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From Russia with Gas: Dynamics of Nord Stream 2

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Nord Stream 2 is one of the latest gas pipeline projects of Russia, which seeks to export gas to Europe through the Baltic Sea. After the successful experience from Nord Stream, European companies agreed to build the second version with the Russian partner Gazprom in 2017. Since then, the pipeline has been in limelight because of US threat of sanctions as they fear Russian involvement will endanger European security. However, the European Union (EU) members who are participating in the pipeline project have differed from the American view and have already initiated the construction process. The dynamics of the Nord Stream 2 is very much relevant to the contemporary European geopolitical affairs, and hence a rational analysis is the need of the hour.

Energy concerns in Europe

The EU has called for its members to expand the diversity of their gas supply options and liberalize the energy market, so as to avoid monopoly and sole dependency on a single player, for example the US which has significantly increased their gas sales in Europe since the last decade. According to the ‘Quarterly Report on European Gas Markets’, the American share of gas exports has increased with 9% in the last quarter of 2019, while Norway dropped with 8%. It is widely anticipated that Norway will export less gas in the next 20 years, therefore EU members and especially Germany have been looking for other natural gas suppliers to the fulfill the 30% domestic shortage.

Pivot to Russia

The United States is one of the major gas exporters to Europe, but its expensive Liquefied Natural Gas (LNG) can fill only 7-8% of the total energy shortage. For that reason, European countries started diversifying their partners, and to their rescue came Russia which has some of the world’s largest oil and gas fields. Gazprom, one of the largest state-owned energy companies of Russia is now regarded as the largest natural gas exporter to the European Market. In 2018, Gazprom’s gas exports to Europe recorded the highest growth at 201.9 billion cubic meters.

According to the fact sheet on Nord Stream 2, from the perspective of the EU there are numerous benefits which can be achieved from the pipeline project. The project has already provided a lot of jobs to the European community and has also involved local shipping companies like the Blue Water Shipping, a Danish logistics company which has obtained a contract of 40 million euros to transport the pipes for the construction of the Nord Stream 2 pipeline.

American Sanctions and European reactions

The US administration had appealed to Germany to back out from all dealings with the major shareholder Gazprom, as they were seeking to impose sanctions on their activities. However, Germany rejected the idea of sanctions and even called out for a joint European defence against draconian American measures, and accused the Washington for interfering in the internal affairs of European countries, since the sanctions also threatened the European companies involved in the pipeline. Niels Annen, the German Minister of State at the Federal Foreign Office, had made some remarks relating to the U.S. sanctions: “If we want to maintain strong unity of purpose in dealing with Russia, extraterritorial and unintended consequences of US sanctions on European companies must be avoided”.

Nevertheless, Washington still argues that imposing sanctions is a justified measure toward “protecting Ukrainian interests”, since it is alleged that the Nord Stream 2 would replace the dependency on Ukrainian gas exports. However, the reality of sanctions is something different. First, the legislation made by the United States Congress Committee has not been proceeded yet, and while the pipeline is expected to be completed by the end of 2020, therefore it is the European companies which will face the wrath of the sanctions, without actually stopping the construction process of the pipeline.

Another major argument which the Washington has used to justify the sanctions is a peculiar concern that Moscow may take advantage of energy-dependent Germany, and can use gas exports as a “raw material blackmail”, by giving threats of limiting the exports if Berlin doesn’t agree with the political positions of the Kremlin. However, this is actually a win-win situation both for Russia and Germany, where Germany will be able to satisfy the growing domestic demands of energy and for Russia the income from the gas will help in soothing its fluctuating economy.

The Danish factor

To begin the construction phase of the Nord Stream 2 without any legal hurdles, a request to all Baltic and Nordic countries was sent in April 2017. At the outset, Denmark hesitated to allow because of some internal political concerns, however it later approved when another request was sent for an alternative route, but a more expensive one, which would be built south of the Bornholm Island. Finally in 2019, the Danish Energy Agency granted Nord Stream 2 a construction permit for the South-Eastern Route, which would stretch 147 kilometres in the Danish Exclusive Economic Zone (EEZ).

