6 Ways Germany Could Kill The Nord Stream 2 Pipeline

Authored by America Hernandez via Politico.eu,

Germany has multiple options if it decides to try and halt the project, but they carry costs…

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There’s growing pressure on Germany to rethink its support for the Russia-backed Nord Stream 2 pipeline project, but that could open Berlin to legal, financial and political problems.

Germany has long argued that the 1,230-kilometer pipeline that is supposed to send an extra 55 billion cubic meters of Russian gas a year under the Baltic Sea is a commercial venture, not a political one.

That position is increasingly under strain in the wake of the poisoning of Russian opposition leader Alexei Navalny.

In a major turnaround, German Chancellor Angela Merkel said this week of the possibility of halting the pipeline: “I have not yet formed a final judgment on this.”

But there isn’t much Germany alone can do to block the completion of the pipeline without running afoul of EU law or risking multibillion-dollar damage claims by the Nord Stream 2 company — which is headquartered in Switzerland, but is wholly owned by Russia’s majority-state-owned Gazprom.

However, Germany could very easily sit back, let others do the dirty work, and watch the unfinished Nord Stream 2 slowly rot in the icy Baltic.

Here are six possible moves — and their consequences.

1. Revoke existing pipeline permits

Two German authorities have so far issued construction permits to Nord Stream 2.

The regional Stralsund Mining Authority — which approved plans for work in German territorial waters along the continental shelf — belongs to the fiercely pro-pipeline state of Mecklenburg-Vorpommern.

That’s the same state which is home to (and co-owns) the port of Mukran, which was threatened with “crushing” U.S. sanctions by three Republican U.S. senators last month. In response, the state parliament passed a motion affirming its desire to complete Nord Stream 2 and asserting that “blackmail has no place in world trade.”

Manuela Schwesig, the state’s premier, has also been a vocal supporter of keeping the pipeline separate from international politics.

Getting Mecklenburg-Vorpommern to pull its permits on political grounds would be an uphill battle.

There’s also the Federal Maritime and Hydrographic Agency, which issued permits covering the extended waters of Germany’s exclusive economic zone. It’s independent of the government, making it tricky if Berlin tried to put pressure on it.

In both cases, pulling permissions for political reasons would create an opening for the Switzerland-based Nord Stream 2 AG to sue Germany under the Energy Charter Treaty, to which both countries are signatories. The treaty is meant to protect investments such as the pipeline from discrimination and ensure approved projects aren’t jeopardized by unpredictable policy changes.

Damages from such litigation could run as high as the cost of the pipeline itself: about €9.5 billion. If arbitrators allow lost profits to be included in the calculation, the bill goes up from there.

2. Watch environmental NGOs challenge the permits in court

German politicians could also sit back and watch ongoing litigation run its course.

Deutsche Umwelthilfe, an NGO, has sued to have the operating permit issued by the Stralsund Mining Authority reviewed on climate grounds. It claims that the environmental impact assessment authorizing the permits should take into account new scientific findings showing that methane leaks contributing to global warming are significantly higher than previously thought. It argues construction should be frozen pending the outcome of a review, and that the project is incompatible with the country’s climate targets.

The mining authority already declined to review this on its own — but the Greifswald Higher Administrative Court, which is handling the case, could rule otherwise.

3. Issue a national restriction on Russian gas imports

Germany’s Foreign Trade and Payments Act does allow for restrictions on foreign trade “to guarantee the essential security interests of the Federal Republic of Germany or to prevent a disturbance of the peaceful coexistence of nations.”

The act can also be used in response to danger “pertaining to an individual case” — potentially the poisoning of Navalny — but any measures must be proportionate (usually temporary, in six-month increments) and backed with sufficient justification.

This could be used against the Nord Stream 2 pipeline. It could also be wielded against the already-operational first Nord Stream, should Germany want to take a stand by blocking current gas flows without touching Nord Stream 2.

The uncertainty here is twofold.

Domestically, a German court could overturn such a ban based on insufficient justification — or if the measures were deemed to be a disproportionately severe response. That’s what happened in December 2019, when the Frankfurt Administrative Court threw out a restriction on armored vehicle sales to Saudi Arabia undertaken in response to the murder of journalist Jamal Khashoggi.

Part of the court’s reasoning in that case was that Germany’s foreign relations were not sufficiently shown to be threatened, given that other countries had not taken similar action. The repeated extension of the temporary restriction was also questioned under proportionality standards.

While restrictions deemed legitimate don’t give rise to compensation claims by affected companies, those ruled illegal would qualify for damages.

At the EU level, it is also unclear whether Germany is allowed to halt gas flows into Europe on its own — or whether such restrictive action is exclusively reserved for the EU under Article 215 of the Treaty on the Functioning of the European Union.

4. Let U.S. sanctions stifle the project

There is little concrete risk for Germany in simply not fighting American sanctions already in place.

Washington is targeting pipe-laying activities, and in December scared Swiss-Dutch company Allseas off laying the remaining 150 kilometers to finish the pipeline.

In response to two Gazprom-associated ships sailing into Mukran earlier this year, the U.S. State Department added Nord Stream 2 to a more expansive 2017 sanctions law. U.S. senators have also attached a retroactive expansion of its 2019 pipe-laying sanctions into must-pass budget legislation expected to be voted on by year’s end. Both of those would target any of the 120 or so companies in a dozen EU countries wanting to do business with Nord Stream 2.

German politicians have kicked up a media storm over the perceived encroachment on German and EU sovereignty — but it may be politically expedient to let Uncle Sam do the heavy lifting.

5. Push for EU-level sanctions

This is the safest active option, as it ensures Germany doesn’t stick its neck out alone.

The European Council would need to vote unanimously to enact sanctions, and Germany’s pro-pipeline position has so far been seen as the main brake.

But if Berlin changes its mind, other EU members home to businesses involved in the project might follow suit. German-Finnish utility Uniper, Germany’s Wintershall, Austria’s OMV, France’s Engie and British-Dutch Shell each have €950 million invested in the pipeline.

This week Italian Prime Minister Giuseppe Conte said his country — which also has longstanding energy ties with Russia — would vote with Berlin on the issue of Russian sanctions.

Sanctions at the EU level would also have to be sufficiently substantiated by evidence and be deemed a proportional response to avoid being thrown out by EU courts.

6. Deny the pipeline a final compliance green-light

Even if no additional action by Germany or the EU is taken, Nord Stream 2 still faces many challenges to obtain a license to operate.

Should it succeed in completing construction, it then needs to find a company willing to brave U.S. sanctions by doing the final inspection. Gazprom also has to comply with the EU’s second amended Gas Directive and disentangle its gas-selling operations from the running of the pipeline — something that will be judged by Germany’s energy regulator.

The European Commission has already warned Gazprom that any moves deemed to be technical workarounds — such as transferring the ownership of the pipeline to a Gazprom subsidiary — won’t be accepted.