Another View on Nord Stream 2: Not a Threat to European Energy Security

Written by | Monday, January 29th, 2018

The discussion on Nord Stream 2 is criticized on the grounds that it undermines the functioning of the European gas market and makes consumers worse off. The opponents say that the project is not really economically substantiated and it would likely reduce Europe’s energy security, weaken European solidarity and the Energy Union as well as destabilizing Ukraine. There are, however, also alternative opinions arguing that Nord Stream 2 in fact cannot jeopardize the integrity of the European energy market because of its rules. These voices go as far as to say that the project can actually be beneficial to European gas consumers by boosting gas-to-gas competition between piped gas and LNG for supply for the EU.

Critics of Nord Stream 2 allege that the project is in opposition to the EU’s Energy Union policy and therefore will not benefit Europe. Such opponents, however, ignore the fact that the EU has taken steps and measures to secure the stability of supply and its success in establishing a competitive European gas market. Their narrative seems to reflect a lack of understanding of how markets work and how EU’s own rules come into play. Critics further claim that Nord Stream 2 is not economically underpinned.

There is agreement that there will be a decline in EU indigenous production and this, coupled with the bloc’s own forecast of flat gas demand to 2035, would mean that EU markets will be in the need of additional 120 bcm/year by 2035. Since gas via EU Southern Corridor is only going to be around 10 bcm/year, this means that the import gap will have to be filled either by gas from Russia and/or global LNG markets. The 120 bcm would have to come in addition to current imports, so Gazprom will need to make sure that it has sufficient capacity in addition to the capacity that it currently uses, if it is to gain a share of this additional demand for imports. All in all, Nord Stream 2’s economic rationale is to guarantee that Europe receives enough of competitively priced gas.

Importantly, pipelines do not automatically translate into market power. Critics voice the concern that Nord Steam 2 would undermine the internal energy market, saying that the project would enable Gazprom to “saturate” pipelines that carry gas from west to east within the EU, thereby preventing Eastern European customers from buying gas from companies other than Gazprom. However, according to other opinions this is a major misunderstanding as to how the internal market works – it allows European customers to buy gas from whoever they wish as the regulations ensure that gas can flow freely within the EU.

To sum up, the opposing views therefore claim that, in short, the Nord Stream 2 will help meet Europe’s growing import gap for gas supplies amidst declining existing indigenous supplies. It helps competition between different suppliers to Europe to improve security of supply and thus improve the welfare of EU nationals.

‘Nord Stream 2: Friend or Enemy of Energy Security in Europe?’ – Policy Paper by Alex Barnes – Centre for European Policy Studies.
(The Policy Paper can be downloaded here)

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