According to Hans Mouritzen, Senior Researcher at Danish Institute for International Studies (DIIS), it was highly recommended to approve of the pipeline going through Danish waters, south of the island, Bornholm. A pipeline drawn north of Bornholm would delay the project with 3 to 4 months and the extra expenses would be around $114 million, a bill that would be for European consumers to pay, had Denmark not agreed to the request.

Future Possibilities

The future scenario of Nord Stream 2 can go one in two ways from a European point of view. First, by being a part of NATO, European countries will be compelled to act in accordance with the multilateral agreements and thereby granting the US their global sovereignty, where they will be able to control and manipulate the economic cooperation between Europe and Russia, and Washington will not miss any opportunity to jeopardize the operations of Nord Stream 2. With the possibility of increased cooperation towards the US and decreased cooperation with Russia, the European countries will have more to lose in the long run.

In the second scenario, Europe cooperating more closely with Russia will bring additional trade opportunities in numerous areas, where Nord Stream 2 is just the beginning. Bringing economic stability to Russia will benefit in thwarting unilateral hegemonic interests of a single country in the world order. Pending that the US keeps Ukraine as a hostage of justice by sanctioning Russia, it vehemently prevents Europe and Russia to develop closer ties. While it is difficult to even imagine the US withdrawing sanctions from Russia, nevertheless it is possible to imagine that European countries will not abide by the external pressures. A better trading balance between Russia and the US in contemporary times will heal the historical wounds of Europe.

Lise Hindsgaul is currently pursuing Bachelor's degree in Russian Area Studies at the Department of Cross-Cultural and Regional Studies, University of Copenhagen, Denmark.

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Energy

Russian Energy Week: Is the world ready to give up hydrocarbons?

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In an official message to mark the opening of the Russian Energy Week international forum on 13-15 October in Moscow, Russian President Vladimir Putin stressed that there are numerous issues on the agenda related to current trends in the global energy market, including improvements to industry infrastructure and the introduction of modern digital technologies into its operation.

“The efficiency of energy production and consumption is the most important factor in the growth of national economies and has a significant impact on people’s quality of life. Many countries have already adopted policies to accelerate the development of clean energy technologies,” he wrote in the message to guest and participants.

“The forum business programme is therefore set to look in detail at the possibility of developing green energy based on renewable sources and the transition to new, more environmentally friendly fuels. I am confident that the events of the Russian Energy Week will allow you to learn more about the achievements of the country’s fuel and energy sector, and that your initiatives will be put into practice,” Putin said.

Leaders of foreign states have also sent greetings to the participants and guests. For instance, President of the Republic of Angola João Manuel Gonçalves Lourenço, Prime Minister of Vietnam Pham Minh Chinh, Crown Prince of Abu Dhabi Armed Forces Mohamed bin Zayed bin Sultan Al Nahyan, and Vice Premier of the State Council of China Han Zheng.

In their greetings, it generally noted the importance of the topics to be discussed at the forum as well as the need to build an international dialogue and consolidate efforts to achieve the sustainable development goals, including as regards climate change.

The programme covers a wide range of issues of transformation and development in the global energy market. In the context of energy transition, the issues of energy development are inextricably linked with the introduction of new technologies, and the transformation aimed at reducing greenhouse gas emissions into the atmosphere. Climate protection is a task that cannot be solved by one country; it is a global goal, which can be achieved through building dialogue and cooperation between countries.

The participants in the discussion will answer the question: Is the world ready to give up hydrocarbons? In addition, during the panel session, the participants will discuss whether oil, gas and coal are really losing ground in the global energy sector; whether the infrastructure will have time to readjust for new energy sources; how long will there be enough hydrocarbons from the field projects that are being implemented; and whether an energy transition using fossil fuels is possible.

The international climate agenda is forcing many countries to reform their carbon-based energy systems. For Russia, which holds a leading position in the global hydrocarbon markets, the transition to development with low greenhouse gas emissions presents a serious challenge, but at the same time it opens up new opportunities for economic growth based on renewable energy, hydrogen technologies, advanced processing of raw materials and implementing green projects.

