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 article More on this topic More by this author

Blog Post

The latest European growth-rate estimates

The quarterly growth rate of the euro area in Q1 2019 was 0.4% (1.5% annualized), considerably higher than the low growth rates of the previous two quarters. This blog reviews the reaction to the release of these numbers and the discussion they have triggered about the euro area’s economic challenges.

By: Konstantinos Efstathiou Topic: European Macroeconomics & Governance Date: May 20, 2019
Read about event More on this topic

Upcoming Event

Jun
7
11:00

Brussels Policy Dialogue: Insights for EU and Member States’ Climate Agenda

The event is a policy dialogue organised under the project, 'COP21: Results and Implications for Pathways and Policies for Low Emissions European Societies'.

Speakers: Artur Runge-Metzger, Oliver Sartor, Marta Torres-Gunfaus and Georg Zachmann Topic: Energy & Climate Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read about event More on this topic

Upcoming Event

Jun
11
08:30

EU-LAC Economic Forum 2019: New perspectives in turbulent times

The third edition of the EU-LAC Economic Forum.

Speakers: Diego Acosta Arcarazo, Ignacio Corlazzoli, Maria Demertzis, Alicia García-Herrero, Carmen González Enríquez, Bert Hoffmann, Edita Hrdá, Matthias Jorgensen, Juan Jung, Tobias Lenz, Carlos Malamud, J. Scott Marcus, Elena Pisonero, Charles Powell, Belén Romana, Andrés Velasco and Guntram B. Wolff Topic: Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels
Read article More on this topic More by this author

Blog Post

What is in store for the EU’s trade relationship with the US ?

If faced with a resurgent President Trump after the next US election, the EU will have some difficult decisions to make as it is compelled to enter a one-sided negotiation. Failure to strike a deal will imperil the world’s largest trade relationship and contribute to the progressive unravelling of the rules enshrined in the World Trade Organization – although the changes required of Europe by Trump’s demands may ultimately turn out to be in the interest of Europeans.

By: Uri Dadush Topic: Global Economics & Governance Date: May 16, 2019
Read about event More on this topic

Past Event

Past Event

How do national energy policies fit into EU decarbonisation plans?

Through considering several different national perspectives, we discuss how to reconcile the EU Climate Strategy targets with national energy and climate policies.

Speakers: Aleksandra Gawlikowska-Fyk, Christian von Hirschhausen, Carole Mathieu and Georg Zachmann Topic: Energy & Climate Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: May 15, 2019
Read article More on this topic More by this author

Podcast

Podcast

Director's Cut: Evolution of US-China relations amid trade-tariff conflict

Bruegel director Guntram Wolff and Bruegel fellow Uri Dadush welcome William Alan Reinsch, senior adviser and Scholl chair in international business at the Center for Strategic and International Studies, for a discussion of how China-US relations are developing in the context of unfolding trade war.

By: The Sound of Economics Topic: Global Economics & Governance Date: May 14, 2019
Read article More on this topic

Blog Post

Germany’s even larger than expected fiscal surpluses: Is there a link with the constitutional debt brake?

Germany is having a political debate on the adjustment of its budgetary plans due to revised forecasts, and an academic debate on the debt brake. Yet, since 2011, general government revenues and surpluses have been systematically and significantly higher than forecast. The German surplus reached 1.7% of GDP in 2018. This bias did not exist from 1999-2008 before the introduction of the debt brake. While the IMF also got its forecasts of German surpluses wrong, the extent of the bias is larger for the German government’s forecasts. These data suggest that the political debate should focus on the debt brake and its implementation rather than on how to close the budgetary ‘hole’.

By: Catarina Midoes and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: May 13, 2019
Read article More on this topic More by this author

Podcast

Podcast

Deep Focus: Reforming and rejuvenating Russia’s economy

Bruegel fellow Marek Dabrowski talks to Sean Gibson about the underlying causes of Russia's slow emergence from economic crisis, in an episode of the Deep Focus podcast series.

By: The Sound of Economics Topic: Global Economics & Governance Date: May 9, 2019
Read article Download PDF More on this topic

Working Paper

Estimating the cost of capital for wind energy investments in Turkey

Wind power represents a key component of Turkey’s national energy strategy. Based on data collected on 138 installations in the country, this paper provides an estimation of wind power’s cost of capital in Turkey. This analysis finds that the cost of capital for wind power in Turkey compares with the one of South-east European countries. On this basis, continued governmental commitment to current support schemes for wind power must be considered as crucial to further promote wind power deployment in the country, even if the recent devaluation of the Turkish lira raises the feed-in-tariffs cost for the government.

By: Gustav Fredriksson, Simone Tagliapietra and Georg Zachmann Topic: Energy & Climate Date: May 7, 2019
Read article More on this topic More by this author

Opinion

When facts change, change the pact

“When facts change, I change my mind,” John Maynard Keynes famously said. With long-term interest rates currently near zero, the European Union should reform its fiscal framework to allow member states to increase their debt-financed public investments.

By: Jean Pisani-Ferry Topic: European Macroeconomics & Governance Date: May 1, 2019
Read article Download PDF More by this author

Parliamentary Testimony

Promoting sustainable and inclusive growth and convergence in the European Union

This speech was delivered by Guntram Wolff at the Informal ECOFIN Meeting in Bucharest on 5 April 2019.

By: Guntram B. Wolff Topic: European Macroeconomics & Governance, Testimonies Date: April 8, 2019
Read article More on this topic More by this author

Podcast

Podcast

Director's Cut: China's place in the global trading system

Bruegel director Guntram Wolff and senior fellow André Sapir discuss how potential WTO reform could better accommodate China.

By: The Sound of Economics Topic: Global Economics & Governance Date: March 28, 2019
Load more posts