Nord Stream 2

James Heappey Excerpts

Tuesday 17th July 2018 Westminster Hall

[Mark Pritchard (The Wrekin) (Con)]

I beg to move,

That this House has considered Nord Stream 2.

I am grateful to Mr Speaker for granting me this debate and it is a delight to hold it under your chairmanship, Sir Edward. It might seem intriguing or even peculiar to discuss Nord Stream 2—the construction of a 1,300 km gas pipeline so far away from British shores—in this place, in this House, in this Parliament. I hope over the next few minutes to set out why Nord Stream 2 matters to Europe’s national interests and the strategic interests of the United Kingdom, as well as to our NATO allies and partners in the European Union and in European neighbourhood countries as well.

If it comes on stream, Nord Stream 2 will provide 12% of the EU’s energy demand. On the face of it, that sounds like good news, but it will remove about $1.8 billion of transit fees that currently benefit the Ukrainian economy, from the Progress and Trans-Siberian pipeline systems. I also understand why Germany wants to increase its imports of external energy. Again, on the face of it, that is a very laudable aim. Certainly, as Germany switches off its nuclear power stations and seeks to reduce its coal consumption to meet the EU’s climate change targets, it will invariably find itself more reliant on imports of foreign gas and oil, although I note that those sources of energy are also fossil fuels.

It is also understandable to believe that the Ukrainian objections to Nord Stream 2 are commercial in nature. I am sure that, in large part, that is true; I have already mentioned the transit fees. However, is the $3 billion of transit fees alone enough of an incentive for its objections? I do not believe it is.

Pre-eminent in Ukraine’s objections are the geopolitical levers Russia could—would, in my view—deploy should Nord Stream 2 go ahead. That is not geopolitical guesswork but a fact-based opinion reliant on Russia’s actions over the last decade, during which it has deliberately and systematically misused the supply of energy to Ukraine and other parts of Europe as a stick to beat any state that seeks to be closer to the European Union and NATO.

Notwithstanding that reality, Russia’s current transit dependency on Ukraine affords Kiev some protection from further Russian aggression. Yes, Russia may have its stockpile of nuclear weapons and its exports of oil and gas, but its economy is not in good shape and is no larger than that of Spain, despite Russia’s geographical mass. Moscow is therefore all too aware of its reliance on an uninterrupted revenue stream from its gas exports. At present, Ukraine is an inconvenient transit country to Russia, but it is a transit country. While gas prices are comparatively low, Russia is prepared to moderate and tolerate some aspects of its expansionist foreign policy against Ukraine. I should say moderate. I do not think tolerate is the right word; the Ukrainian population certainly do not tolerate it.

Russia’s reluctant restraint, owing to its reliance on energy transit adversaries, as it would see it, is exactly why it sees the diversification of its gas transit routes as a top foreign policy priority, and as a possible stepping stone to further annexation of Ukrainian territory in the future and to attacking the Ukrainian economy through a major loss of its transit fees. In short, the completion of Nord Stream 2 will allow Russia to pursue an even more aggressive foreign policy towards Ukraine.

The clock is ticking. The agreement between Russia’s Gazprom and Ukraine’s Naftogaz is set to expire on 1 January 2020. Set against the 2019 completion date for the Nord Stream 2 project, the time for German platitudes and, dare I say it, the UK’s apparent unwillingness to come to a firm and fixed view on Nord Stream 2, has to end. Surely the key question for the UK Government is: “Will the development of Nord Stream 2 be in the UK’s medium and long-term strategic interests, and the strategic interests of our friends and allies in the European neighbourhood and in NATO?”

I know that several EU countries have a financial stake in the pipeline—or, at least, companies from countries including France, Austria, the Netherlands, and Germany. I also acknowledge that British interests are at stake. However, there is always a political risk with international and large-scale energy projects. My primary concern is not the potential commercial losses for those private companies, or even the success—or lack of success—of former German Chancellors in their deal making, but the strategic interests of the United Kingdom and our friends and allies. That is why I welcome Chancellor Merkel’s recent comments at the EU-Ukraine summit, at which she said

“it is not just an economic issue…there are also political considerations”.