The Climate Agenda included sessions dedicated to the operation of the Russian fuel and energy sector in the context of energy transition, the impact of the European green pivot on the cooperation between Russia and Europe, as well as the session titled ‘The Future of Coal in a World Shaped by the Climate Agenda: The End, or a New Beginning?’

Sessions of the ‘New Scenarios for the Economy and the Market’ track are dedicated to the global challenges and opportunities of the electric power industry; the impact of ESG on the Russian fuel and energy sector; the potential for the renewable energy sources; and other issues of the future of energy.

The Russian Energy Agency under the Ministry of Energy brings together experts from key international analytical organizations to discuss the future of world energy during the session titled International Energy Organization Dialogue: Predicting the Development of Energy and Global Markets.

The Human Resource Potential of the Fuel and Energy Sector, participating experts will discuss the prospects for developing the professional qualification system, and a session titled Bringing the Woman’s Dimension to the Fuel and Energy Sector. Optimizing regulation in the energy sector and organizing the certification and exchange of carbon credits in Russia are the basis of the Regulatory Advances in Energy. 

Anton Kobyakov, Advisor to the Russian President and Executive Secretary of the Russian Energy Week 2021 Organizing Committee, said “the level of various formats of international participation testifies to the importance of the agenda and Russia’s significant role in the global energy sector. We are a reliable strategic partner that advocates for building international cooperation based on the principles of transparency and openness. With the period of major changes in the industry, it is particularly important to engage in a dialogue and work together to achieve both national and global goals.”

The forum, organized by the Roscongress Foundation, the Russian Ministry of Energy, and the Moscow Government, brought together many local and foreign energy and energy-related enterprises. The speakers attending included  Exxon Mobil Corporation Chairman of the Board of Directors and CEO Darren Woods, Daimler AG and Mercedes-Benz AG Chairman of the Board Ola Kallenius, BP CEO Bernard Looney, and TotalEnergies Chairman and CEO Patrick Pouyanné.

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World Energy Outlook 2021 shows a new energy economy is emerging

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A new energy economy is emerging around the world as solar, wind, electric vehicles and other low-carbon technologies flourish. But as the pivotal moment of COP26 approaches, the IEA’s new World Energy Outlook makes it clear that this clean energy progress is still far too slow to put global emissions into sustained decline towards net zero, highlighting the need for an unmistakeable signal of ambition and action from governments in Glasgow.

At a time when policy makers are contending with the impacts of both climate change and volatile energy markets, the World Energy Outlook 2021 (WEO-2021) is designed as a handbook for the COP26 Climate Change Conference in Glasgow, which offers a critical opportunity to accelerate climate action and the clean energy transition. The new analysis – which the IEA is making available for free online – delivers stark warnings about the direction in which today’s policy settings are taking the world. But it also provides clear-headed analysis of how to move in a well-managed way towards a pathway that would have a good chance of limiting global warming to 1.5 °C and avoiding the worst effects of climate change.

The WEO-2021, the IEA’s annual flagship publication, shows that even as deployments of solar and wind go from strength to strength, the world’s consumption of coal is growing strongly this year, pushing carbon dioxide (CO2) emissions towards their second largest annual increase in history.

“The world’s hugely encouraging clean energy momentum is running up against the stubborn incumbency of fossil fuels in our energy systems,” said Fatih Birol, the IEA Executive Director. “Governments need to resolve this at COP26 by giving a clear and unmistakeable signal that they are committed to rapidly scaling up the clean and resilient technologies of the future. The social and economic benefits of accelerating clean energy transitions are huge, and the costs of inaction are immense.”

The WEO-2021 spells out clearly what is at stake: what the pledges to reduce emissions made by governments so far mean for the energy sector and the climate. And it sets out what needs to be done to move beyond these announced pledges towards a trajectory that would reach net zero emissions globally by mid-century – the Net Zero Emissions by 2050 Scenario from the landmark IEA report published in May, which is consistent with limiting global warming to 1.5 °C.

As well as the Net Zero Emissions by 2050 Scenario, the WEO-2021 explores two other scenarios to gain insights into how the global energy sector may develop over the next three decades – and what the implications would be. The Stated Policies Scenario represents a path based on the energy and climate measures governments have actually put in place to date, as well as specific policy initiatives that are under development. In this scenario, almost all of the net growth in energy demand through 2050 is met by low emissions sources, but that leaves annual emissions still around today’s levels. As a result, global average temperatures are still rising when they hit 2.6 °C above pre-industrial levels in 2100.

