EVENT TRANSCRIPT: Is Russia a Threat to European Energy Security?
DATE: 8 June, 3:00pm – 4:00pm
VENUE: Online
SPEAKERS: Svitlana Zalischuk, Dr Alan Riley, Ralf Fücks
EVENT MODERATOR: Dr Jade McGlynn
Dr Jade McGlynn 00:00
Okay, great. Welcome everybody once again to today’s event where we’re going to be discussing the question of whether Russia is a threat to European energy security. I will be the chair. For those of you who do not know me, my name is Jade McGlynn. I’m the Director of Research here at the Henry Jackson Society where I also head up the Russia and Eurasia Study Center. I am joined by a very esteemed panel, albeit one with a slight change of personnel to that which we expected. Unfortunately, Yuriy Vitrenko, the CEO of Naftogaz, was supposed to be joining us but there were some itinerary issues so he’s currently on a plane. Thankfully, Svitlana Zalischuk has been able to join us and she’s currently working as an advisor to Yuriy Vitrenko in his capacity as Naftogaz CEO. Previously, she was a member of parliament from 2014 to 2019 in Ukraine, and it’s there that she served on a committee for Foreign Affairs. Between 2019 and 2021 Svitlana was a foreign policy adviser to the deputy prime minister and prime minister of Ukraine and we’re very delighted to have you with us. Thank you for finding the time, Svitlana. Also sharing their generous time with us, I’m very happy to introduce, Ralf Fücks, who is managing director of the Center for Liberal Modernity, translated into English. Following 21 years as president of the Heinrich Böll Foundation, the political foundation that’s associated with the Greens in Germany. Ralf joined the German Green Party in 1982, becoming a member of the research team, and then serving as MP and party whip in the late 80s. At the center of his work are green economics and ecological innovation, migration, the future of Europe, and international politics. And as our first speaker, please allow me to introduce Alan Riley, who is a senior fellow at the Atlantic Council in Washington DC. Alan specializes in energy law, particularly in relation to the market and strategic questions associated with pipeline gas and LNG. And in the energy field, he recently completed a research report on some of the myths and challenges associated with Nord Stream Two, which is soon to be published. If you have any questions for our esteemed panel, and I really hope you do, please pop them in the Q&A box, and then around 20 to 40 minutes, I will invite you to pose your questions to the panel. But first, I have a few questions of my own, of course, and I would like to start from the issue of Nord Stream Two, which as we all know is very close to completion – potential legal challenges mean that does not equate to being close to operational. Svitlana, if I could start with you, why does Ukraine perceive Nord Stream Two to be such a major security risk?
Svitlana Zalischuk 02:49
So first of all, thank you so much Henry Jackson society but also you Jade personally for organizing this event. I think it’s very timely, in the middle of all the mess on the international level that is happening and connected to Nord Stream Two. So, in my mind answering your question since the beginning of the establishment of Nord Stream Two it was crystal clear that this project was an element of the Kremlin’s geopolitical, I call it ‘master plan’. I regret to say that I doubt that the democratic camp has such a master plan today, but Russia does. The illegal annexation of Georgia in 2008, illegal annexation of Crimea and occupation of Donbas, and war in Syria, and shooting of MH-17, and interference in the US, Germany, and other EU countries’ elections, massive disinformation campaigns around the world – including, by the way, the Brexit referendum, of course – with pandemics now, the persecution of the political opposition in Russia civil society and total censorship in media, the poisoning of Alexei Navalny, first landing of the airplane in Belarus with the help of Russian FSB – which was, by the way, coming to one of the NATO states – I think this was all part of that master plan, that I am talking about. Nord Stream Two is an integral part of these events, which are not simply someone’s bad and wrong decision-making – it’s a strategy. And it’s aimed, obviously, not just against Ukraine, which some European leaders prefer to think it’s dangerous complacency, as I say, it’s against the West. It’s against the Euro-Atlantic democratic project. But of course, it’s also against Ukraine that brought this democratic project too close to the Russian borders and that’s why we are paying in my mind the biggest price. Pipeline proponents argue that Russia is working to ease Ukraine’s inevitable economic pain from Nord Stream Two by committing to keep shipping gas through Ukraine in the future. But in my mind believing that Putin will honour his commitment ignores the recent history. Moscow in 2019 did agree to sign a new gas transit contract with Ukraine but did so because US sanctions against Nord Stream Two stopped the pipeline in its tracks. Prior to the sanctions, Russia offered Ukraine only a six months contract extension, because they assumed that the pipeline would be finished within that time. Nord Stream Two proponents also claimed that the pipeline diversifies energy delivery to Europe. But Nord Stream Two would not deliver any new gas to Europe but would redirect the existing Russian gas away from Ukraine and to Germany. And there is no diversification of natural gas or delivery routes, which is the essence of energy security. But yes, congress introduced bipartisan Nord Stream