However, actions, not just words, are now needed. I am happy that the Minister of State is a man of action, not just words, and I look forward to his—as ever—informed and detailed response.

Of course, Ukraine can take its own action. Ukraine should not just be reliant on supportive EU partners for its economic and energy outlook, or debates like this taking place in Parliaments throughout the European Union. Ukraine can and should take action on, for example, replacing its ageing energy infrastructure, deregulating its over-regulated energy market, examining its own pricing structure, liberalising its own internal energy market and further diversifying its energy suppliers.

Another point for our German partners to recognise is that Nord Stream 2 will undermine the EU’s own energy strategy and energy union. Nord Stream 2 is incompatible with the objectives of the EU’s energy policies. Moreover, the pipeline will undermine other EU projects that seek to diversify energy supply markets and locations. Indeed, Donald Tusk, the President of the European Council, has previously said that Nord Stream 2 goes against the EU’s wider energy security interests. He has called for, at the very minimum, the pipeline to be regulated, and he repeated that at the recent Ukraine-EU summit. He went on to call for the pipeline’s construction to be halted in a joint statement with the President of the Commission, Jean-Claude Juncker.

The EU could also do more to ensure the diversification of its energy supplies. For example, it could get on with building liquefied natural gas storage areas in Lithuania, Latvia, Slovenia and other EU countries. Europe is perhaps also over-reliant on gas from the middle east. Perhaps it is time to look westwards across the Atlantic for a more secure and reliable energy partner.

For all the criticism of President Trump, much of it justified in my view, he has made the US into a net exporter of energy again. He has reduced America’s reliance on foreign energy supplies. That is clearly to its geopolitical and economic advantage, but it is an advantage, and it is one that we need to replicate.

In conclusion, it is clear that there is a lot of unease among our European partners about the Nord Stream 2 project, as the Prime Minister noted in her NATO statement yesterday. At a recent energy conference in Europe—I refer Members to my entry in the Register of Members’ Financial Interests—I met a former Prime Minister of Italy, a former President of Poland and the current President of Latvia, all of whom expressed strong views on the need to increase, not decrease Europe’s energy security. In fact, all the Baltic countries oppose Nord Stream 2, as do many other countries, including Slovakia and Slovenia. The Prime Minister of Poland was perhaps the most perceptive when he called Nord Stream 2

“a weapon of hybrid warfare”

and

“a poison pill for European security”.

[James Heappey (Wells) (Con)]

I congratulate my hon. Friend on securing this debate. I agree that the issue is not just the geopolitical leverage the pipeline gives to Russia or sorting out Germany’s dependency on Russian gas. If the Foreign Office can take the lead in discouraging Germany from the scheme, it would send a clear message about the enthusiasm of all European countries to decarbonise. With that comes greater energy security through a better mix of renewables and the energy security that brings.

[Mark Pritchard]

My hon. Friend makes a very good point. As someone who sat on the Environmental Audit Committee many years ago, I remember a report we did called, “Keeping the lights on”. He is absolutely right that the whole of Europe, and in many ways Britain, has led the way on renewables. Germany, which prides itself as being green as a nation and being green politically—perhaps more so than some in Chancellor Merkel’s party would want—needs to ensure that it diversifies its energy supplies and its energy mix. That is good for energy security, the environment and reaching our climate change targets.

Bringing things back to the United Kingdom, I am also aware of the comments made by the former Foreign Secretary, my right hon. Friend the Member for Uxbridge and South Ruislip (Boris Johnson), in a letter to some colleagues. He apparently wrote that he feels that Nord Stream 2 is divisive and could leave the EU’s supply reliant on “a malign Russian state”. Is that the view of the Minister of State?

