Russo-German gas pipeline in doubt

After months of tension with eastern neighbors and the European Commission over the so-called Nord Stream 2 gas pipeline, Merkel has said that political considerations must play a role on the pipeline, which would double an existing pipeline's capacity to almost 30 percent of European Union demand.

"I made it very clear that a project such as Nord Stream 2 is in our view not possible without clarity on how Ukrainian transit will proceed," Merkel said Tuesday in Berlin alongside Ukrainian President Petro Poroshenko. "This isn't only about an economic project. There are political factors to be considered," she added.

Merkel's concession to Kyiv's grave concerns marks a striking shift in policy as the German chancellor in the past portrayed Nord Stream 2 primarily as a business venture driven by private investors.

Nord Stream 2 is opposed by countries such as Poland and the Baltic states for allegedly increasing EU reliance on Russian gas. But in March Germany issued the final permits needed for construction on its territory and in its waters. After completion, scheduled for late 2019, the pipeline would double the amount of Russian gas arriving in Germany via the Baltic Sea.

Ukraine to lose transit revenue

In an interview with German business daily Handelsblatt on Monday, Poroshenko urged Berlin to abandon plans to build Nord Stream 2, saying it would enable an "economic and energy blockade" against Ukraine.

He accused Russia of being an "extremely unreliable partner" in energy provision, pointing to state-owned energy firm Gazprom's refusal to pay Ukraine billions of euros after shutting off gas supplies in the middle of winter. Poroshenko also noted that Ukraine's transit pipeline for Russian gas was "much cheaper and can be modernized cheaply and easily."

Read more: Naftogaz CEO: Russia's Nord Stream 2 would threaten Ukraine

The fact that Ukraine would lose revenue from gas transit was also echoed by Merkel during a joint news conference with Poroshenko. "With Nord Stream 2, Ukraine would have no significance at all any more with regard to gas transit," she said, adding that Ukraine relied heavily on income from transit fees. 

After Merkel's comments, Russian gas giant Gazprom said that it was possible that the company could retain some transit via Ukraine. Gazprom chief Alexei Miller was quoted by the state-owned energy giant as saying: "We never raised the question of stopping Ukraine transit," adding that "a certain amount of transit could be maintained, from 10 to 15 billion cubic metres per year, but the Ukrainian side must prove the economic expediency of a new transit contract." 

Last year, the transit amounted to more than 93 bcm, while Gazprom's total exports to Europe and Turkey reached an all-time high of 194 bcm. Ukraine earned around $3 billion in Russian gas transit fees. However, Gazprom said last month it would terminate its gas contracts with Ukraine after it had lost a court case, escalating a dispute which had left Ukraine struggling to stay warm. 

Conflict of interests 
Opposition to Nord Stream 2 also comes from within Germany where a cross-party alliance of politicians from Merkel's conservatives, the environmentalist Greens and pro-business Free Democrats warned in February against allowing Nord Stream 2 to go ahead.

It would "split the EU politically and call into question our solidarity with Poland, our Baltic neighbors, Slovakia and Ukraine, but also Sweden and Denmark," they wrote.

But a German industry group that promotes economic ties with Russia pushed back after Merkel's comments, saying on Tuesday Nord Stream guarantees western European energy security and that €4 billion ($4.9 billion) already invested in the project would be at risk.

"To change the legal foundation retroactively for political reasons would damage the trust in legal certainty," Wolfgang Büchele, chairman of the German Committee on Eastern European Economic Relations, said in a statement.

Sebastian Sass, a Nord Stream spokesman, said the pipeline wouldn't dry up gas transit through Ukraine. Of the 170 billion cubic meters of gas shipped to Europe from Russia in 2017, 90 billion went through Ukraine, 50 billion via the Baltic and 30 billion.

uhe/nz (Reuters, AFP, dpa)