Two sanctions, they cause international pipeline insurance and many other vital companies’ withdrawal from the project. And I believe that bipartisan sanctions have been a tremendous success, actually, for the US, for Ukraine, of course, but for overall transatlantic security. And as a result of the sanctions law, Russia has been unable to complete Nord Stream Two, and instead had to sign a five-year gas transit contract with Ukraine. The continued large-scale transit of gas through Ukraine makes Russia dependent on us – dependent on Ukraine. And this dependence is actually a deterrent against escalated Russian aggression in Eastern Ukraine. Now, when the sanctions have been waived, what can be done? And I think this is the main question of our conversation; it should be the main question of our conversation today. I see probably four most important directions of action. First of all, American track. I still think that it’s not too late for Congress to reinstate the sanctions. We know that there are some pieces of the legislation that have been registered. Now it’s only Republicans, but we need bipartisan support. There is a lot of pressure from the Democratic congressman on the administration and I’m sure we should continue our dialogue with the US. By the way, I’m now in DC, in Washington, DC. and we are having this trip in particular to have this dialogue. The second direction is a U-turn. Nord Stream Two doesn’t go in line with the Green Deal. There are legitimate questions as to whether Nord Stream Two meet all the requirements of the third energy package. And this is where I think the EU Commission should step in and use its power to question whether the certification of Nord Stream Two has to be implemented. The third is Germany. And I’m sure that Ralf Fücks will take his lead on this topic. But of course, as we see it from Ukraine, they are very happy to have Green Party very active and very articulate that if they are part of the next government coalition, they will stop entirely the operation of the Nord Stream Two themselves. Fourth, of course, is international pressure. I think that nothing will happen if we do not speak, raise the issue, put pressure on our leaders – to democratic leaders of the world. Because I will remind you that two years ago, when the debate on sanctions just started, people were saying that there is a very low probability that the sanctions can be introduced against Nord Stream Two, that no one simply cares or no one cared enough, let’s say. But it happened because people did care about these things and there was so much international pressure. So, my last point is that I think that the battle is not closed yet and there are a lot of voices saying that the affair is complete, but it’s not and it’s up to us to make sure it is not. Thank you.
Dr Jade McGlynn 09:26
That was a wonderfully comprehensive answer and also slightly a call to arms, I think, for everybody to keep the pressure up. On this question of international pressure, but also on the topic of complacency that you spoke about earlier, among certain European states – Alan, I wonder if I could come to you and if you could talk to me a little bit about some of the narratives or myths that have been propagated, that have meant that this complacency has been able to thrive or perhaps even a sort of denial of the reality of what Nord Stream Two represents.
Dr Alan Riley 10:01
What I identified in a paper which should be published shortly are five myths. One that Nord Stream Two will bring additional gas to Europe – it doesn’t. Secondly, that Nord Stream Two will provide gas for Germany – it doesn’t. That there are no energy security issues because they’ve got a single market in gas – this is not true. And the LNG “liquid natural gas” or variation on that, that we can rely on LNG – also not true. And, most bizarre of all, is that Ukraine will benefit from Nord Stream Two. And I think those are the five which are used. The first one is really interesting because it is patently obvious if you actually do any work on this subject that the Nord Stream Two pipeline is a diversionary pipeline. It is not going to provide new gas. You put the pipeline through and you have it operating, they switch off the Ukrainian transit. I actually suspect they will switch off the Ukrainian transit – even if they’ve got a transit agreement – they will switch it off one way or another, with whatever excuse they want to use, pretty much as soon as they know that they can operate Nord Stream Two. There is no new gas at all. Now, actually, if you look at the Russian – and I’m sad to say also the German – propaganda, there is an enormous amount of propaganda about the reason for Nord Stream Two is that it adds to supply, it provides new supply and a lot of the context you hear of people talking about is ‘well, the Groningen – huge gas field in the Netherlands – is being terminated. So, we need new gas. The nuclear power stations are being switched off, so we need new gas.’ There is no new gas from Nord Stream Two. And it is continually pumped into the public domain, particularly in Germany, but across the European Union. The point about Germany and no new gas for Germany is really significant because one of the things which are overlooked in all of this is actually if you go into the detail of this, where does the gas for Nord Stream Two go to? Well, it comes into Germany, that is true, to one of the Baltic ports in Greifswald, but the gas does not stay in Germany, because you then have to look at the collecting pipeline and that takes the gas out of Germany towards Central and Eastern Europe. So not only does it not provide any new gas for Europe, it provides no gas at all for Germany. Okay, it’s true, possibly 10 billion cubic meters of gas could be used in Western Europe but the reality is the pipeline is built for the full capacity of North Stream Two and that is where it’s is going to go. And that is the likelihood because we’ve seen it with Nord Stream One that is exactly the same direction. So, all of this is about how it’s somehow for Germany and will protect German supply security. This is simply not true. And the third myth is the single market myth, that we have nothing to worry about because there’s a single market in gas. Well, there is in Northwestern Europe, where there are multiple numbers of providers, lots of interconnections between all of the market players in Northwestern Europe. But in the rest of Europe, it is much more partial. In Iberia, and then across central Eastern Europe. It is better than it used to be, there are more interconnections in place. But this is still, by no means sufficient and it leaves Gazprom in a situation of market dominance. If you build Nord Stream Two, you make it worse, and one particular way you make it worse is this. What the Nord Stream Two pipeline network concept does is it brings guests, as I say, to Greifswald, and then through Eastern Germany, and then floods the west to east interconnectors, putting that gas into Central and Eastern Europe. And essentially what you’re doing is you’re removing the capacity of anybody else’s gas coming into central Eastern Europe from the west, which is the most likely route it would come in splitting the single market, and then you’re reinforcing the gas problems, overall power market power, by switching off the Ukrainian transit system. So, you are actually significantly enhancing their capacity to control and influence the market which also leads to political consequences and influence as well. And the LNG element is another part of this. You see, these arguments that you have nothing to worry about because we’ve got lots of LNG. And it is true Europe has 210 billion cubic meters of LNG capacity. The point is though, you have to look at not the actual capacity but the exit capacity for any particular state. So, for example, Spain has the largest capacity in Europe: 63 billion cubic meters. But the connecting pipeline across the Pyrenees is 7 billion cubic meters. So, you can forget most of that. The UK has the second largest, we have about 52 billion cubic meters. You can reverse flow approximately 20 billion cubic meters across the channel. So, that 210 billion cubic meters is more like 100 billion cubic meters. And, when you look in central Eastern Europe, what you’ve got is you’ve got about 5 billion cubic meters being built up, I think about to 7.5 on the Baltic Polish coast, and you’ve got another on the Lithuanian coast, another 4 billion cubic meters. And you’ve got a small one in Croatia and you’ve got two Greek ones, which are about 10 billion cubic meters of capacity. But the problem is, all of the interconnections aren’t in place. So, you can’t really access the Greek ones. And the smelter capacity in, as I say, in northern Central Europe is extremely small. So, LNG is not really a solution – not at the moment anyhow. So all of these arguments are pumped out but don’t work. The most peculiar one of all, as I mentioned earlier, is that Ukraine will benefit and this seems to rely on the idea that somehow the transit fees to Ukraine are of such significance that they have economic effects similar to the Dutch disease in the 1970s. Well, given the fact that it’s less than 1% of GDP, this cannot be the case. But also, we have another issue with this argument about Ukraine’s benefit in that, somehow, Ukraine will be better off because the transit fee income is somehow removed and lots of arguments are used about corruption. But the whole point is the Ukrainian gas system has been substantially reformed, and much more transparency introduced. So that again changes the dynamic, changes the situation. And of course, the point is, is that the whole argument around transit fees is entirely, how can I put it, misconceived. Because the key is not really transit fees for Ukraine, it’s really about the ability to bring gas from Central Eastern Europe, into Ukraine, using the Ukrainian transit network on what’s called reverse flow. And essentially, what happens is that all the gas, which passes through Ukraine goes on to say Slovakia, Poland, or Hungary. Ukraine then buys gas from those countries and reverse flows it back to Ukraine. And that is the key point, really, not the transfer fees. Because of reverse flow, you have a significant degree of independence. The gas cost less, getting it indirectly from at least the parties. Okay, ultimately, it is Russian gas, but there’s a huge difference between buying it directly from Gazprom and having to put up with their commercial terms and buying it under EU liberalized energy rules. That is a significant difference, which is lost with Nord Stream Two. So, those are the myths, and they are extensively and continually propagated. But I’ll stop there for now.
Dr Jade McGlynn 18:34
No, thank you. That was a very thorough view of the different maps. I feel like we’re talking about Germany quite a lot. So, we should ask perhaps questions of our German participant. And Ralf, the German Greens have obviously taken a view on Nord Stream that is perhaps not the dominant view in Germany. Why? Could you please explain why the Germans have this position and what perhaps are the chances of bringing German public opinion round to your point of view?
