Merkel defends Russian gas link expansion protested by Poland

Brian Parkin, Ewa Krukowska and Anna Shiryaevskaya February 19, 2018

BERLIN, BRUSSELS and LONDON (Bloomberg) -- German Chancellor Angela Merkel threw her country’s weight behind the Nord Stream 2 gas pipeline from Russia, boosting the chances that the controversial link will become reality.

The project to boost the capacity of the pipeline has divided EU governments, with mostly eastern nations led by Poland concerned about the bloc’s increasing dependence on Russian gas and President Vladimir Putin’s meddling in Ukraine, which the link would bypass. It also has highlighted a split between lawyers on the appropriate legal regime for the pipeline.

Uniper SE, Engie SA, Royal Dutch Shell Plc, OMV AG and BASF SE’s Wintershall are European partners of Russian gas export monopoly Gazprom PJSC in the project to expand Nord Stream by 55 Bcm a year, which would double its capacity to almost 30% of current EU demand. The new pipeline potentially deprives Ukraine and other nations including Slovakia and Poland of transit fees.

“We have different opinions on the topic of Nord Stream,” Merkel told reporters in Berlin after meeting Poland’s Prime Minister Mateusz Morawiecki. “We also want that Ukraine continues to have transit gas traffic but we believe Nord Stream poses no danger to diversification and should be seen under economic aspects.”

Diversifying supplies

While Nord Stream 2 argues a new pipeline is needed to ensure safe supplies in the coming decades as EU import needs rise, opponents of the project say it hurts the bloc’s cohesion and weakens the bloc’s Energy Union strategy aimed at integrating the region’s gas and power markets, diversifying energy supplies and improving security.

The new German government is considering the nation’s first liquefied natural gas import terminal as part of efforts to boost diversification, following similar projects this decade by Lithuania and Poland.

“Poland has built an LNG terminal that was supported by the EU and a pipeline to Scandinavia is in planning and so we’re getting toward diversification,” Merkel said.

Russia supplies a third of Europe’s gas and has no plans to give up its share to the expanding list of competitors from Norway to the U.S. The region’s biggest supplier last year took an all-time high market share of 34.7%, which may increase further to as much as 41% by 2035.

“I do not agree with the approach that Nord Stream 2 means diversification because the gas comes from the same source, just through a different route,” Morawiecki said. “We’re pointing to the risks linked to cutting Ukraine off from transit.”

Morawiecki also said he highlighted in the talks with Merkel the necessity to amend the EU gas law and make Nord Stream 2 follow European Union energy-market liberalization rules.

Gazprom has argued that Nord Stream 2, which would deliver gas to Germany through the Baltic Sea, would only need approvals from the governments of those member states whose waters the pipeline would cross.

“Naturally on the matter whether this is an economic project, it must be assessed on the basis of the EU’s third energy package and we must consider a political component and of course that Ukraine can’t be fully cut off from transit traffic,” Merkel said.

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