The Announced Pledges Scenario maps out a path in which the net zero emissions pledges announced by governments so far are implemented in time and in full. In this scenario, demand for fossil fuels peaks by 2025, and global CO2 emissions fall by 40% by 2050. All sectors see a decline, with the electricity sector delivering by far the largest. The global average temperature rise in 2100 is held to around 2.1 °C.

For the first time in a WEO, oil demand goes into eventual decline in all the scenarios examined, although the timing and speed of the drop vary widely. If all today’s announced climate pledges are met, the world would still be consuming 75 million oil barrels per day by 2050 – down from around 100 million today – but that plummets to 25 million in the Net Zero Emissions by 2050 Scenario. Natural gas demand increases in all scenarios over the next five years, but there are sharp divergences after this.

After decades of growth, the prospects for coal power go downhill in the Announced Pledges Scenario – a decline that could be accelerated further by China’s recent announcement of an end to its support for building coal plants abroad. That move may result in the cancellation of planned projects that would save some 20 billion tonnes in cumulative CO2 emissions through 2050 – an amount similar to the total emissions savings from the European Union reaching net zero by 2050.

The differences between the outcomes in the Announced Pledges Scenario and the Net Zero Emissions by 2050 Scenario are stark, highlighting the need for more ambitious commitments if the world is to reach net zero by mid-century.

“Today’s climate pledges would result in only 20% of the emissions reductions by 2030 that are necessary to put the world on a path towards net zero by 2050,” Dr Birol said. “Reaching that path requires investment in clean energy projects and infrastructure to more than triple over the next decade. Some 70% of that additional spending needs to happen in emerging and developing economies, where financing is scarce and capital remains up to seven times more expensive than in advanced economies.”

Insufficient investment is contributing to uncertainty over the future. Spending on oil and natural gas has been depressed by price collapses in 2014-15 and again in 2020. As a result, it is geared towards a world of stagnant or even falling demand. At the same time, spending on clean energy transitions is far below what would be required to meet future needs in a sustainable way.

“There is a looming risk of more turbulence for global energy markets,” Dr Birol said. “We are not investing enough to meet future energy needs, and the uncertainties are setting the stage for a volatile period ahead. The way to address this mismatch is clear – a major boost in clean energy investment, across all technologies and all markets. But this needs to happen quickly.”

The report stresses that the extra investment to reach net zero by 2050 is less burdensome than it might appear. More than 40% of the required emissions reductions would come from measures that pay for themselves, such as improving efficiency, limiting gas leakage, or installing wind or solar in places where they are now the most competitive electricity generation technologies.

These investments also create huge economic opportunities. Successfully pursuing net zero would create a market for wind turbines, solar panels, lithium-ion batteries, electrolysers and fuel cells of well over USD 1 trillion a year by 2050, comparable in size to the current oil market. Even in a much more electrified energy system, major opportunities remain for fuel suppliers to produce and deliver low-carbon gases. Just in the Announced Pledges Scenario, an additional 13 million workers would be employed in clean energy and related sectors by 2030, while that number doubles in the Net Zero Emissions by 2050 Scenario.

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Russian Energy Arrogance or American Cold War Psychology?

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Lately, there has been much garment-rending across Western media and governmental sources, all criticizing Russia’s so-called hostility toward the European Union on the issue of gas supplies this coming winter. The core essence of the criticism is the accusation that the Russian Federation is playing geopolitical games with the European Union, threatening it with a freeze-out this winter if it does not play ball on accepting the massive Nord Stream 2 pipeline deal. A cursory glance across many important media sources in the West reveals just how quickly the “analyses” seem eager to ratchet up the emotionality:

  • The Washington Examiner reported that “winter is coming” for Europe and Biden because of Putin.
  • The National Interest derisively called “giving Europe a pass” on ratifying Nord Stream 2 as an outright victory for Putin.
  • Politico blatantly asked “will Putin attack?” when discussing the issue of supplying gas to Europe.
  • The New York Times called Nord Stream 2 a “security threat” and that Biden must stop Putin from achieving this victory.
  • Newsweek reported how many governmental officials in Washington are outright lamenting this issue as a “present to Putin” and an example of the White House enabling Putin while undermining Europe.