Ralf Fücks 19:11
Yeah, thanks a lot. First, I should say that I’m no longer an official of the Greens, and our new think tank, The Center for Liberal Modernity, is strictly bipartisan, but I’m still of course a member of the party and very familiar with its policies. There are a bunch of reasons for the indeed not typical attitude of the German Greens towards Nord Stream Two. First, Green policy still is very much about ecological issues; Nord Stream Two, building such kind of infrastructure to continue Russian natural gas exports to Germany for the next 30 or 40 years, is clearly contradicting the new, much more ambitious climate targets of both the EU and the German government. The ruling coalition in charge recently has declared that Germany should go for zero CO2 emissions in 2045 and even the current climate and energy are demanding a decline in natural gas consumption. Beginning with the next years until 2030, maybe 1/3 of the overall gas consumption of the world has to be replaced by renewable energy sources. So, it’s not only about phasing out coal but it’s also about reducing natural gas consumption, especially if you’re looking to the very aggressive climate impact of methane emissions. So, this is the first and probably the main reason for the very outspoken criticism of the Greens against Nord Stream Two. But a second reason, which has already been mentioned by Svitlana, is that Nord Stream Two clearly is a divisive project in terms of common European energy and security policy both. And if you’re looking at the statements of the European Parliament, I think now they passed four resolutions calling for a stop of Nord Stream Two or at least a moratorium. So, you have a clear majority in the European Parliament against it as not in line with the third European energy package, the gas director of the European Commission demanding for diversification of supply and the unbundling of gas transport, running of pipelines, and the producer of gas. Last but not least, I think there’s a growing awareness that, indeed, Nord Stream Two is a security threat to Ukraine, and not only in terms of energy security. If you are separating European gas supply from transit through Ukraine, this gives Putin a free hand to escalate the political and military aggression against Ukraine. It makes Ukraine much more vulnerable. So, I think this is the most serious political threat together with the undermining of European unity in political areas. So, I would agree that Nord Stream Two from the beginning was strategic, a geopolitical project by the Kremlin, and it’s probably one of the major political shortcomings and strategic mistakes of the German governments in the last 10 years that they would willingly – or maybe because they didn’t confront themselves with the political impact of Nord Stream Two – continue to assist the Russian authorities in this strategy. And if you ask what the political prospects are of changing course regarding the position of the German government towards Nord Stream Two, I don’t expect that the outgoing coalition with Chancellor Merkel will really change its position in the final days, for several reasons. But we are facing national parliamentary elections at the end of September and from today’s perspective, there is quite a good chance that the Greens will play a major role in the next government. Then Nord Stream Two, if it is not completed and not in operation until September or October, will become an issue in coalition negotiations and then maybe there will be a new window of opportunity to put the project on hold. We just published an international appeal for a moratorium on Nord Stream Two with a lot of support from all over Europe and the US and maybe this could become then a formula for the next German government.
Dr Jade McGlynn 26:45
Thank you very much. Again, it’s very comprehensive and also raised some important ecological arguments that perhaps are too often overlooked or easily dismissed when talking about Nord Stream Two. But I do want to come back to this point of geopolitics, mostly the point that Svitlana raised. The main question has to be how do we stop this and ‘what is to be done’? (Obviously, to quote Lenin). Realistically, is this a question of stopping Nord Stream Two, or is it a question of mitigating it or overturning it? Perhaps there will be a German Green coalition that will help the situation in Germany, but what else is there for the rest of the international community or those that perhaps might have an interest in reducing Russian geostrategic dominance in Europe? What else for those countries? What, what more can they do to ensure that Nord Stream Two is stopped or in some way mitigate these risks? And that’s a question to anybody on the panel. So, I don’t know if, Svitlana, you want to return to this? Or Alan, please go ahead.
