Nord Stream 2 The Cold War Returns to Germany

Construction manager Klaus Haussmann intends to retire five months from now. “And this time, he says, “I mean it.” It will be his third try.

Haussmann is 71 years old, but he doesn’t show his age as he marches briskly into his container office wearing his work jacket and a safety helmet. On two occasions, he allowed himself to be lured out of retirement to return to the construction site. The engineer is needed here in the small town of Lubmin in the eastern German state of Mecklenburg-Western Pomerania. It’s where the Russian natural gas pipeline Nord Stream 2 reaches the German Baltic Sea coast, 1,230 kilometers (764 miles) away from its origin. No other person has as much experience with projects like this as he does.

Haussmann pauses in front of a map affixed to a container wall showing the German natural gas network. He’s been involved in a number of facilities, he says while tracing his finger along the pipeline routes on the map, including the construction of power plants, compressor stations and industrial buildings. The site manager now wants to bring to completion his final, his biggest job: the landfall facility for Nord Stream 2.

“Everything is pretty much ready,” he says, adding that the gas could soon start flowing — that is, unless international politics get in the way. And that, of course, is the alarming scenario currently occupying governments in Berlin, Kiev, Warsaw, Moscow and Washington. Indeed, the United States Senate may soon move to impose sanctions and stop the project, just months before its planned completion. The draft bill has long since been written.

If passed, it would specifically target companies and workers who use special ships to lay pipe at depths of 100 feet (about 30 meters) or more for Russian gas exporters. The Americans are threatening to freeze bank accounts of, and deny entry into the U.S. to, “corporate officers” working on the project. The sanctions would be disastrous for companies that are heavily dependent on U.S. business in places like the Gulf of Mexico, for example.

Numerous Hitches

The owners of the ships have already indicated they would not hesitate for a single moment to cease work on the pipeline if the Americans follow through with their threat. The development would be a fiasco for Russia. Globally, there are only five of these specialized ships and it would be close to impossible to find any kind of replacement. The North Stream 2 project would be dead.

Already, the project has been running into hurdles in recent months. The Danes took an extended period of time to decide whether to grant permission for the pipeline to run through their territorial waters southeast of the island of Bornholm. That permission finally came two weeks ago.

The Danish section is the only one still missing, only 294 kilometers of pipeline (147 kilometers per side-by-side line) before the pipeline is completed. Work on the final stretch has already begun. The question now is whether the Russians will complete the connection before the Americans have the chance to scupper the megaproject as it approaches the final few kilometers of construction.

The steel pipe, each 12-meter long section weighing 24 tons and encased in 11 centimeters of concrete, is welded together aboard the pipelay vessel Solitaire before being lowered to the bottom of the Baltic Sea. The giant vessel, 300-meters long, with 70,000 horsepower, can install about 3 kilometers of pipe per day.

The stakeholders behind Nord Stream 2 — Russia’s Gazprom along with five European energy companies, including Germany’s Wintershall and Uniper — are pushing the project full speed ahead. They want to get the nearly 200,000 remaining sections installed before Washington pulls the trigger on sanctions.

The clash between the U.S. and Russia over Nord Stream 2 is reminiscent of the Cold War between 1945 and 1989, with the two superpowers constantly threatening to escalate the conflict by means of military force — Soviet SS-20 nuclear missiles pitted against American Pershing II missiles. This time around, the Americans and Russians have taken a more subtle approach to the conflict, adopting economic weapons instead. They’re vying for dominance in the global energy markets through ploys, bluffs and mutual intimidation. But as with the Cold War, the epicenter of the standoff is in Germany, Europe’s energy hub. No other place sees such a clash of economic and geopolitical interests.

Germany Caught Between the U.S. and Russia

The Americans are looking for new markets for the liquefied natural gas they produce, gas that is cooled down to minus 162 degrees Celsius and shipped around the world, including to Europe. A competitor that supplies the Continent reliably and cheaply with energy via pipeline is, of course, a nuisance for Washington.

