Pipeline

Russia's pipeline power

Washington is focused on Russia's political interference—but Moscow's campaign against the U.S. extends beyond the ballot box.

By EDOARDO SARAVALLE

For months, Washington has been fixated on Russia’s interference in our presidential election, as well as similar concerns in elections of our European allies like France and Germany. Moscow’s actions are a direct threat to the credibility of our presidential elections and it’s understandable that lawmakers and pundits have spent so much time discussing them.

But Russia’s campaign to undermine the United States extends beyond the ballot box and across multiple domains, from its annexation of Crimea in Ukraine to its support for Syrian dictator Bashar Assad. One extension of this policy that has received curiously little attention, though, is Russia’s energy policy.

As the world’s second-largest producer of natural gas, Russia actually has leverage over its European customers by threatening to cut off gas supplies, and it’s using this power to foster discord among European countries. A new pipeline that Moscow intends to build could dramatically increase that leverage, potentially raising its share of Germany’s gas market to above 50 percent. This policy, and the pipeline in particular, poses a direct challenge to the post-World War II U.S. interest in European stability—and could potentially have effects that outlast the election scandals.

At the end of April, Russian natural gas giant Gazprom signed a financing deal for its Nord Stream 2 pipeline, which would carry gas from Russia’s Ust-Luga area west of St. Petersburg across the Baltic Sea directly to Germany, where it would be distributed to other European countries. Natural gas infrastructure is costly and complex to build, and, once in place, pipelines can reshape the flows and relations between affected countries for decades. If Nord Stream 2 passes its environmental review, the project would deepen EU reliance on Russian gas and increase Moscow’s leverage over key U.S. allies.

Nord Stream 2 would expand Russia’s commanding position in European gas markets, a position it holds in part thanks to the Nord Stream 1 pipeline, which follows a similar sub-Baltic Sea route. In 2016, Russia supplied 34 percent of EU natural gas consumption, and Nord Stream 2 could double Nord Stream 1’s export capacity. In total, the new pipeline could deliver enough energy to Europe for 26 million households per year.

One analyst has argued Nord Stream 2 would increase Russia’s share of the German gas market to over 50 percent, from 43 percent of its imports in 2015. Poland already receives more than two-thirds of its natural gas supply from Gazprom. And Nord Stream 2 backers also note that European domestic gas supply is set to decline by 50 percent over the next 20 years, and the fear is that the pipeline would mop up a significant amount of this developing import gap, deepening European reliance by discouraging imports from elsewhere.

Military spending and disinformation have so far been the principal lenses for looking at the Russia threat. Since the 2006 Riga Summit, the United States has pressured its NATO allies to reach the target of spending at least 2 percent of their GDP on defense, and it was a major topic during Trump’s first official NATO meeting in May. Similarly, disinformation has attracted attention on Capitol Hill, including provisions in proposed Russia sanctions legislation.

The success of Nord Stream 2, however, is a reminder that security depends on more than military strength and a healthy media environment. The pipeline is a naked Russian attempt to divide and conquer Europe. What makes the Kremlin so clever, and this effort so insidious, is that Gazprom has engineered an attractive business case for the project for a number of European gas importers.

Russia’s construction of Nord Stream 2 would weaken Europe in three key ways. First, it would give Russia greater leverage over Germany and other European countries. With such a large share of its natural gas market, Germany will be hostage to Russia’s supply manipulation, particularly if Russia chooses to jack up the price, or, in the extreme, reduce delivery. That’s a lot of power for Russian President Vladimir Putin, and the United States and Germany should not assume that Russia would never choose to bring down the hammer.

Second, Nord Stream 2 would allow Russia to bypass Ukraine by delivering gas to the European Union. In other words, if Russia wanted to shut off Ukraine’s gas supplies, it wouldn’t affect Germany’s gas supplies as well, as is the case today. By delinking EU and Ukrainian shipments, Russia could wield greater influence over Ukraine by disrupting its gas supplies without interrupting deliveries to powerful regional rivals like Germany.

Finally, and perhaps most importantly, the new pipeline could increase divisions among EU countries and weaken their resolve on sanctions on Moscow over its annexation of Crimea. By deepening links between EU and Russian energy markets, Nord Stream 2 would crowd out cargoes from other foreign suppliers and drive European countries into a complicated economic relationship with Russia. That poses a risk to sanctions on Russia: European countries with strong economic ties to Russia have wavered on those sanctions, including Hungary which is currently negotiating a gas supply deal with Russia extending beyond 2021. Ultimately, the pipeline would exacerbate the existing split between Europeans concerned about Russia’s coercive power and opposed to its market dominance and Europeans welcoming cheap energy and cooperation with Russia.

Moscow has already shown a willingness to use its power as a dominant natural gas supplier for coercive purposes in the past. It has cut off natural gas supplies to Ukraine in 2006, during the 2008-09 winter and during the conflict in 2015. Historically, Russia has also strategically charged different customers different rates and threatened to cut supplies for geopolitical gain.

Considering Nord Stream 2’s potential consequences, it is not surprising that many European countries consider energy a major national security issue. Small Eastern European countries, usually less central to EU energy policymaking than their larger neighbors, are particularly vulnerable to Russian coercion. In a Senate hearing with representatives from Eastern European allies, energy security rivaled military capabilities and disinformation as the most discussed topic. The representatives invoked the importance of diverse energy supplies. For instance, the Polish ambassador, discussing the planned integration of the EU energy system, noted that without an energy union, “there is no [European] Union.”

In fact, EU and U.S. policymakers understand these problems and have tried to prevent its construction. E.U. officials have tried—and failed—to use regulatory tools to prevent its approval while U.S. diplomats have urged Denmark individually to withhold project approval. Opponents of the pipeline on both sides of the Atlantic are holding out hope that a draconian application of EU energy rules or a possible Danish national security provision currently under consideration could, at the last minute, thwart the construction of the pipeline. But today, with just an environmental review standing in the way, it’s almost certain to be constructed.

In turn, the U.S. must find other ways to balance Russia’s growing influence, starting with supporting Europe’s ongoing diversification away from Gazprom. The U.S. should also support the construction of LNG export terminals, foster a liquid global natural gas market that will diminish the role of bilateral long-term contracts that allow countries like Russia to lock in favorable terms, encourage the integration of EU energy infrastructure, and promote Europe’s transition to clean energy.

There are some hopeful signs coming from the Trump administration. In April, Secretary of Energy Rick Perry announced the approval of the Golden Pass liquefied natural gas export terminal, and National Economic Council Director Gary Cohn has called for more U.S. LNG exports. Private sector developments are also positive. In June, a Polish company received an LNG delivery from Cheniere Energy, the first former Soviet bloc country to receive a shipment directly from a U.S. company.

Increased energy resilience would become particularly relevant during a crisis—like the 2011 Fukushima disaster—or, crucially, in any attempt at coercion by Moscow, a persistent fear in Europe. Countries worried about Russia’s energy-enabled power understand the potential protection afforded by new natural gas supplies such as those from the United States. In fact, Lithuania has even christened its LNG import terminal “Independence.”

Russia’s interference in the U.S. presidential election is a big story and requires a comprehensive investigation. But Moscow’s dangerous energy policy poses a threat to the U.S. interest in maintaining post-World War II stability in Europe and deserves real attention. Ignoring it only plays right into Russia’s hands.