This article was originally published on the City AM website.
The EU is in a fix.
It perceives danger on its Eastern frontier from Russia, yet its energy and climate policies make it ultra-dependent upon it for energy supplies.
There is no doubt that Germany is the driving force behind the EU. It is the bloc’s industrial powerhouse and exporter, and also provides much of the monetary direction – rightfully so, as the largest contributor to the budget.
It is also one of the “greenest” nations, at least in terms of members of parliament.
Environmental issues are particularly strong in Germany, as pollution from the East under Communism had a detrimental effect upon the more populous West from 1945 to 1992.
In order to cut its carbon emissions and hit its EU climate targets, Germany needs to wean itself off coal and lignite power production.
The logical policy change is for Germany to switch to more gas powered generation, since gas emits around half the amount of CO2 compared to coal.
And here is the problem.
Germany has very little of its own gas supplies – it is ranked number 50 in the world for proven reserves. Already Europe’s biggest gas user, Germany imports 40 per cent of what it consumes from Russia.
That dependence is only going to increase by 2025, to more than 50 per cent, especially with output from the Netherlands set to drop in coming years, and Germany’s decision to phase out nuclear power generation following the Fukushima disaster.
This is where it gets more complicated. While Germany is due to get its first Liquefied Natural Gas terminal in the near future, following approval this summer, the country gets most of its gas via the Gazela Pipeline, the MEGAL pipeline, the Yamal pipeline, and Nordstream.
Also underway is the contentious Nordstream 2 project.
The new €9.5bn pipeline is intended to bypass Ukraine and bring supplies of Russian gas into Germany via the Baltic.
Not only will this increase the reliance of Germany on Russian gas – it has also fallen foul of the US.
Gas supplies from Russia had been exempt from EU sanctions following the Crimean crisis, but over the summer America chose to include the Nordstream pipeline – which is owned by the Russian state and whose boss is former German Chancellor Gerhard Schroeder – onto its sanctions blacklist.
Naturally, the EU, with the full support of Germany, has challenged this.
Here we see how EU foreign policy is being dictated by the energy needs of its dominant member.
The opposition to sanctions comes despite the fact that the project itself is in contravention of the EU’s own Gas Directive, which states that the transmission system operator has to own the network and cannot also be an undertaking involved in the production or supply of natural gas.
What the Nordstream saga tells us is that the EU is prepared to bend its own rules and apply economic sanctions inconsistently when it comes to dealing with Germany’s energy security – even if this means getting into bed with some dubious Russian characters.