Opinion

Nord Stream 2 means gains for Germany but pain for Europe

The proposed Nord Stream 2 pipeline could destabilise European energy cooperation and offer Gazprom excessive influence in Central and Eastern Europe. These disadvantages do not justify the commercial benefits for German companies.

By: Date: June 23, 2017 Topic: Energy & Climate

This opinion piece was also published in German in EnerGate

The construction of a new pipeline under the Baltic Sea between Russia and Germany throws up a series of economic, legal and political questions. German politicians face a particular dilemma. The project seems likely to be profitable for Germany itself, but it would worsen the gas supply for Germany’s eastern neighbours. The strategic opportunities that Nord Stream gives Gazprom are particularly worrying. It would make it possible for Gazprom to improve its market position in north-west Europe, offering lower prices to compete against liquid natural gas (LNG) and western European production, while pushing through higher prices to the East.

At the moment Russian natural gas has to flow through eastern Europe to reach western Europe. But with Nord Stream 2 Gazprom would be able to bring large quantities to market in north-west Europe directly through Germany. German traders would, of course, try to buy this gas at low prices and sell it at a higher price further East. But the relevant pipeline capacity in a West-East direction is limited.

With Gazprom directly supplying large quantities of gas to the west European markets, avoiding eastern Europe, the existing West-East capacity would quickly be exhausted. This would make it impossible to deliver any more gas from north-western countries to the South-East of Europe. This way Gazprom would have an essentially captive market in south-eastern countries, with a significant demand for natural gas. This would not only mean higher prices in Central and Eastern Europe. It would also allow Gazprom to turn off the gas tap for these countries, without breaking its commitments to western European countries.

So, Nord Stream 2 looks like a project where Gazprom and the German gas industry do well at the expense of other central and eastern Europeans. This undertaking might be profitable for the participating companies, but the effects for the EU as a whole could be negative. What is more, there could also be political consequences if Gazprom achieves unfettered power on the markets in parts of eastern Europe. Especially for Ukraine, the need to negotiate gas provision directly with Moscow again could have consequences that go far beyond commercial disadvantages. Nord Stream 2 could seriously endanger the energy security and geopolitical situation of Ukraine.

Nord Stream 2 will also not make it any easier to convince countries like Poland or Slovakia of the advantages of a common European energy policy. But Germany needs this cooperation.  If central and eastern European countries walk away from the fight against climate change, this could slow down the entire European energy transition. The cost of energy in Germany would also increase if it were not possible to sell excess energy to neighbours and use their electricity networks.  Nord Stream 2 will lead to reduced revenues and high gas acquisition costs in Germany’s partner countries to the East. And this would make cooperation on energy issues within the EU more difficult. That is not in the German interest. Thus, in balance, the long-term disadvantages of building Nord Stream 2 outweigh the short-term commercial advantages.


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint.

Due to copyright agreements we ask that you kindly email request to republish opinions that have appeared in print to communication@bruegel.org.

View comments
Read about event More on this topic

Past Event

Past Event

EU-Turkey energy and climate dialogues 2019

What is the cost of capital for wind energy investments in Turkey?

Speakers: Massimo d`Eufemia, Gustav Fredriksson, Can Hakyemez, Pelin Oğuz, Canan Ozsoy, James Rizzo, Umit Sahin, Simone Tagliapietra and Mehmet Erdem Yasar Topic: Energy & Climate Location: Istanbul Policy Center, Bereketzade Mahallesi, Bankalar Cd. No:2, 34421 Beyoğlu/İstanbul, Turkey Date: January 17, 2019
Read about event More on this topic

Upcoming Event

Feb
19
10:00

The European Energy Transition: A year ahead of the Twenties

This event will look at the most important issues related to energy for the next few years. The event will coincide with the launch of a book and online course on this topic.

Speakers: Klaus-Dieter Borchardt, Dirk Buschle, Alicia Carasco, Olivier Corradi, Jos Delbeke, Dolf Gielen, Christel Heydemann, Jean-Michel Glachant, Pascal Lamy, Philip Lowe, Susanne Nies, Laurent Schmitt and Georg Zachmann Topic: Energy & Climate Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article More by this author

Opinion

The UN climate conference in Katowice: A message from the European capital of coal

Following the COP24 climate talks in Poland, Simone Tagliapietra reviews the arguments for and challenges to decarbonisation.

