Germany above all! Genesis of the Berlin’s Support for the Nord Stream 2 Initiative.

Timeline:

18th June - Russian Gazprom company concludes a memorandum with the German E.ON, Danish - British Shell and Austrian OMV companies. The document covered the issue related to the Nord Stream II investment and the related construction works. The memorandum assumed that the gas-transfer capacity close to the Baltic sea, when it came to the Russian resource, was to be doubled. Gradually it became clear that this may mean that a relevant adjustment of the German energy policy may be required. So far Berlin emphasized the issues related to the importance of imposition of the EU sanctions on the Russian economy.

In July, Sigmar Gabriel, the Vice Chancellor of Germany, met the head of the Russian Gazprom company, Alexey Miller. At the time, it was stressed that in the era, when the gas production in Europe is being decreased, “establishing new routes that could potentially be used to deliver the Russian gas to Europe” would be required. The above words, obviously, referred to Nord Stream 2. At the time however, it could have been speculated that the above situation was a game played by Russians, using the allies in the SPD Party in Germany. No one expected that this game was going to be endorsed by Angela Merkel.

Some signals suggested however, that the issue may be far more serious, while the actions undertaken by E.ON - not accidental. One of the symptoms was visible in the reports of the Vedomosti daily, suggesting that Siemens is going to deliver gas turbines for Russia. The devices would be used to increase the level of energy security in the Crimean Peninsula. The contract was to be created in a way that would make it possible to omit the EU restrictions. Intensified lobbying activities undertaken by the heads of the E.ON and OMV companies, were yet another worrying development. These activities started to inflict pressure on the European Commission, so that the organ would be driven towards concessions, within the area of issues related to the Nord Stream 2 initiatives. The pressure was related to legality of the project, within the framework of the EU Energy law.

Starting from 4th September, Berlin has put all of its cards on the table. During the Eastern Economic Forum in Vladivostok, an agreement, related to the construction works concerning the Nord Stream II gas pipeline, was signed. The aforementioned summit was also referred to as the “Russian Davos”. When it comes to the Agreement, the following companies were the signatories: Gazprom, Shell, OMV, Engie, along with the German market-leaders: E.ON, BASF / Wintershall. At the same time, information was released, according to which asset exchange process between Gazprom and BASF was finalized, which let the Russians take control of the key natural gas storage facilities in Germany (including the largest facility of this type, located in Reden). This event was symptomatic, since Berlin had been blocking a decision on that issue for many many months before. Another meeting took place as early as on 16th September. It involved the President of the Gazprom Company - Alexey Miller, and the General Director of the Siemens company - Joe Kaeser. The cooperation related to the Nord Stream 2 initiative was, obviously, the main topic of the talks.

On 7th October, in the European Parliament, a debate on the issue of doubling the efficacy of the Nord Stream pipeline, and on the potential consequences for the Energy Union and for the security of the gas supply took place. Angela Merkel was the most prominent participant of the event, organized by the European People's Party. When Merkel was asked questions, related to the position taken by the German government in relation to the Nord Stream 2 project, she stated that the initiative has a purely “commercial” character.

The above statement sounded a bit ridiculous, within the context of the events which had taken place throughout the three prior months, and when one took a closer look at the share structure of the BASF and E.ON companies, in which a large portion of shares is owned by the German authorities (30% within the area of the share structure which is quite scattered). In fact, Merkel’s statement constituted a significant sign of Germany ignoring the idea of intra-EU solidarity which was emphasized very much by Merkel, at the climax of the immigrant crisis. It was clear for everybody. Not only is the Nord Stream 2 a blow for the gas-transit interests of the Central European states (including Poland), but it is also a negation of the main postulates of the Energy Union, pursued ever since the Ukrainian crisis has started. The postulates include diversification of the gas supply or following and acting fully in line with the European energy law.

Moreover, in October, Sigmar Gabriel, the Vice Chancellor of Germany, met the head of the Russian Gazprom company, Alexey Miller again. And again, Nord Stream 2 was the main subject covered on the meeting. In the meantime, head of the German BASF company, informed that the company’s involvement in the project related to the new pipeline in the Baltic area, is going to be covered with an amount of almost EUR 2 billion, throughout the upcoming 5 years. However, the most spectacular events took place at the end of this month, when Sigmar Gabriel visited Moscow. During the meeting with Vladimir Putin, not only did Gabriel confirm that the investment has a “strategic character for Germany”, but he also stressed the fact that Berlin is going to “do whatever it takes, in order to limit the external pressure imposed on the project”. Obviously, Gabriel meant the influence of the European Union. One day after his meeting with Putin, Gabriel yet again met head of the Gazprom company, Alexey Miller. This was the third meeting, counting from the moment when the June memorandum had been signed.

German motivation:

Even a rough analysis of the above Nord Stream 2 timeline makes it possible to come to some conclusions related to the “commercial character” of the investment. Without the political support from Berlin, the implementation of the project would be impossible. Why did Berlin decide to get involved in an initiative of this scale, even though it has a detrimental impact on the interests of the EU member states in the Central Europe, and even though the initiative is not compliant with the energy policy pursued by the European Commission?