In his desire to break the Russian hold on the European market, U.S. President Donald Trump has directed his anger at Moscow’s best customer, Germany. And he has taken his cue — both in logic and rhetoric — straight from the Cold War playbook. “We’re protecting Germany from Russia, and Russia is getting billions and billions of dollars in money from Germany,” Trump said in June. He argues the pipeline makes Berlin “a hostage of Russia.”

The Russians, meanwhile, hope to further expand their energy export business, which is the country’s most important source of hard currency. Once it opens, the plan calls for Nord Stream 2 to transport approximately 55 billion cubic meters of natural gas each year to Europe, about as much as the Russians are currently pumping through the first Nord Stream pipeline, which went online in 2011. Together, the pipelines will replace most of the capacity that has thus far been transported overland through Ukraine.

That, of course, is not a coincidence. Russian President Vladimir Putin wants to use the Baltic Sea route to circumvent Ukraine, a move that has the potential to weaken the country. With Russia having provided support to military separatists in eastern Ukraine for close to six years now, a weak Ukraine is very much in Moscow’s interests. Furthermore, abandoning the overland route through Ukraine would allow Russia to save billions in transit fees that Moscow grudgingly pays to Kiev.

And the Germans? Chancellor Angela Merkel, who distances herself publicly from Putin, supports the Baltic Sea project despite opposition within her party, the center-right Christian Democratic Union. She takes a sober economic view of the pipeline as an additional way of guaranteeing the security of Germany’s energy supplies.

Because natural gas produces lower greenhouse gas emissions than coal or oil when burned, it is likely to play a growing role in Germany’s energy mix in the coming decade, as a bridge to the age of renewable energies. And Russia is Germany’s most important supplier of natural gas, ahead of both Norway and the Netherlands.

And supplies from the Netherlands are likely to drop to almost nothing soon. Following a number of recent earthquakes in the region, the Dutch have decided to stop extracting natural gas from their most important production area starting as early as 2022. A similar debate is also emerging in Britain. Meanwhile, German gas reserves are running low. In 2018, they provided only 7 percent of the country’s overall natural gas supplies. Only 10 years ago, that share was still at 15 percent.

The Düsseldorf-based gas company Uniper has warned that a serious shortfall is looming. The company says that Europe as a whole could be facing a shortfall of 100 to 300 billion cubic meters of natural gas per year in the coming decade. That would mean there will be a need for further sources of natural gas that go beyond what even the pipelines can deliver. At present, there are 24 terminals in European ports where liquified natural gas (LNG) can be unloaded, but not a single one is located in Germany.

Uniper, though, has plans to build a facility in the German port city of Wilhelmshaven near Bremen. The terminal, which is to be partly funded by the German government, is scheduled to go into operation in 2022. In part, Berlin sees the terminal as a gesture of goodwill to Washington.

With LNG from America and pipeline gas from Russia, the chancellor appears to be hedging her bets by soliciting energy imports from numerous sources. The question is whether that will go far enough to placate the American president. His preference would be to strong arm the German government into taking sides, putting Merkel in the position of having to choose between Russia or the United States.

The New Superpower in the Global Gas Business

Cove Point is located about 90 minutes from Washington D.C. by car. Here, on Chesapeake Bay, one can begin to understand the U.S. president’s vision for the future of European natural gas supplies. Right on the coast, surrounded by picturesque villages and beaches, is a strictly guarded industrial complex — an LNG loading terminal.

It was built to handle even the giant ships of the Q-Max class, which are up to 345-meters long and have a loading capacity of up to 266,000 cubic meters. That quantity is sufficient to heat more than 40,000 apartments for an entire year.

The terminal was originally intended for processing natural gas imports from Algeria. But then, the fracking revolution broke out. The controversial extraction method — which entails the injection of liquids at high pressure into rock in order to extract the gas it holds — almost instantly transformed the U.S. into an energy superpower.

An Importer Becomes a Major Exporter

It also resulted in Cove Point’s shift from an import to an export terminal. According to terminal operator Dominion Energy, 85 ships have been loaded for export at the facility since April 2018.