By: Simone Tagliapietra Topic: Energy & Climate, Global Economics & Governance Date: December 12, 2018
Read article Download PDF More by this author

External Publication

A new strategy for EU-Turkey energy cooperation

Cooperation over energy and climate issues could be one of the components of the EU-Turkey Positive Agenda. Simone Tagliapietra proposes a new strategy for EU-Turkey energy cooperation, which envisions a shift of focus from gas and electricity to fields such as renewables and nuclear energy.

By: Simone Tagliapietra Topic: Energy & Climate, Global Economics & Governance Date: December 5, 2018
Read article More on this topic More by this author

Opinion

The great macro divergence

Global growth is expected to continue in 2019 and 2020, albeit at a slower pace. Forecasters are notoriously bad, however, at spotting macroeconomic turning points and the road ahead is hard to read. Potential obstacles abound.

By: Jean Pisani-Ferry Topic: Global Economics & Governance Date: December 5, 2018
Read article More on this topic More by this author

Opinion

Plädoyer gegen eine Politik der Scheinlösungen

Der Daueraufschwung verdeckt, dass Deutschland für die nächste Krise schlecht gerüstet ist. Und das Zeitfenster für Reformen schließt sich.

By: Jochen Andritzky Topic: European Macroeconomics & Governance Date: October 31, 2018
Read article More on this topic More by this author

Opinion

How could Europe benefit from the US-China trade war?

Under pressure from the US, Beijing is set to be more open to making new allies.

By: Guntram B. Wolff Topic: Global Economics & Governance Date: October 18, 2018
Read article More on this topic More by this author

Podcast

Podcast

Backstage: The new balance of Asia-EU-US trade relations

Amid the Asia-Europe Economic Forum on the fringes of the 12th ASEM Summit, Bruegel senior fellow hosts a conversation on developing global trade relations, with guests Moonsung Kang, professor as Korea University, and Michael G. Plummer, director at SAIS Europe – Johns Hopkins University, for an episode of the Bruegel Backstage series on ‘The Sound of Economics’.

By: The Sound of Economics Topic: Global Economics & Governance Date: October 17, 2018
Read article More on this topic More by this author

Podcast

Podcast

Deep Focus: Renewing the clean energy strategy in the Mediterranean

In this episode of Deep Focus, Bruegel research fellow Simone Tagliapeitra explains how the nature of cross-Mediterranean energy relations needs to change, not only in line with new climate-change targets but also to meet the burgeoning energy demand outside Europe.

By: The Sound of Economics Topic: Energy & Climate Date: October 16, 2018
Read article Download PDF More on this topic More by this author

Policy Brief

The Euro-Mediterranean energy relationship: a fresh perspective

The author analyses the current renewable energy development in Southern Mediterranean countries (SMCs) and proposes a climate financing strategy that retreats from the Eurocentric approach. Not only will it allow the region to meet its energy demand sustainably, it will also benefit the EU, both in economic and political terms.

By: Simone Tagliapietra Topic: Energy & Climate Date: October 16, 2018
Read about event

Past Event

Past Event

Policy responses for an EU-MENA shared future

In the third edition of the "Platform for Advanced & Emerging Economies Policy Dialogue" we will discuss trade flows and trade policy between Europe and MENA, integration of developing economies into global value chains, and regional energy relations.

Speakers: Karim El Aynaoui, Marek Dabrowski, Uri Dadush, Ignacio Garcia Bercero, Ettore Greco, Giuseppe Grimaldi, Badr Ikken, Joanna Konings, Said Moufti, Pier Carlo Padoan, Lia Quartapelle, Visar Sala, Nicolò Russo Perez, Nicolò Sartori, Simone Tagliapietra and Guntram B. Wolff Location: LUISS Business School Viale Pola, 12, 00198 Roma RM, Italy Date: October 11, 2018
Read article More on this topic More by this author

Blog Post

Are economic and political freedoms interrelated?

Democracy has not always accompanied market economy. But in modern societies, economic and political freedoms are increasingly interconnected. Democracy and market economy can support each other. This is particularly true in post-communist economies of Central and Eastern Europe and the former Soviet Union. Thus, authoritarian tendencies observed in these and other regions can negatively affect quality of economic policy and governance.

By: Marek Dabrowski Topic: Global Economics & Governance Date: October 10, 2018
Load more posts