Opinion

The clock is ticking: Ukraine’s last chance to prevent Nord Stream 2

Ukraine is running out of time to provide western gas consumers with the necessary trust to abandon the Nord Stream 2 gas pipeline project.

By: Date: January 24, 2018 Topic: Energy & Climate

This opinion piece was also published in European Pravda

European Pravda logo

Nord Stream 2, the gas pipeline to directly connect Russia and Germany, is undoubtedly bad for Ukraine. It will allow Gazprom to largely circumvent the Ukrainian gas transit system when supplying EU consumers. This could result in significantly lower transit revenues for Ukraine: up to USD 2 billion per year, which currently corresponds to about 2-3% of Ukraine´s GDP.

More importantly, it might make gas supplies from the EU to Ukraine more difficult. If Russian gas supplies to Slovakia are delivered through Nord Stream 2, Germany and the Czech Republic, the price of this gas at the Ukrainian border will be significantly higher – if the volumes are at all sufficient to supply Ukraine.

Hence, Ukraine might be forced to resume buying gas from Russia. Without the leverage of gas transit it used to have in the past, these negotiations will be very one-sided. In fact, Russian demands might not only be about substantial prices, but could also include political components.

Ukraine is not doing enough to prevent Nord Stream 2 from happening. True, Naftogaz and some policy makers are trying to lobby in Washington and Brussels to prevent the pipeline from being built. But they do not have good arguments to convince influential European gas consumers.

It will not be the fault of others acting in their own interest, it will be the fault of Ukraine

The gas transit tariffs through Ukraine are currently more expensive than the expected tariffs for Nord Stream 2, and the Ukrainian tariff policy is neither transparent nor predictable. European gas consumers simply do not trust that Ukraine will be an inexpensive, reliable gas transit route for the next decade.

Instead of developing an attractive offer for gas transit customers, Ukraine´s government has been sitting on its hands for two years. The energy regulator is politicised and dysfunctional. The gas transit system remains largely unreformed and integrated into Naftogaz. And discussions in Kyiv remain centred on who controls the transit income. And with every day, Nord Stream 2 inches closer to completion.

At this point, it is not about political statements of good will or timid reform plans stretching to 2020, it is about action in the first half of this year. The transit system operator (TSO) should be immediately unbundled and a fair tender for the operation of the system should allow western system operators to take over the management of the new TSO.

This could provide western gas consumers with the necessary trust to abandon the Nord Stream 2 project. Without quick and decisive steps, however, there will be almost no chance to prevent the fulfilment of the project and its potentially disastrous consequences for Ukraine. And make no mistake, it will not be the fault of others acting in their own interest. It will be the fault of Ukraine, if it does not manage to offer a trustworthy, economically sound alternative to Nord Stream 2.


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 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

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
Read article Download PDF More on this topic More by this author

External Publication

The impact of global decarbonisation policies and technological improvements on oil and gas producing countries in the Middle East and North Africa

Simone Tagliapietra contributed to the IEMED Mediterranean Yearbook 2018 with a chapter on the impact of decarbonisation policies on oil and gas producing countries in the MENA region.

By: Simone Tagliapietra Topic: Energy & Climate Date: October 3, 2018
Read article Download PDF More on this topic More by this author

External Publication

LNG and Nord Stream 2 in the context of uncertain gas import demand from the EU

Georg Zachmann sees the development of import demand for natural gas in the EU as uncertain. In case of strongly increasing import demand, both Nord Stream 2 and liquified natural gas imports could contribute to ensure European supply.

By: Georg Zachmann Topic: Energy & Climate Date: September 27, 2018
Read article More on this topic More by this author

Blog Post

Something Putin and Juncker appear to agree on – the euro

“It is absurd that Europe pays for 80% of its energy import bill – worth €300 billion a year – in US dollars when only roughly 2% of our energy imports come from the United States,” said President Juncker in his state of the union speech.* Europe’s largest supplier of energy – Russia, who accounts for a third of that bill – couldn’t agree more. Russia’s offer to switch to euros in trade with the EU will likely be costly to implement, but the US switch towards unilateralism is forcing its long-standing partners to question the dollar’s global dominance.