Dr Alan Riley 27:53
There are a number of things which are possible. First of all, existing US sanctions might work in the sense because – Ralf’s words were – ‘if it were not completed or not functioning’. And I think they’ve got real problems with functioning. And one of the things about it is there’s got to be a technical certification that that says it’s all okay. There are very few companies that can do it. And the US sanctions have attacked that; they would sanction any company that dealt with it. There are only three or four on Earth which can do it. So, the real question about, even if you build it, can you get certified? The next question then is what about EU law and what are the sanctions? And one of the points that I’ve made recently in another paper for the Harvard Ukrainian Research Center, what I suggested was that what you could do is effectively, you could use the point of Article 11 of the gas directive – this is the Gazprom clause which says if you’ve got a non-EU pipeline, it’s got to be subject to a supply security assessment as to whether it poses a risk to the member states in question: Germany, and the Union as a whole – so my point was, that if the United States enacted sanction legislation, which worked with Article 11, which was simply to say that anybody who acquires Nord Stream Two will be sanctioned. Then essentially, you are left holding Nord Stream Two and subject to Article 11. And the problem with that, from a Russian perspective, it is likely to be extremely difficult. Even if the German regulator says there is no supply security risk with Nord Stream Two with Gazprom as an owner (because Gazprom owns 100% of Nord Stream Two) you can be absolutely sure that several central Eastern European governments will be suing Germany and the German regulator in the EU courts. So that creates a mechanism. And also I should say, there is a case called the Opal Case, which is now before the European Court of Justice, and we had the generals’ opinion on the 18th of March. And that took a very, very broad approach to the principle of solidarity in energy terms. And that could have a very significant effect when you interpret Article 11. So that’s another thing which we potentially could do which would work. So, I think there’s also another legal battle in relation to the actual full application of the liberalisation rules to the director. I’ll give you one example. One of the issues is not just ownership on bundling, but also ownership on bundling and third-party access. They will never in a zillion years want to provide third-party access to Novitec and Rosneft coming into the Nord Stream Two pipeline. But, again, this is an issue to be litigated all the way to the courts. Tariff transparency, all of these things can be fought out all the way to the ECJ. So, there’s all of that which plays into the mix as well. I think the other thing, which is just worth mentioning is, okay, what happens if Nord Stream? is completed? I mentioned earlier about the LNG terminals, with being very few of them. There is a whole range of things we can do, which is partly to do with renewables and partly to do with gas. That’s about putting in sufficient alternatives, that you essentially disarm Russia’s energy power. And I think that’s the other alternative we could do. And that will be LNG, more pipelines, rolling out renewables, which we’ll be able to do on the back of more gas. And then you’re able to effectively minimize Gazprom’s market and political power. That’s the other option.
Ralf Fücks 32:04
May I disagree? Of course, we, I guess, agree on the fundamental goal of putting Nord Stream Two on hold, because of all the reasons we have been discussing for years. But please don’t talk yourself into an illusionary expectation that you will be able to stop Nord Stream Two without creating a new political majority in Germany and without changing the German attitude to the project. Neither the US administration will go into a sanctions war against Germany nor will our other European partners do that. This is completely out of sync, politically. So, it’s absolutely key that Germany – who is the main stakeholder in Europe for Nord Stream Two – is changing its position. And, of course, here, the political position of our partners is absolutely crucial. Now, the Biden administration should be very clear that they don’t stop there their criticism and that they are not ready to swallow the Nord Stream Two, we have to find common ground in Europe, and then with the transatlantic relations, regarding our common energy and Russia policy. But, again, it should be a political argument and don’t bet on the escalation of American sanctions. This will not happen. It simply will not happen. In Germany, it will totally backfire and in other European countries, too, if the Americans will try to force to enforce a stop of Nord Stream Two against the will of the German government and its European allies, it’s not only a German project, there are other European allies in it. This will not work. Especially given the attempts to renew the transatlantic relations to find common ground towards China and all the other important political areas of cooperation between the US and Germany. So, we have to convince the German public and the German political elites that Nord Stream Two is not in our interest. Not in our well-understood and enlightened interest and not at all in the European interest. I think the European argument is very strong because Germany always pretends to be the most pro-European country. And here in Nord Stream Two, it’s a brutal national policy without any respect to our European partners, the European Parliament, and so on. So, I think if other European governments raise their voices and make very clear statements that they want to re-negotiate Nord Stream Two as a European affair – this is not just the term Russian affair, it’s a European affair and it should finally be decided in the European context and together with Germany’s European partners. I think this is the strongest leverage we have.
Svitlana Zalischuk 36:02
So, I would like to come in as well and I would like slightly now to disagree with Ralf and his approach. So, I see perfectly well the legitimacy of the approach that Germany has the right to have sovereign economic interest and this is bad for the Euro-Atlantic community and unity in general, to have one subject one country forcing a decision on another country. This is completely clear. But at the same time, the controversy of this approach is that this is a Catch-22. Ralf, you are saying you’re saying that, unless and until we convince Germany that it has to change its approach, nothing else – we can’t go with other scenarios that, for example, Dr. Riley has offered – but at the same time, in the last three years while the Nord Stream Two has been built, we haven’t seen anything that has impacted the Germany position on the Nord Stream Two.
Ralf Fücks 37:12
That’s not true. If you look into the Christian Democrats –
Svitlana Zalischuk 37:12
But let me finish, please. And I just wanted to use, yes, Christian Democrats in particular. A number of people changed their mind and their position now that Nord Stream Two is a challenge and is a threat not just for Germany, Ukraine, but for EU unity. We also – as you have mentioned, very rightly – you said that a majority in the European Parliament, for example, have adopted already first solutions, and they are against Nord Stream Two. We have an EU commission also whose official voice is against Nord Stream Two. We have half of Europe, half of the EU, which are saying ‘we are against Nord Stream Two’ but we have only 100 kilometres left for the Russians to complete and they are saying that it will take them only several months to complete it. So, my point is that the Catch-22 is now and the challenge is now that you say “let’s wait until Germany’s position is changed”.