Very disconcerting language indeed, emblematic of the continued insistence in the West that it is de facto in a New Cold War with Russia. To all of this Putin has largely given a presumptive and decidedly dismissive geopolitical yawn. But underneath the typical cool bravado that Putin has always exhibited in the face of direct Western criticism, there must also be an obvious air of dissatisfaction and outright anger at what Russia sees as a consistent effort by Washington to portray it in the worst possible light.

First, Russia is quick to explain that recent soaring energy prices are not the result of some dastardly political scheme engineered inside the Kremlin, but instead connected to recovering energy demands as the world emerges from the COVID pandemic, particularly from Asia. To ignore this global economic fact in order to focus on a fabricated political design is the first hint to Russians that they are being held to a geopolitical double-standard that others do not face.

Second, powerful Washington opposition to the Nord Stream 2 pipeline, which runs under the Baltic Sea from Russia to Germany, is based not so much on any flaw in the pipeline or doubt that it would ease the energy needs of Europe. Rather, it is recognition that the pipeline makes Russia stronger, as it will allow it to directly supply gas to Europe, as opposed to its current main pipelines that run through Ukraine first. As everyone knows, the Russia-Ukraine relationship continues to be incredibly tense and unfriendly. Thus, seeking a way to work around that problem while still supplying a valuable natural asset is, in economic-geopolitical-security terms, completely rational and logical for Russia. Therefore, Washington’s opposition is seen by Putin for what it truly is: strategizing against Russia growing stronger, more prosperous, and influential.

Third, Russia, if anything, is always aware of all perceived slights when it comes to its position on the global stage. Some might even say it has a tendency to “over-perceive” such slights historically. In this particular case, the slights are quite obvious when Russian analysts look at how the rest of the major players in the global economy are treated when they engage in similar strategy. The fluctuations in the oil market, overall decided by OPEC but heavily influenced individually by Saudi Arabia, have over the decades rarely been purely altruistic. When it has been apparent that Saudi Arabia is taking advantage of its leveraged position, maximizing its own individual benefits to the detriment of all the other players, rarely has the United States gone straight for the geopolitical jugular, questioning whether or not Saudi Arabia is preparing for war by another name or is intending to “starve” the West of its innate energy needs. The same can be said for China, with all of its various machinations over the past two decades in terms of the currency, labor, real estate, and manufacturing markets. While criticism has always existed against both of these countries, those same criticisms have also recognized that the respective Saudi and Chinese maneuvers are understandable from objective geopolitical, economic, and security perspectives. It is not surprising, therefore, that Russia is not just aware of these parallel realities but also notices how unfavorably it is treated in comparison for the same behavior. Especially given that these countries, while not exactly the best-of-friends with the United States, are still given so-called passes deemed “dangerous” if given to Russia.

Taken together, these facts are what always drive Russians crazy and push Putin into his “dismissive arrogance” posture that he often assumes when irritated by members of the Western media. Luckily for Russian specialists, this is one of the most entertaining aspects of Putin’s personality, as this arrogance is one of the few times that his true opinions and feelings are on display for reporters. But underneath the arrogance is arguably an endemic frustration forming the base of it all. What the Kremlin is most tired of is having to answer questions that clearly (though obliviously when it comes to the reporters asking) imply that Russia is in the wrong if it pursues policies that maximize its economic strength, increase its geopolitical prestige and leverage, and/or does not improve its relationship with the United States. Putin often remarks about how his decision-making is based solely on what is good for Russia and best for Russians. These comments are usually dismissed by the West as platitudes. But he means them. The problem is not that he takes such objectives seriously. The problem is that too many in the West fail to envision a reality where Russia does not accept being put into a tightly controlled box built on what the United States considers appropriate. And this latter point is not affirmation of a New Cold War with the West; it is confirmation that the West is still stuck in the psychology of the old one.

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