Sweden and Finland have both reluctantly given the go-ahead to the project, given that they had little choice but to do so, because, as colleagues will already know, Nord Stream 2 passes through those countries’ economic zone waters rather than their territorial waters. My hon. Friend the Member for Wells (James Heappey) just intervened and what I say next might address some of his question. The pipeline passes through Denmark’s territorial waters and, if the Danish Parliament and/or Government object to the pipeline, they could block the project. The pipeline could then be diverted, but with a significant delay, which might also give Poland a greater say in the project and might help Ukraine in negotiating a new transit agreement with Russia, given the timetables that I set out earlier.

I accept that the Danes are under pressure, both from those opposed to Nord Stream 2 and those in favour of it. In that regard, can the Minister say what representations the UK Government have made to the Danish Government on this issue, and what the precise nature of those discussions was?

I am sure that colleagues will be aware that Denmark’s Prime Minister Rasmussen is the same Danish Prime Minister who gave the go-ahead for the Nord Stream 1 project in 2009. However, times have changed, not only in the political balance and make-up of the Danish Parliament and the Danish Government, but in Russia’s overt, asymmetric, hybrid continual aggression throughout the European Union and the European neighbourhood. It is clearly understandable that Denmark wants to avoid confrontation with Russia over its disputed Arctic territory and the countries’ overlapping areas of the continental shelf, but Denmark must also decide whether Russia is a reliable and trustworthy energy partner.

Some suggest that Nord Stream 2 falls foul of the EU’s third energy package and in some respects that is true. However, both Russia and Ukraine are regarded as third countries, and in legal terms the third energy package is predominantly, as the Minister will know, an internal market policy and directive. So it is perhaps less of a defence against Nord Stream 2, although the project completely undermines Europe’s stated policy of an energy union; I think that is quite clear for all to see.

I accept that Nord Stream 2 is an economic project—I am not arguing against my earlier point, which I made in my introduction—and indeed a commercial prospect. However, it is also and predominantly a political project—a Russian geopolitical project. That must make European capitals wake up and count the cost of ending construction of the project now, rather than potentially counting a far higher human cost and territorial cost in the future.

The question that Germany and EU partners, and I would carefully suggest, the UK, need to ask themselves is this: can Russia be trusted to supply over the medium and long term affordable, reliable and secure gas to the peoples and businesses of Europe? If there is any doubt or hesitation in formulating a positive reply to that rather simple question, surely Europe’s security and economic competence will be put at high risk by this project.

[Mr John Whittingdale (Maldon) (Con)]

I begin by warmly congratulating my hon. Friend the Member for The Wrekin (Mark Pritchard) on securing this debate, which covers a matter of considerable concern, both in this country and across Europe. I think we saw evidence of that yesterday, when the Prime Minister gave her statement following the NATO summit. In the questions that followed, five hon. Members raised the issue of Nord Stream 2 and expressed concern about its consequences.

That concern has been echoed in Governments across Europe. My hon. Friend said that he had spoken to the President of Latvia, the former President of Poland and to Italy. As he knows, I chair the all-party parliamentary groups on Ukraine, Moldova, Lithuania and Belarus, and when the Moldovan and Lithuanian Foreign Ministers visited London they raised Nord Stream 2 as a specific concern and potential threat to the security of their countries. Last week at the OSCE Parliamentary Assembly in Berlin, I participated in a meeting organised by the Ukrainian delegation to highlight many of the points that my hon. Friend made so forcefully.

When my right hon. Friend the Minister has discussed Nord Stream 2 in the past—I have raised it with him—he has suggested that it is primarily a commercial matter and, because the UK is at the far end of a long pipeline, it is of less concern to us. However, I hope he will recognise the security implications that we must take seriously. First, is this a commercial matter? It is hard to see any commercial justification for the massive investment that Nord Stream 2 will require. The existing pipeline, which crosses through Ukraine, does a pretty good job. It is highly flexible, allowing fluctuations in gas pressure, and it has spare capacity. It may need some investment to bring it up to modern standards, and that could cost an estimated $100 to $300 million a year.

