The paradoxes in Nord Stream-2 pipeline
Published: Jan 20, 2020 07:08 PM

Photo: IC

The Nord Stream-2 is a planned 1,230-kilometer-long pipeline from Russia's Ust-Luga to Germany's Lubmin near Greifswald. Scheduled to be complete in 2020 and designed to deliver another 55 billion cubic meters of natural gas to Germany per year, the pipeline has become a sticking point in relations between the West and Russia. 

Under US President Donald Trump's presidency, the US government has imposed unprecedented pressure to derail the infrastructure project. Some companies involved in Nord Stream-2 ceased work last month for fear of potential US sanctions, even though 160 kilometers of the pipeline remain incomplete. 

The Nord Stream-2 dispute, which has become a critical issue in political relations among the US, Russia and the EU, gives birth to several paradoxes in international political economy.

The project highlights an interesting paradox of free market economy in international business. Based on economic rationality, the Nord Stream-2 is certainly feasible and beneficial as it directly connects the biggest supplier Russia and biggest consumer Germany in the European natural gas market. Considering the robust production capacity of natural gas in Russia and the industry-based economy of Germany, reciprocal ties of energy can sustain for future decades without major hiccups. 

Meanwhile, the investors of Nord Stream-2 are multinational commercial entities and the project finance comes from the market as well. The European countries involved sought to keep government away from Nord Stream-2, to make the project purely commercial from conception to construction. 

What the Trump administration is doing to the Nord Stream-2 is nothing but using political power to interfere in a project operating under free market economy, the principle the US has been upholding just in words. The US is definitely politicizing the issue. 

Another paradox is Germany's position and the solidarity issue with the EU. Unlike most cases of previous disputes with the EU, in which Germany was in a position to criticize the unilateral actions of other member states, this time Berlin is the defender for undermining the solidarity of the EU, as the energy megaproject obviously will affect the economic interests and energy supply security of eastern European countries that heavily depend on Russian gas and reap the transit benefits (fees and natural gas). 

In the Nord Stream-2 dispute, eastern European countries demonstrate very low degree of trust for both Russia and Germany. In this context, the US displays exceptional influence over the intra-EU debates and the bloc's foreign policy. Because of the reversed role, it is not easy for the EU to find a comfortable position on the issue and to avoid confrontation with the biggest member state. In the case of Nord Stream-2, the EU is not united. 

The third paradox occurs between such heavy investment on natural gas import facility and the EU's self-nominated figure of energy transition leader and the diplomatic standing against Russia. Among major powers in the world, the EU is the most radical advocate of energy transition, especially proposes to phase out the fossil fuels by using renewable energy. Trump has been made fun of by Europe due to his decision to withdraw from the Paris Agreement on climate change. Thus, to build such a megaproject for importing natural gas could be a confusing signal to the world, especially to the prospective energy and environment policy of the EU and Germany. 

Additionally, due to the dependency-locking effect of natural gas pipeline (expensive to build but cheap to use), against the background of political and economic tensions with Russia since the Ukraine crisis, the political implication of the Nord Stream-2 is ambivalent, especially when the US under Trump has been touting the US-produced liquefied natural gas around the world.

The Nord Stream-2 dispute could not be solved in a short time. These paradoxes around the pipeline profoundly reveal the economy-politics nexus in international business, especially in the infrastructure megaprojects. The nexus even has its effects on political allies like the US and Europe.

The author is a PhD holder from Free University of Berlin and an assistant professor at the School of Economics and Management, China University of Petroleum (Beijing). opinion@globaltimes.com.cn