Poland Takes Aim at Putin’s Pipe Dreams

This summer hasn’t seen a lot of setbacks for Russia, not even for its Olympic hopefuls. Crimea has been annexed and fully absorbed, with the blessing of Republican presidential front-runner Donald Trump, who also calls NATO “obsolete.” Russian intelligence services have allegedly been pawing through the emails of U.S. political parties, and releasing them at their leisure. Turkey, in the wake of a failed coup attempt, is rushing to mend fences with Moscow.

All of which makes last month’s decision by the Polish antitrust regulator to file a formal objection against Russia’s proposed “Nord Stream 2” gas pipeline more noteworthy. That regulatory spanner could be Europe’s last and best chance to halt construction of a pipeline that critics say will divide Europe, beggar Ukraine, and reinforce Moscow’s energy dominance for another generation.

For years, Russia has sought to keep Europe dependent on its exports of energy, especially through natural gas pipelines. But Moscow is also desperate to cut out potentially meddlesome middlemen, like Ukraine, which sits smack between Russia’s natural gas fields and millions of European consumers. That gives Kiev the ability to interrupt Russian gas flows headed to Europe, infuriating Moscow, but also earns Ukraine billions of dollars in much-needed transit fees.

A decade ago, Russia enlisted former German Chancellor Gerhard Schröder to help it build a pipe across the Baltic from Russia to Germany, sidestepping Ukraine: Nord Stream. Then Russia tried to build another pipeline, “South Stream,” across the Black Sea from Russia to Bulgaria, also bypassing Ukraine, but that was quashed by the European Union in 2014. Then, Moscow invented the idea of a “Turkish Stream,” another proposed Black Sea pipe, one landing in Turkey, outside of Brussels’s reach. But last fall, Turkish F-16s shot down a Russian jet, and with it hopes of any immediate Russo-Turkish energy cooperation.

“They’ve had anything but success at bypassing Ukraine,” said Sijbren de Jong of the Hague Center for Strategic Studies. “They keep launching very large, very capital-intensive infrastructure projects, time and time again,” with little to show for it, he said.

This sent Russia back to basics — and to the Baltic — with the announcement last year of Nord Stream 2. The project proposed to double the existing, under-utilized pipeline that would directly connect Europe’s biggest gas supplier and Russia’s biggest gas customer, Germany.

The project, a 10 billion-euro brainchild of Russian gas giant Gazprom and a handful of Western energy companies, has unleashed torrents of political abuse. Politicians in central and Eastern Europe — who’d suffer the most if Ukraine is cut out as a transit country — have railed against the pipeline for a year. The European Union’s top energy official has gone red in the face opposing Nord Stream 2, especially since it would directly undercut the EU’s entire energy strategy. Just this week, America’s top energy diplomat, Amos Hochstein, said the pipeline would “resurrect” the Cold War divisions in Europe.

Germany, though, loves the idea, which could turn it into Europe’s gas hub. Top officials including Chancellor Angela Merkel and Sigmar Gabriel, the economic and energy minister, publicly and privately back the project. The European Commission has said that Nord Stream 2 must comply with all European laws and regulations, but has not taken any steps to block the pipeline, even though those laws and regulations are what sunk South Stream. The pipeline’s backers say they aren’t feeling any pressure from the European Commission. Nordic countries through whose waters the pipeline must travel have been mum.

But the Polish Office of Competition and Consumer Protection last month determined that Nord Stream 2 — which wouldn’t even touch Polish territory — could harm consumers. “The Office found that the concentration might lead to restriction of competition,” it tentatively concluded, adding that the project could “further strengthen” Gazprom’s “dominant position.”

The regulator has until the end of the year to make a final decision on the project. Gazprom and its partners on the project have one month to answer the Polish regulator’s objections; at the very least, the antitrust concerns threaten to set back construction of the pipeline.

“Poland basically threw a wrench down the pipe, so to speak,” said de Jong. “Gazprom is trying very hard to circumvent all these pesky transit states but they keep biting back. Some days you’re the dog, some days you’re the tree.”

Why does a gas pipeline raise so much dander on both sides of the Atlantic? For U.S. officials, who have spent a lifetime trying to help Europe reduce its dependence on Russian energy — and the geopolitical leverage that comes with it — Nord Stream 2 is the opposite of helpful. For many in central and Eastern Europe, who’ve repeatedly been subjected to Russian strong-arming, often times with their gas supplies cut off entirely, giving Moscow a direct route into the heart of the Continent is downright scary.

And for plenty of folks in Brussels, which has spent the better part of a decade trying to liberalize the Continent’s energy markets, Nord Stream 2 represents a frontal challenge to EU law; even before Nord Stream 2, the EU competition office was investigating Gazprom for alleged non-competitive behavior throughout the European market. Alan Riley, a British law professor and fellow at the Atlantic Council, has argued that the pipeline likely violates crucial EU regulations, especially rules meant to pry open the energy sector and reduce the power of monopolies.

But some energy experts say that an expanded pipeline straight into Germany could actually help competition, by bolstering and expanding central Europe’s gas markets, making them function more like U.S. gas markets. One recent study, funded by the companies hoping to build Nord Stream 2, says the project amounts to a test case for European regulators, who have to decide whether to apply rules impartially, or with a political agenda.

Ultimately, if Europe does manage to knit together its fragmented energy market by laying new pipelines connecting one country to another, then another Gazprom pipe might not be that big a deal. If Europe were fully interconnected, other sources of gas — such as liquefied gas shipped over from the United States or Qatar, or even the eastern Mediterranean — could be pumped throughout the continent, wherever they are needed, and consumers would benefit from low prices. Without that connective tissue, though, Nord Stream 2 could just tighten Moscow’s stranglehold even more.

“It’s certainly Russia’s right to be able to choose how it wants to deliver its gas to Europe, so long as whatever pipelines it builds conform to EU regulations,” said John Roberts, an energy consultant at Methinks Ltd. and also a fellow at the Atlantic Council.

The project is fine, he said, “so long as it’s not simply reinforcing a monopoly in southern and Eastern Europe, and to avoid that, more has got to be done.”

Photo credit: ALAIN JOCARD/AFP/Getty