Ralf Fücks 38:12
No, I didn’t say “let’s wait”. I didn’t –
Dr Jade McGlynn 38:16
I promise I’ll come back to you, Ralph, I promise.
Svitlana Zalischuk 38:21
But we may find ourselves in a situation that there will be no space and no time to wait and to convince. I completely agree with you that we need to use all possible efforts and stakeholders to engage with Germany at the moment so it will be their sovereign decision to put the moratorium, to stop the operation on the Nord Stream Two. Here we are on the same page. But until then, I think that we should work with other possible scenarios that are there. Because, for Ukraine, there is no guarantee. And at the moment, anyone can say “don’t worry, Ukraine, everything will be fine.” And for us, it’s a matter of lives, of people dying, you know. So yes, maybe it is controversial for Ukraine to want to work with our American partners and other partners, but we have no other way to look at it. So, that is why my approach and my proposal to work on the parallel scenarios – to work with Americans, to work with the EU Commission, to work with Germany in particular.
Dr Jade McGlynn 39:30
Thank you, Svitlana. I’ll just go back to Ralf and I promise I’ll come to you, Alan, for the last word. Okay. Ralf. There were a couple of points you disagreed with there, do you want to elaborate?
Ralf Fücks 39:43
My plan was not to wait until the Germans find an internal consensus on Nord Stream Two. This, of course, would be nuts. My point is, raise your voice, start political and diplomatic initiatives. Where’s Macron? Where is the political initiative of the Polish government together with the Baltics and the Scandinavians to renegotiate Nord Stream Two with the Germans? They are opposing it rhetorically, but there is no policy, no diplomatic initiatives at all. Same with, of course, the European Commission. The European Commission will not go into full conflict with the German government but they should put the issue again on the table, make it an issue in the political discourse and in their talks with the German government. And same of course, with the Biden administration. So not “wait and see” but “be active”. Yeah, this was, I think, my main argument. We have to make Nord Stream Two a European affair. We have to make it a European decision. So, the other European partners should step on the stage and make it a crucial point for the domestic EU and, of course, also relations with Ukraine and other European partners. But don’t try to enforce it and don’t pretend you could enforce it against Germany. This is a crucial mistake and this would backfire. Totally. And not only in Germany. You would have all this debate on European sovereignty and German sovereignty etc. So don’t try to enforce it against Germany, try to confront Germany and come up with diplomatic and political initiatives. Same with Ukraine. So offer energy partnership between Ukraine and the European Union. Come up with the proposals.
Dr Jade McGlynn 42:21
Thank you, Ralph. I imagine probably Ukraine feels like it is confronted with a situation itself. But I promised Alan, the last word. Alan, it seems you started this disagreement.
Dr Alan Riley 42:37
What I was gonna say was that I was laying out, perhaps rather too loyally, all the different options. And I would agree with Ralf that it will be better if the… clearly there is a change going on in German opinion, of course, there are questions about whether that is happening fast enough, but I would also say that this is not all about the White House, it’s also about Congress. And one of the reasons why some of those legal options may get pushed forward – the sanctions options – is because of Congress. The other thing which I think is worth saying is this: whilst US sanctions may or may not be applied (and probably for the reasons that Ralf gives, probably won’t) you cannot ignore EU law in all of this, and it will actually bear down on it. So, even if the German government remains posed, it will, I suspect, find itself trapped in a series of arguments before the court of justice. My general sense of this seeing the way the OPAL case has played out is that it will be very, very difficult for Nord Stream Two and for the German government. I will also say the other thing about it is in terms of European solidarity. I think a lot of Europeans will probably take the view that it is Germany that has not been providing solidarity. I’ll give you one glaring example of this. It is quite jarring. A lot of this issue about the legal obligations of taking into account all the member states’ interests in energy terms surrounds Article 1941 of the EU treaties with the principle of solidarity within it. We haven’t had the judgment yet. We had the advocate general’s opinion on the OPAL case on the 18th of March. So, you could actually read in there what the German government said. This is quite stunning, really. It actually said that it took the view that the principle of solidarity, which is in the energy provisions of the treaty, Article 1941, has no legal effect and doesn’t bind the member states in any way whatsoever. It’s quite a staggering thing for the largest, most powerful country in the European Union, which benefits so much from the energy single market, to say such a thing. Because, of course, the point is, once you create a single market in energy, everybody is reliant on everybody else – the entire thing relies on solidarity. So, I think there is an issue there. If I had been the chief legal advisor to the German Foreign Minister, I would have said “are you crazy? We can’t run that argument!”