The gas arrives here via an interstate pipeline system that connects various parts of North America. It generally takes about a day to transfer a full load of fuel onto a ship. Thus far, exports have primarily headed for India and Japan. “We would be delighted to supply Europe as well,” says Dominion executive Paul Ruppert. Given its location on the Atlantic, Ruppert says his terminal is “ideally located” for shipping their commercial customers’ gas to Europe.

In addition to the facility at Cove Point, LNG terminals are currently being built in several American ports. These tanker connections have transformed LNG into a globally tradable commodity, the fastest growing fossil energy source.

An abundance of supply on the global market last summer also led to a drop in prices in Europe, and LNG was able to compete well with pipeline gas that is typically cheaper. The U.S. wants to dominate the business and establish itself as the world’s largest exporter of LNG.

This background is essential for understanding why the U.S. has been so assertive toward Russia on the energy front. But it doesn’t make Richard Burt’s job any easier.

Not a ‘Single Ally in Washington’

Burt, 72, sits on the eighth floor of an office building located barely 500 meters (about 1,600 feet) from the White House. In the 1980s, he served as the U.S. ambassador to West Germany in Bonn. Today, he works as a lobbyist in Washington, representing the companies that are behind Nord Stream 2. “Unfortunately, this project doesn’t have a single ally in Washington,” he says. “One could even say: It’s an orphan.”

DER SPIEGEL

Criticism is indeed coming from all sides, and not just the president. The phalanx of pipeline opponents is represented in both houses of Congress and both political parties. Among the Republicans, it is the hawks who generally regard Russia as a rival on the world stage that needs to be contained. Among Democrats, it’s all those members of Congress who want to get back at Putin for his interference in the 2016 U.S. presidential election.

“A lot of people here in Washington see things too black and white,” says Burt. “They think Europe will be supplied with either Russian gas or LNG, but there is enough demand for both.”

In the Senate, Democrat Jeanne Shaheen and Republican Ted Cruz are mobilizing against Nord Stream 2. Shaheen argues that “the United States cannot stand idly by while the Kremlin builds this Trojan horse.” At the end of July, the Senate Committee on Foreign Affairs voted 20 to 2 in favor of the “European Energy Security and Diversification Act of 2019.” The only thing left is for the bill to be put to a vote before it can go into force.

It’s possible the Senate could even use a congressional trick to expedite the process. The sanctions law could simply be added as an amendment to a larger bill, such as the law outlining the budget of the U.S. armed forces. The Democrats and the Republicans are currently negotiating that budget and it is expected to be adopted by Christmas. Additionally, Trump could move to impose sanctions on his own at any time.

Fears of Sanctions

The threat, in other words, is quite real — and it is one felt acutely on the other side of the Atlantic by Matthias Warnig. “There are still considerable risks that could jeopardize completion,” he says.

Warnig, the CEO of Nord Stream, is sitting in the corner of a hotel café in Berlin having breakfast. Jam drips on his shoe and he wipes it off with a napkin. These days, he’s spending a lot of time in the German capital, where he meets regularly with politicians, consultants and lawyers to help save the project. It keeps him awake at night.

Such admissions sound a bit strange coming from a 64-year-old man who has seen a lot in his life. Before the Berlin Wall came down, he worked as a spy for the East German secret police, the Stasi, under the alias “Economist.” After the collapse of communism, he was an investment banker in St. Petersburg, where he became friends with Vladimir Putin. He later joined the board of the Russian energy group Rosneft and held various positions at Gazprom.

He was able to push through the first Nord Stream pipeline for the Kremlin against heavy opposition, particularly from Poland and Ukraine. Today, however, he describes the situation as being “far more difficult.” Now that the U.S. has captured the global market, he says, it is willing to assert its interests “with brute force.”

