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Page added on April 1, 2017

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Putin Exploits Europe’s Divisions in Bid to Dominate Gas Supply

Public Policy

KARLSHAMN, Sweden—This small port town offers a textbook case of how Russian President Vladimir Putin has thwarted U.S. and European efforts to rein in Moscow’s most powerful source of leverage and cash: energy.

Karlshamn’s local leaders in January opened its port to Russia’s state-owned energy company, PAO Gazprom, in defiance of Swedish national authorities alarmed by a growing Russian military presence in the Baltic Sea. A subcontractor for a Gazprom subsidiary is now allowed to store pipes here for an $11 billion undersea natural-gas pipeline from Russia to Germany, easing the path for a project opposed by Sweden’s national government, the European Union and the U.S.

“We are not afraid of the Russians,” said Per-Ola Mattsson, Karlshamn’s mayor, who supports the agreement. “But in Stockholm, I think they are.”

Sweden is a prime example of Mr. Putin’s divide-and-conquer strategy as he attempts to maintain Russia’s status as an energy powerhouse and a geopolitical force in Europe. The Nordic country has reinstituted a military draft and moved troops to a strategic Baltic Sea island in response to Russian military moves, but it can’t stop Karlshamn from helping Gazprom because local governments in Sweden have strong authority over local affairs.

The pipeline, called Nord Stream 2 and expected to be completed at the end of 2019, is a priority for Moscow, which depends on pipeline gas sales for more than 10% of its export revenues. It would double the capacity of the existing Nord Stream pipeline to Germany and allow Russia to bypass Ukraine to reach its most lucrative European markets.

U.S. and European authorities have worked against Nord Stream 2, saying it deepens Russia’s influence. The EU and the Obama administration have said it would deprive Ukraine of economic leverage and a crucial source of income in the wake of Russia’s invasion there. The Trump administration’s position isn’t clear. The State Department didn’t respond to requests for comment.

Moscow is moving forward by exploiting disjunction and competing priorities in the EU, which can’t block the pipeline outright.

German Chancellor Angela Merkel has been a driving force behind EU economic sanctions against Russia over its intervention in Ukraine, but she has also supported Nord Stream 2, calling it a commercial project. Germany, the largest importer of Gazprom’s gas, is shepherding the project through the EU despite opposition from more than a half-dozen members. Nord Stream 2 will make Germany the main hub for gas imports into Europe.

European energy companies were blocked from helping to build it because of Polish antitrust claims but are actively trying to find a way to stay involved.

European countries to Germany’s east such as Slovakia and Poland call Nord Stream 2 a political venture designed to increase Russia’s leverage. They worry about reduced income from Russian gas flows through their countries, as well as a recurrence of the 2009 natural-gas crisis, when Russia restricted gas flows in a dispute with Ukraine over energy payments.

“It is about politics and influence,” Lithuanian President Dalia Grybauskaite said of Nord Stream 2 at a conference in Munich last month.

The Kremlin, Gazprom and Nord Stream 2 executives say the project has nothing to do with politics. The pipeline “isn’t directed against any of our partners,” Mr. Putin said at a meeting on March 22 with the leadership of German chemical group BASF SE. He said rising consumption and falling production in Europe made it an “absolutely natural project” and that the pipeline is of “a purely commercial nature.”

While EU members are debating, Russia is developing: 600 kilometers of pipes, around a quarter of the total needed for the project, have been delivered to ports in the Baltic Sea region, and 5 kilometers more are sent every day. The project’s onshore component in Russia is under construction.

Building Nord Stream 2 would hand Mr. Putin an important victory in demonstrating the limits of Western efforts to restrain him economically. Despite U.S. sanctions that pushed Russia into a recession, Mr. Putin and Russian companies allied with him have secured funding for an enormous natural-gas project in the Arctic and sent oil-production levels to post-Soviet records.

The EU has in recent years managed to curb the power of Gazprom to dictate gas prices. New regulations and pipelines allowed neighbors to share gas, and countries built plants to allow imports of liquefied natural gas. Gazprom has offered to change the way it does business in response to an EU antitrust case against the company. Europe is looking to the U.S., Australia and Africa for future gas imports.

Still, Russia has cemented its grip on supplies to Europe anyway, largely through cheap pricing and readily available supplies. Last year, Gazprom said it exported record amounts of gas to the EU, accounting for more than one-third of imports.

Even EU members who don’t rely on Russia for gas are unnerved, including Sweden. Leaders of this northern European nation of some 9.5 million say Russia’s moves to control Europe’s gas supplies coincide with Mr. Putin’s aggressive military moves in the Baltic Sea. Russia will hold large-scale military exercises near the Baltic states in September, which will take place at the same time as military drills by Western forces in Sweden. Russia is building up military forces in the Kaliningrad exclave and has increased conventional and cyber espionage, Swedish officials say.

In response, Sweden is sending a battle group of 300 troops, including a mechanized infantry and a tank company, to the Baltic Sea island of Gotland. Sweden isn’t a member of the North Atlantic Treaty Organization, but it is stepping up coordination with the military alliance.

The pipeline became a divisive issue in Sweden when a subcontractor of Nord Stream 2 AG, which is wholly owned by Gazprom, had wanted to use two Swedish ports: one on Gotland and the other in Karlshamn. The defense ministry raised security concerns, and Gotland rejected the proposal.

Swedish Defense Minister Peter Hultqvist said in an interview that the government wanted legislative changes that would give central authorities power to decide on matters concerning national security at major infrastructure sites.

“We are against Nord Stream 2,” said Mr. Hultqvist, calling it “a problem from a European perspective.”

Karlshamn, a 350-year-old port town of some 20,000 people, was gripped by debate. Allowing pipes to be stored in its harbor would bring around $10 million in revenues and 30 jobs, but it would also lend a hand to Russia.

© Axel Schmidt/Nord Stream 2/REUTERS

“For me, what is obviously not good for Sweden and the EU cannot in the same sentence be good for Karlshamn,” said Magnus Gärdebring, leader of the local opposition.

Mr. Mattsson, the mayor who supported the project, argued Karlshamn already services ships with Russian crews and stores Russian crude oil, so why reject the pipeline? His office received heated emails accusing him of being a Russian stooge, an aide said.

“If we have to stop business like this, do we have to stop all business that has to do with Russians?” Mr. Mattsson said. “We can’t decide for Sweden and the European Union.”

Write to James Marson at james.marson@wsj.com

wsj.com



52 Comments on "Putin Exploits Europe’s Divisions in Bid to Dominate Gas Supply"

  1. makati1 on Mon, 3rd Apr 2017 10:02 pm 

    Ap, you obviously drink a lot of the U$ Koolaid. The current flavor is “Bsd Russia” alternating with “Bad China”. Is U$ insanity spreading north?

  2. JohanZetterberg on Wed, 5th Apr 2017 9:22 am 

    Is it for All Fools’ Day? Are there equal choices to Russian energy supplies? Haven’t heard about sensible offers yet. It is rather silly to open Russophobe discussions, since there aren’t any. In case of Karlshamn leaders bravery is stupidity, as long as the money is green.

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