Ukraine Invasion Could Crush Russia’s Nord Stream 2 Ambitions

This is more of a pipe dream than a real threat. The reason is that the European Union (EU) particularly Germany needs Nord Stream 2 for its future energy security.

If the Ukraine crisis escalates into a military conflict, the United States will impose the harshest ever sanctions against Russia including oil and gas exports and Nord Stream 2 gas pipeline. It will also exert the maximum pressure on the EU to do likewise.

The United States failed miserably to stop the construction of Nord Stream 2. It will now use the Ukraine crisis as the pretext to kill it. However, the United States can’t kill Nord Stream 2 except by physically destroying it. This will mean a nuclear war with a nuclear-armed-to-the-teeth Russia.

Moreover, Germany will never join the United States in sanctioning Nord Stream 2. If it does, it will sink more than 150 major German companies which were involved in the construction of the pipeline and which contributed more than half the costs of the pipeline estimated at $11 bn. Furthermore, it will be a major blow to its economy and energy security. Germany depends on Russia for 65% of its natural gas and oil needs.

And while the EU will impose new sanctions on Russia over the Ukraine crisis, oil and gas exports and Nord Stream 2 won’t be among them because Russia will immediately retaliate by halting all supplies to the EU thus prolonging and worsening an already damaging energy crisis.

The EU is dependent on Russian oil supplies for 27% of its needs and 40% of gas needs.

The entire LNG exports from the United States, Qatar and Australia could hardly replace the almost 200 billion cubic metres per annum (bcm/y) piped by Russia to the EU in addition to an estimated 15-16 million tons a year (mt/y) of LNG. Only Russia can satisfy the EU’s gas demand.

Moreover, Europe has a limited LNG import capacity. This makes ramp-ups of LNG imports quite useless particularly if they are needed to replace Russia’s 40% share of the European gas market.

Russia isn’t dependent on the EU for its gas and oil exports. It can instead transfer its entire gas and oil exports to the EU to China, the world’s largest energy market.

Nord Stream 2 isn’t only here to stay but it will also be eventually certified by the EU whether the United States likes it or not.

Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London