[James Heappey]

On a recent trip to Brussels, I spoke to the Commission about its plans for a net-zero target, which would bring a significant reduction in gas demand across north-western Europe. One would think that that would revise yet further the commercial case for a new pipeline such as Nord Stream 2.

[Mr Whittingdale]

My hon. Friend makes a good point. The more one looks at the economic case for the investment, the harder it is to see. The cost of building Nord Stream 2 is estimated at $17 billion, and it will not add to capacity as there is spare capacity in the existing pipeline. Ukraine moved about 94 billion cubic metres of gas last year, which left 55 billion cubic metres of spare capacity. It difficult to see any significant increase in demand—in actual fact, as he points out, there may well be a reduction.

The commercial justification simply does not add up. In a recent analysis of the economics, Sberbank said, “The Power of Siberia”—another gas pipeline—

“Nord Stream-2 and Turkish Stream are all deeply value-destructive projects that will eat up almost half of Gazprom’s investments over the next five years. They are commonly perceived as being foisted on the company by the government pursuing a geopolitical agenda.”

We are extremely familiar with the idea that Gazprom is used by the Russian Government as an instrument to deliver their political objectives. In the last decade or so, we have seen the Russian Government use gas as a weapon on numerous occasions—particularly in 2009 and 2014—either reducing the amount or, in some cases, cutting off supply altogether.

The Russians use gas because they have the overwhelming supply for most of Europe, and they do not hesitate to deploy it as a political weapon. The new chairman of the Ukrainian gas company Naftogaz, Clare Spottiswoode, will be familiar to many of us here, as for a long time she was the regulator for energy markets in the UK. She did a fantastic job in the UK of fostering competition among gas suppliers, because she believes, as I do, that the way to provide the best service to consumers is by increasing competition, yet she points out that Nord Stream 2 will have a detrimental effect on competition. It is anti-competitive and it will increase the monopolistic stranglehold of Gazprom, and behind it the Russian Federation.

As my hon. Friend the Member for The Wrekin pointed out, Nord Stream 2 is essentially a political tool. The Polish Prime Minister has described it as a new hybrid weapon. If it replaces the Ukrainian gas pipeline—I think all of us believe that is the long-term objective—the consequence will be for Ukraine to lose up to 4% of its GDP, with an effect on government spending of a cut of about $2.3 billion. This is an economy that is already suffering, with Ukraine having part of its territory under occupation, notably its manufacturing heart in the east. The loss of the pipeline would be a further economic blow to a country that is already finding things difficult.

The consequences for Ukraine, however, are not only economic. The building of Nord Stream 2 and Europe no longer having to rely on Ukraine as a transit country for its supply of gas would remove one of the critical obstacles that stands in the way of further Russian aggression against Ukraine. The need to preserve the existing pipeline has to some extent acted as a disincentive to Russia; removing that disincentive could allow it to increase its military aggression against Ukraine.

As my hon. Friend said, Germany is phasing out nuclear power and, in all likelihood, we shall if anything increase our dependence on Russian gas, and yet at the same time we are engaged in hybrid warfare, as has been pointed out in debates in Parliament on a number of occasions: Russia occupies a part of Ukraine in the Crimean peninsula; it supports separatist movements in eastern Ukraine; it interferes in elections, in particular in the United States and in France; it runs a disinformation campaign through black propaganda; and of course our Government hold it responsible for the murder of a British citizen on UK soil and for the attempted murder of several others. This is not the time to make ourselves more vulnerable to Russian pressure by allowing Russia to increase its stranglehold on gas supply into Europe.

I therefore very much agree with my hon. Friend, and I congratulate him. I hope that the Minister will express—perhaps in stronger terms than we have heard before now—the concerns that exist in the British Government should that project go ahead.