Dr Jade McGlynn 45:40
Alas, you are not.
Dr Alan Riley 45:46
I mean, it really is kind of, unthinkingly, we run these legal arguments, we’re not really thinking about the broader context, we lose anyhow. So, you know, the point about this is you’re going to lose anyhow, why are you going to make these arguments? Really, you’re putting yourself in a very difficult place. And I don’t quite understand, and I still don’t understand how Germany has got itself here. I mean, I know some of the history, of course. But it seems pretty amazing, given the reaction, that somewhere along the line over the last six years, that somebody in Berlin wouldn’t have said, “this is insane. Why are we doing this?”
Dr Jade McGlynn 46:22
I think it’s a good point to raise. I’m going to go now quickly to the questions because we’ve gone over slightly in our time, but it was an interesting discussion, so I didn’t want to interrupt it. The first question is from John Wilkins.
John Wilkins 46:42
Russian propaganda outlets, such as Russia Today, give quite a lot of coverage to anti-fracking campaigns. First of all, is it fair to say this is motivated by more than environmental concerns? Do you think the issue of energy security is a reason for Western countries to exploit shale gas resources more?
Dr Jade McGlynn 47:05
Thank you. So, this is a question more broadly around broader questions of energy security that we had hoped to address, but Nord Stream Two – perhaps predictably – ate up points. Ralf, do you have any particular comments on the potential Russian efforts to undermine different types of energy?
Ralf Fücks 47:28
Of course, they are employing (inaudible) arguments, even environmental ones also they are ignoring completely climate and environmental purposes in their own. Russia is a fossil empire, economically and one can say an ‘authoritarian petrol state’ today based on the export of coal, gas, and oil. So it’s not very credible if they appeal to environmental arguments against shale gas, but I think we have to be aware that especially under the new climate goals of the EU and Germany, it’s no alternative to build new LNG terminals. It’s just another infrastructure for natural gas for the next 20 or 30 years. I think this will not fly. So, we have to find other alternatives. Alan Riley already touched upon this, going for increased renewables and the launching of our renewable energy partnership also with Eastern European countries like Ukraine and North African countries.
Dr Jade McGlynn 48:57
Thank you very much. The next question is from Sijbren De Jong.
Sijbren De Jong 49:10
My question is for Dr. Alan Riley. I have a quick question, how would you sketch the likely path following the possible completion of the Nord Stream Two pipeline? Because most likely, some EU member states will want to sue the European Commission over the compliance of the projects with European law? How likely is it in your view that Nord Stream Two will be able to run at full capacity at all, given the obvious incompatibility with EU legislation? Thank you.
Dr Alan Riley 49:45
Right and just going briefly through that., I think it’s really important to understand that with Nord Stream two, even if it is physically completed, it doesn’t mean it can function. It has to go through a whole series of processes. One I mentioned is technical certification. US sanctions may effectively allow it to be built but not allowed to run because they may not find it able to find anybody who can credibly certify it. That’s the technical certification, i.e. ‘the pipeline’s okay’. Even if they do get through that, the next thing is compliance with a third energy liberalisation package. And I think obviously, I mentioned Article 11. That’s quite difficult. It’s made worse by Recital 10 of the gas directive. What that does is import the concept of control (i.e. do you really control the pipeline?) from EU merger law, which is incredibly broad. And because, essentially, all state-owned enterprises – even private enterprises – one way or another are subject to the Kremlin, it’s going to be very, very difficult to escape the scope of the concept of control. That’s one issue. The other issue is Article 36. How on earth do you comply with the terms of the liberalisation directive, and then an exemption on Article 36? That’s very difficult. All of these things create a series of real problems for the pipeline. And one of the things I would say about this is I think the worst-case scenario may end up that the pipeline is allowed to use 50% of its capacity. I suspect that the problem with that is that you can just imagine, they will let spend loads of time trying to cause as many problems as possible, trying to get that 50% further up, so it will end nothing. But I think that’s the absolute. I don’t then see how they are able to get any more than that, because the commission will probably impose that. There are also lots of other issues. For example, as I mentioned, this issue about third-party access – or if they come up with trying to find a scheme around ownership and bundling – all of these issues will end up being litigated one after another. The other element of this which is important is that the Court of Justice and the General Court can issue interim measures proceedings, effectively stopping the operation of the pipeline until these issues are concluded, and in fact, that probably will be the case. This actually happened in the OPAL case for six months; they weren’t able to use the more expansive interpretation that a new commission decision gave OPAL. So, I can see there being a similar situation here with a series of interim measures. The other difficulty: this is not a functioning pipeline now and it’s going through the process. So, I find it very difficult to believe that you will be able to effectively grant certification and let the pipeline run and then have the legal argument about whether it is lawful. I suspect that any attempt to do that would result in interim measures – by the court by Poland, or the Czech Republic or whichever member state wanted to bring them – and you would end up in a situation where you have the interim measures imposed before you were able to actually do anything in the pipeline, and those will be sustained. So, I think it creates quite a difficult situation for Nord Stream Two going forward. And that actually provides also a means of leverage to perhaps do the sorts of deals that you’re talking about.