Well, one of the key reasons that motivates the German authorities stems from the problems related to the “green revolution” policy, pursued by Berlin (Energiewende). The speed at which the renewable energy sources are introduced into the national energy mix is not satisfactory. Secondly, enormous costs, related to the subsidies for the “green” power, are also a major problem here. This is the main reason why Berlin made it possible for a company, which trades the energy coming from the nuclear power plants in Switzerland and Sweden, to conduct business activities within the German market, even though the German nuclear power-plants are to be closed down. What is more, the German government also considers the option of buying energy from a power station which is being constructed in the Kaliningrad area (this idea was endorsed e.g. by Igor Sechin, during his meeting with the German entrepreneurs at the Wannsee lake; the meeting took place back in 2014). For the same reasons, Bundestag is trying to put the national coal power stations within the reserve pool, should - if the renewable energy is unpredictable - the national power grid suffer from power outages. Nord Stream 2 project is an element of the aforementioned decision-making chain and the crisis, related to the Energiewende policy.

Moreover, Germany is willing to become a LNG hub in the Central Europe. At least, according to the assumptions of the plan. The process is being carried out at the expense of Ukraine. Ukraine is taking this role now. The initiative is also going to have a detrimental impact on Poland and other countries which import gas from the East, and which may be - soon - forced to import the blue fuel from Germany. This process is going to bring a lot of profit for Berlin, since the budget is going to be complemented with the fees related to the storage services rendered with regards to the Russian natural gas (4.3 billion cubic meters of capacity are provided solely by the Reden storage facility - and this is a volume which is larger than the total gas storage space in Poland), and with the money related to gas transit (110 billion cubic meters of capacity for the Gazprom’s Baltic area infrastructure, once the Nord Stream 2 pipeline is constructed).

The political context constitutes the third, key factor here. Germany is closely monitoring the condition of the Russian budget, which is deteriorating drastically in the light of the sanctions imposed by the West and in the light of the low crude oil prices on the global market. In the eyes of the Russian Minister of Finances, Anton Siluanov, after 2016 Russia will not be able to actively use the financial reserves for the purpose of getting rid of the budget deficit. This year, the fund is going to be reduced by more than 50%, down to the level of 2.6 trillion roubles. At the end of 2016, the fund is going to be reduced down to 1 trillion roubles. Similar fate is faced by the social security fund (theoretical reserves, using them may have some social implications). At the end of 2016, this fund is going to be contained in an amount of 4.5 trillion roubles.

Starting from September, desperate attempts of increasing the budgetary income have been made by the Russian Ministry of Finances, by imposing new taxes on the crude oil and metal processing industries (so called “devaluation bonus, i.e. calculating tax receivables related to the rouble and US dollar exchange rate for 2014, and to the lack of the planned reductions within the scope of the export customs for the period between 2016 and 2017, all of which are related to so called “tax maneuver”). Berlin is interpreting this situation as an extreme threat for maintaining the European status quo. The German authorities are worried that Russia, which is weakened financially, is going to become unpredictable, while the Putin’s regime, in order to turn social attention away from the existing problems, would try to start another war. Within that context, Nord Stream 2 may be seen as a lifeguard, trying to save the Kremlin, in order to stabilize the situation in Russia, which is a superpower in possession of a large army and nuclear weapons.

German business plans are the final factor which motivates the steps taken by Berlin. According to a survey, carried out this year by the German-Russian Chamber of Commerce, 85% of the respondent businesses from Germany, which conduct business activities in Russia, stressed the fact that the economic situation in that country is deteriorating. Despite the above, 20% of the German companies, within the period between January and August this year, have attained positive financial balance of their operations. The Chamber stresses that the above stems from the fact that the problems are significant mainly for the small and medium enterprises, while the large businesses are capable of even increasing their profits. The survey also shows that even despite the problems faced by some of the German companies, they are not willing to withdraw from the Russian market. 20% of the aforementioned companies are willing to overcome the export problems, by transferring the production facilities to Russia. The above data expressly suggests that the sanctions did not drive the German businesses away from investing within the territory of Russia. It is just the opposite, since the Germans are more eager to conduct business operations in Russia. The Berlin authorities shall take the above into account, thus, in the eyes of the German government, there are no alternative paths, other than economic cooperation with Moscow. Hence the gradual shift of the German policy, which may result in lifting of the sanctions, even though the remaining European states may be against such course of events. Nord Stream 2 is a very important element within that process.

German interest above all!

“German interest above all” - this statement fully expresses the Berlin’s motivation, leading to creation of the Nord Stream 2 pipeline. German authorities are convinced that the project is being realized in line with the policy of the state, both within the context of the energy policy (Energiewende), economy (industrial and transit profits), and the politics (since Russia is going to maintain its stability). Issues related to the European solidarity within the scope of the needs of the Central European states, or those connected to the strategies initiated by the European Commission, are being pushed away. Obviously, Germany, as a state which is governed by law, are going to keep their actions within the legal framework (here, the Yukos issue may be problematic) with simultaneous application of assets which are going to make it possible to realize the government’s intentions (lobbying). The process is an example of the mental evolution of the German politicians. The impact of the trauma related to the World War 2 is less and less visible.