Germany Conditions New Gas Pipeline Development in Russia on Ukraine's Role

The German Chancellor says the new gas pipeline project from Russia to Europe will not proceed if Ukraine does not have a significant role. Angela Merkel stated on Tuesday, April 10, during a joint press conference with Ukrainian President Petro Poroshenko, that the 'Nord Stream 2' project cannot move forward without clarifying the status of Russian gas transit through Ukraine. Currently, the 'Nord Stream' pipeline delivers 55 billion cubic meters of Russian gas to Germany annually, and the construction of 'Nord Stream 2' was expected to double this amount. However, Merkel emphasized that the 'Nord Stream 2' project is not merely an economic initiative but also has political considerations, and in a phone call with Russian President Vladimir Putin a day earlier, she stressed that Ukraine should not be sidelined or have a diminished role in this pipeline. Shortly after Merkel's statements, Gazprom responded. Alexey Miller, CEO of the state-owned Gazprom, wrote in a note published on the company's website that Ukraine could transit 10 to 15 million cubic meters of Russian gas annually if it can prove the economic importance of the new contract. Last year, approximately 94 billion cubic meters of Russian gas were exported to Europe through Ukraine; however, tensions between the two countries escalated recently following an international arbitration court's ruling against Gazprom due to Ukraine's complaint, leading Gazprom to announce the cancellation of all gas contracts with Ukraine. Meanwhile, the gas transit contract between Russia and Ukraine remains valid for several more years. Gazprom has stated on its official website that it does not accept the recent international court ruling regarding a $2.5 billion compensation payment to Ukraine, as well as the reduction in gas prices and export volumes to Ukraine. Moscow is accused of fueling the political crisis in Ukraine by supporting separatists and has faced a series of European and American sanctions since annexing Crimea in 2014. Additionally, the construction of the new 'Nord Stream 2' pipeline has faced opposition from the United States and concerns from neighboring countries. The U.S., which previously expressed its opposition to the project, has recently indicated that it may impose sanctions on it. The 'Nord Stream 2' pipeline is intended to transport Russian gas to Germany via the Baltic Sea. According to Reuters, Eastern European and Baltic countries are concerned that the launch of this pipeline will increase Europe's gas dependence on Russia and diminish Ukraine's role in gas transit. Russia supplies one-third of Europe's gas and is a significant source of revenue for Ukraine. The Ukrainian Oil and Gas Company has stated that it expects to earn $3 billion this year from Russian gas transit. The cost of constructing the 'Nord Stream 2' pipeline is estimated at $11.5 billion, and so far, 30% of its funding has been provided by shareholders. Gazprom owns 50% of the project, while the other half is held by companies such as OMV from Austria, Wintershall and Uniper from Germany, the British-Dutch company Shell, and Engie from France. Earlier this month, Germany issued all necessary permits for the construction of this pipeline on its territory. Meanwhile, Russia is seeking to build the 'Turk Stream' pipeline for its gas exports to Europe, which is expected to transport 31 billion cubic meters of gas annually to Turkey and Europe. This project includes two parallel pipelines, with the first expected to be completed next month. Currently, half of Russia's gas exports to Turkey are conducted through Ukraine, and the other half through the 'Blue Stream' underwater pipeline.