Putin pours oil on NS2’s troubled waters amid fears of German power play

Russian President Vladimir Putin moved to allay European fears of a political agenda behind  the controversial NS2 Nord Stream 2 project yesterday when he assured Austria’s Chancellor Sebastian Kurz that he did not consider the new Baltic Sea gas pipeline between Russia and Germany  to be an  alternative to the overland transit route that currently runs through Ukraine.
“If Ukraine presents economically grounded factors for using its gas transportation system, we have nothing against continuing cooperation with them,” he insisted, calling NS2 “a purely economic …. and commercial project”. The interested parties – including the  Vienna-based OMV energy group – had done their sums and concluded that it made economic sense, he added, stressing that NS2 and the Black Sea’s Turkish Stream project would help diversify energy supply routes between Russia and Europe. “We know that production in Europe is falling. Liquefied natural gas is not competitive in the European market, at least today. This is an obvious thing. If our partners support this project, then we will also do it,” he said.
Chancellor Kurtz responded  said that  Austria was in principle “highly supportive” of  NS2 but that some details still needed to be worked out. 
Scheduled to be operational by the end of next year, NS2 will run parallel to the existing Nord Stream pipeline along the bed of the Baltic Sea, doubling the network’s capacity.  The total cost of the project is expected to come to around €9.5n, roughly one third of which was injected into it development over the course of 2017, with the bill shared equally between Gazprom and its Western investors. ENGIE, Shell, Uniper and Wintershall, as well as OMV.
While those investors  (and the project’s many supporters in  Germany’s upper political including Chancellor Angela Merckel who said last month that she did not consider it a threat to Europe’s energy security) argue that the new pipeline is ultimately a response to  growing energy demands in Western Europe, its critics argue that it will not only increase EU member states’ dependence on Russian gas, but also turn Germany into an energy hub for Western Europe, to the immense detriment of Ukraine.
Writing in The Globalist yesterday, Dr Alan Riley of  the London-based Institute of Statecraft and an adviser to Ukraine’s state-owned Naftogaz, argued that the majority of the gas that will be pumped through NSE will not be destined for Germany itself but will instead flow onward via the connecting EUGAL pipeline to  the Czech Republic and Poland; and by doing so will flood the west-to-east interconnectors with Gazprom gas, effectively blocking its competitors’ access to the Central and East European gas markets while simultaneously undermining any commercial incentives to develop alternative pipelines and new sources of supply across the  region. This,  NS2’s most vocal critics in Warsaw, Kiev and Brussel argue, means that Germany is in effect helping Russia undermine the core energy security interests of some of their smaller CEE neighbours by locking them into a gas market dominated by Gazprom with no obvious way out.
The consequences for Ukraine could be even worse, Dr Riley warns. Once NS2 and its southern equivalent TurkStream  become operational. there is likely to be almost no Russian gas flowing through Ukraine at all. This will deprive Kiev of as much as $3bn in annual transit revenues and make its pipeline network worth little more than its  value as scrap.