Dr Jade McGlynn 53:39
Thank you, Alan. Very thorough, as usual. And then a question from James Wyllie.
James Wyllie 53:58
My first quick question and it demonstrates my ignorance: is there an actual German-Russian treaty or trade agreement about Nord Stream Two and, indeed, if it was unilaterally stopped, then wouldn’t that be breaking international law, and wouldn’t Moscow be quite correct in seeking compensation? That’s question number one. Question two is a bit grander and a bit more historical. But, for reasons of state we have seen Germany – and many other countries – overlook the niceties of European politics, European idealism, and indeed even over ecological concerns. Now, the point I’m coming round to is aren’t there historical and geostrategic realities at play here, that as we’ve seen, sadly, over the past century, European security and stability depends fundamentally upon good German-Russian relations? Things are not all that good right now, the unilateral decision to pull out of Nord Stream Two would make them so much worse. And that is much more important than anything else in the European structure.
Dr Jade McGlynn 55:18
Thank you, James. Svitlana, do you want to answer that first?
Svitlana Zalischuk 55:24
I’m happy to give it to Dr Riley.
Dr Alan Riley 55:36
Let me deal with the first part of the question because we’ll have legal stuff. There is no special trade treaty as such. Obviously, there’s an investment treaty and so forth, but there’s no special trade treaty. And there is an argument that if US sanctions are imposed, there will be a potential possibility of damages although I think the difficulty would be that there are various national security arguments that that could be used. And of course, it was an external consequence of the United States – and the United States can’t be sued, and Germany can’t be sued for the actions of the United States. In terms of the EU law, if, basically, Article 11 of the gas directive applies, and they say, “sorry, no certification”. Well, that’s the chance you took in building the pipeline in the first place. You can’t get around that. Equally, if you can’t comply with the liberalisation rules. Well, you know, that’s your problem. Gazprom is suing the European Union, both on the union law and under the energy charter treaty in trying to argue that the entire legislation is illegal. I would put this as this is, how can I put it? I suppose you always say this is very challenging, shall we say? So, it’s not going to go very far, I suspect. So, the compensation issues are, I think, very difficult for them to rely on. But not at that point, I’ll stop. As for the historical stuff, perhaps Ralf might want to have a go at that.
Ralf Fücks 57:13
Yeah, of course, the compensation argument plays a role in the German debate, it’s about 9 to 10 billion euros. But okay, maybe there are some legal ways to avoid it if there is a political will. So, the historical argument is quite interesting, because this is the main argument of the promoters of Nord Stream Two beyond sheer economic interest of parts of the German industry, which want to continue this specific German-Russian relationship. Germany is providing high technology to Russia, and Russia is providing natural resources to Germany. This is a very long tradition of thinking. But, this political argument, that we have to engage Russia, that we have to involve Russia, both economically and politically, and we should not go into full confrontation with Russia, because this would put the whole security architecture, the European security architecture in risk, this is the main argument of the more serious and advocates of Nord Stream Two in the political arena in Germany from the Social Democrats, and also still the majority of Merkel’s party, and maybe she herself. I think we have to take it seriously and put Nord Stream Two at the very centre of this debate on the European security architecture and argument that Nord Stream Two is endangering the European security architecture, not only in terms of energy security but also in terms of hard security issues. Every kind of relationship with Russia and every kind of cooperation with Russia has to play along with the European rulebook and the European norms and values which have been formally also agreed by Russia Yeah – the Carta of the Council of Europe and the Paris memorandum. So, I would not agree with the intention of your question, but we have to take this question seriously.
Dr Jade McGlynn 1:00:02
Thank you. I think at this point, having gone slightly over time, we have to leave it there. But I want to thank you, Ralf, Alan, and Svitlana for participating and giving such thorough points and for disagreeing in an interesting way on points, in a way that informed the debate. The important thing is to keep this pressure up even if there may be some disagreements on the best way of doing that – perhaps some more carrot, some more stick. But thank you all very much. And thank you all for joining us as well. Goodbye.