraine, Slovakia, Czech Republic, Belarus and Poland. A lesser challenge has been mounted by European environmental lobby groups.

The strongest condemnation of the Nord Stream pipeline was made by former Polish defence minister Radosław Sikorski, who compared the project to the 1939 Molotov-Ribbentrop Pact between Soviet Russia and Nazi Germany. The reality is rather less hyperbolic, but the problems are real enough. Still, Tillerson’s intervention should be seen in the context of the Trump administration’s support for a hard-right Polish government which stands in opposition to the centrist Franco-German axis underpinning the core of the European Union.

As for Nord Stream 2 and the state of Russia’s energy industry, we have to consider the Kremlin’s longstanding mismanagement of this sector, and an unpredictability in state actions which tends to spook the markets. On a technical level, Russia’s oil and gas reserves are located in areas subject to extreme weather conditions. The developments in western Siberia, for example, which include the Shtokman field intended to feed the European market, come with mighty obstacles in the form of million-tonne icebergs, fast-drifting pack ice, and sea depths of 350 metres.

I concluded my Offshore Technology article with a little weary wisdom, and a quote from the Economist magazine. These two paragraphs are worth repeating in full…

“It is said that all that’s certain is that nothing is certain, and when it comes to the Russian energy sector this is most certainly true. The potential in new offshore oil and gas developments is enormous, but a common view among western commentators is that the unwillingness of the Russian state to fully embrace the market and allow industry to take the initiative threatens to stall progress.

“Perhaps the last word should be left to the Economist: ‘Russia’s ability to cause harm to itself and to others in the cause of proving its greatness should never be underestimated.’”

We should bear these words in mind when fretting over Russia and European energy security. Nord Stream 2 may be more than a purely business endeavour, as claimed by its supporters in the Kremlin and European energy firms, but it is not a major threat to European security.