Warnig has a Plan B in place for the eventuality that sanctions disrupt progress on the project. If necessary, he says, pipe sections could be laid without the special ships. Segments could be welded on land, transported to sea and installed by divers. To be on the safe side, Warnig has set up warehouses throughout Europe storing pipes, spare parts and equipment so that installation of the pipeline could continue. But it would mean that completion would be delayed by several months — a delay the Russians can ill afford. The current contract for natural gas trans-shipment through Ukraine expires on Dec. 31 — meaning the Ukrainians’ negotiating position strengthens with each day the Baltic Sea project is delayed, particularly given Russia’s obligation to continue supplying its customers in Western Europe.

With the help of mediation by the European Commission, the Russians and Ukrainians have been trying to reach a deal since the summer of 2018. As the two sides came closer to an agreement in September, Richard Grenell, the U.S. ambassador to Germany, immediately traveled to Kiev. The American diplomat has repeatedly threatened German companies with sanctions to prevent the pipeline’s construction.

Russian sources claim that he advised the Ukrainian government at the time to allow the negotiations to collapse, allegedly telling them the U.S. was planning to impose sanctions, which would improve the Ukrainians’ negotiating position significantly. When contacted for comment, Grenell confirmed his visit to Ukraine but described everything else as “complete fake news.” He says he only visited the country to support the U.S. campaign to decriminalize homosexuality. On Twitter, however, the U.S. Embassy in Kiev also posted a photo of Grenell together with a Ukrainian natural gas executive.

Champions of the pipeline say the American ploy is unmistakable. Rainer Seele, head of the Austrian energy company OMV, which holds a stake in Nord Stream 2, says the U.S. has built up “massive pressure” to prevent the pipeline and thus eliminate a competitor. “We can’t bow to this pressure in Germany and Europe,” he says.

Washington lobbyist Burt also advocates a tougher stance. “The Germans are a little bit weak here,” he says. Burt argues they ought to be countering the Americans more directly. “If you are going to deny us the pipeline,” he suggests they say, “then we are not going to build the LNG terminals and we won’t buy gas from the U.S.” The lobbyist’s advice: “Sometimes you have to play it hard or you get kicked around.”

Driving a Wedge Through Europe

And Europe? The EU is seeking to establish its own position, but it is also, by default, becoming the pawn of intransigent competitors. “Germany and the EU are in danger of getting tangled up between Russia and the U.S.,” says Kirsten Westphal, an energy analyst at the German Institute for International and Security Affairs (SWP) in Berlin. She says the Baltic Sea pipeline is driving a wedge through Europe.

Five years ago, Europe was still united on the issue, with EU member states agreeing on a common energy policy at the time in response to Moscow’s military intervention in Crimea. The goal was to reduce dependence on Russian gas, expand alternative sources and establish an internal market for gas.

The EU had LNG terminals built and pipelines more closely networked. The discussion had been of an “energy union” — at least until Chancellor Merkel withdrew from that coalition, instead throwing her weight behind the Russians’ Baltic Sea pipeline. It was a move that angered many allies.

But it’s possible that the escalation of the pipeline conflict will accelerate a process that will bring the Europeans closer together again. If the U.S. actually does move to impose sanctions on companies working for Russian energy firms, the knock-on effects could extend far beyond the construction of Nord Stream 2. The mere discussion of this eventuality is already disrupting operations at the PCK oil refinery in Schwedt, located in the eastern German state of Brandenburg.

Each day, the plant produces enough fuel for about 250,000 cars, 60,000 trucks or 50 airplanes. Berlin, the state of Brandenburg and large parts of eastern Germany are heavily dependent on oil products from Schwedt. The refinery is majority owned by the Russian company Rosneft, which poses a problem for some German and American companies. Out of fear of punishment, they are insisting on ending cooperation with the facility, even though the Americans haven’t even imposed any sanctions yet.

German banks, for example, have announced they will not be able to extend their credit lines for Rosneft in Germany, citing the looming sanctions. For the same reason, Siemens does not intend to take over any new service contracts. PCK suppliers in the U.S., meanwhile, have begun insisting on being paid immediately for their services. When contacted by DER SPIEGEL for statements, the companies declined to comment.