By: Elina Ribakova Topic: European Macroeconomics & Governance Date: September 25, 2018
Read article More on this topic More by this author

Blog Post

Beyond Nord Stream 2: a look at Russia’s Turk Stream project

Since 2015, Nord Stream 2 has been at the centre of all European discussions concerning the EU-Russia relations. But as endless political discussions in Europe are being held on this pipeline project, the pipes of another similar Russian pipeline project – Turk Stream – are already being laid by Gazprom at the bottom of the Black Sea. This piece looks at these developments, analysing their strategic impacts on Europe.

By: Simone Tagliapietra Topic: Energy & Climate Date: July 4, 2018
Read article More on this topic More by this author

Blog Post

Ukraine: The struggle for reforms continues

The modernisation of the Ukrainian economy and state continues to develop at an unsatisfactory pace due to a lack of pro-reform political consensus. The two upcoming election campaigns in 2019 (presidential and parliamentary) make the reform process even slower and additionally put its effectiveness and sustainability under risk. The international community has a limited toolkit to overcome this stalemate.

By: Marek Dabrowski Topic: Global Economics & Governance Date: July 4, 2018
Read article

Blog Post

The Iran nuclear deal crisis: Lessons from the 1982 transatlantic dispute over the Siberian gas pipeline

A US president taking a unilateral decision that affects European interests; European policymakers outraged at US interference in their affairs; European businesses fearing losing access to some international markets – sound familiar? This is the story of a crisis that took place in 1982 regarding the Siberian gas pipeline project; its outcome should inspire optimism in the Europeans’ capacity to counteract Donald Trump’s decision to withdraw the US from the Iranian nuclear deal.

By: Emmanuel Mourlon-Druol and Angela Romano Topic: Energy & Climate, European Macroeconomics & Governance Date: May 23, 2018
Read article More by this author

Opinion

EU should pay member states to get rid of coal

The European Union should act to ensure the continued transformation of its energy system, and encourage member states to overcome their dependence on coal for supplying electricity. Helping coal-mining regions with the transition should require €150 million per year – a mere 0.1% of the total EU budget – and the EU would not even need to establish a new fund to support it.

By: Simone Tagliapietra Topic: Energy & Climate, European Macroeconomics & Governance Date: December 5, 2017
Read article Download PDF More by this author

Policy Brief

Beyond coal: facilitating the transition in Europe

Europe has a dirty energy secret: coal is producing a quarter of the electricity, but three-quarters of the emissions. The EU should propose that its member countries speedily phase out coal and put in place a scheme to guarantee the social welfare of coal miners who stand to lose their jobs, making a better use of the European Globalisation Adjustment Fund (EGF)

By: Simone Tagliapietra Topic: Energy & Climate, European Macroeconomics & Governance Date: November 23, 2017
Read article More by this author

Blog Post

The impact of Brexit on the Irish energy system – pragmatism vs. principles

Brexit promises pain for Ireland that could be cut off from the EU internal market and be left exposed to market instability in the UK. Georg Zachmann assesses the scale of the possible damage for Ireland, and how the UK and EU might use the special energy relations on the Irish island to commit to a pragmatic solution.

By: Georg Zachmann Topic: Energy & Climate, European Macroeconomics & Governance Date: November 21, 2017
Read article Download PDF More on this topic

External Publication

Central Asia—twenty-five years after the breakup of the USSR

Central Asia consists of five culturally and ethnically diverse countries that have followed different paths to political and economic transformation in the past 25 years. The main policy challenge for the five Central Asian economies is to move away from commodity-based growth strategies to market-oriented diversification and adoption of a broad spectrum of economic, institutional and political reforms

By: Marek Dabrowski and Uuriintuya Batsaikhan Topic: Global Economics & Governance Date: November 14, 2017
Load more posts