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Germany’s pipeline game

What did Peter Altmaier, the German economy minister, bring to Kyiv and Moscow?
16 May, 16:05

German Minister for Economic Affairs Peter Altmaier visited Kyiv on May 13-14. On May 13, he held talks with representatives of German business in Ukraine, while the next day, he negotiated with Prime Minister Volodymyr Hroisman. After the meeting, the head of government wrote on Twitter that Germany was a very important partner and friend of Ukraine, and noted the importance of the German coalition agreement mentioning the need to support this country, but did not mention the Nord Stream 2 project. Altmaier was expected to fly to Kyiv again to discuss this issue.

The Nord Stream 2 gas pipeline will run from Russia to Germany via waters of Finland, Sweden, and Denmark. Let us recall that after receiving all permits, Germany already began construction work to lay the gas pipeline, as reported by the DW in early May. However, in April, during a joint press conference with President of Ukraine Petro Poroshenko, German Chancellor Angela Merkel stressed that the Nord Stream 2 would not happen until the future of transit through Ukraine was decided.


Mykhailo HONCHAR, president of the Strategy XXI Center for Global Studies:

“This visit is mostly of ceremonial and ritualistic character. Taking into account that there is an opposition to the Nord Stream 2 from Ukraine and Poland, and the European Commission is hostile to this project which is being pushed through under German pressure, the German government is playing a certain game called ‘let us listen to all,’ including opponents. Meanwhile, Ukraine is the main opponent of the project. However, listening does not mean hearing, much less meeting one’s demands. Moreover, Altmaier will now fly to Moscow, where he would be presented with a different and well-known point of view, asserting that the project is strictly economic and that there is no politics in it, as well as other arguments that the German side also officially employs, despite the fact that Chancellor Merkel and some German politicians have asserted that this is not only an economic project.

“Firstly, a Russo-German consensus on the project exists and it has not undergone any transformations. Secondly, there is also a Russo-German consensus on transit through Ukraine’s gas transportation system (GTS), and it is well known. Altmaier will hear in Moscow: ‘We will preserve transit through Ukraine, we confirmed this via Gazprom both this year and last year.’ This is the answer that Germany needs, since it also believes that transit through Ukraine should be preserved. However, nobody mentions numbers. Gazprom talks about 10-15 billion cubic meters of gas, which is almost nothing for our GTS, since its capacity is 142 billion cubic meters per year. At such a load factor, it will not be profitable and will be technologically unworkable as a system.

“Perhaps, the innovation will be the transit figure getting increased through negotiations – say, up to 30 billion cubic meters. But this also does not solve the problem of loading the GTS, because the system will still make losses in such a mode. This is the maximum that you can expect from this tour of Ukraine and Russia by Altmaier. Otherwise, the position will remain unchanged.

“Also, this visit aims to accustom Ukrainians to thinking that the existence of the Nord Stream 2 is not in question. He will go like, ‘Ukrainians, we are discussing with you how to keep your transit system working after the Nord Stream comes online.’ And this is a dangerous accent that aims to bring down the wave of Ukrainian opposition to this project.”

Germany has already started construction. At the same time, Chancellor Merkel has promised that the Nord Stream 2 will not happen without determining the role of Ukraine as a transitor first. How should our government act so that the Germans keep their word on transit?

“I think all these German statements are insincere. They perfectly understand the role and significance of the Ukrainian GTS; Germany just does not say that through its leaders, but even  without articulating it, that nation’s strategic aim is to reroute the supply of Russian gas to Europe through itself.

“If both Nord Streams start working, it will provide 110 billion cubic meters of capacity. Last year’s exports of Russian gas to European countries, apart from Turkey, amounted to about 165 billion cubic meters. If 110 billion cubic meters will flow to EU countries through Germany, it will take the place of Ukraine.

“If only the German side issued not just a general requirement for Russia to preserve transit through Ukraine, but articulated some specific requirements… For example, if Gazprom does not want to use the Ukrainian GTS and wants to switch to these ‘streams,’ then it should offer its export capacity for use by independent gas producers in Russia that have the appropriate gas resources and want to transport it to Europe, namely Rosneft and Novatek. They can, using the idle capacity of the Ukrainian GTS, export their gas to Europe. Another way is to open access to Central Asian gas, which can also transit through the GTS of Russia and Ukraine. This was done for a long time in the 1990s and 2000s.

“However, the Ukrainian side, too, should articulate our approaches, ask questions of the Germans and Russians about the mechanism and guarantees for the preservation of transit through Ukraine and its volume. So far, I have not heard that someone from the Ukrainian side has so specifically asked the questions.”

Why do the Germans fail to see the possibility of reforming the Ukrainian gas transportation system, and instead build a gas pipeline that bypasses Ukraine?

“They simply do not want to see it. The real issue is that Russian export gas pipelines are not called ‘kickback lines’ for nothing. This is simply profitable for German businesses, primarily those related to manufacturing, contract work, pipe making, their concreting, and the supply of equipment. Russia has nothing of this. The Nord Stream 2 has import content of 90 percent by value. Therefore, those kickback levels offered by Gazprom are attractive to European contractors.

“Modernization of Ukraine’s GTS will follow the Brussels Declaration issued almost 10 years ago, and everything will be done using the credit resources of European banks, so it will be transparent and involve no kickbacks. Therefore, one should not have any illusions about the German business community, which is said to be so clean, transparent, and honest. When it comes to earning another euro or even a eurocent, they will go for Gazprom kickback offers rather than for our offers of an honest and transparent approach.

“In addition, Russian propaganda has created an image of the Ukrainian gas sector as non-transparent and corrupt. Although this is far from the case, the GTS of Ukraine is now more transparent than many European counterparts. Still, many continue to perceive it exactly that way.

“There is also Gazprom’s offer for companies from five participating countries: they will receive revenue in the form of Nord Stream 2 gas transit fee to the maximum extent possible regardless of this gas pipeline’s load factor. That is, even if nothing is transported through it, they will still earn revenue. Who will refuse such an attractive offer?”

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