How independent does the Baltic Pipe make the EU in regard to its natural gas market?

In the wake of the cessation of Russian natural gas imports due to the destruction of the Nord Stream pipelines, the Baltic Pipe offers the potential of somewhat softening this blow to the EU, despite its inferior size in comparison to Nord Stream. However, while the Baltic Pipe does arguably make the EU more independent in regard to its natural gas market, it does so at a significant cost. This is because the EU will still be dependent on foreign nations, in addition to importing less natural gas due to the loss of its main supplier – Russia. This elicits the question of whether independence is worth such a price.  

The Baltic Pipe is an extension of the Europipe II, which lies under the North Sea between Norway and Germany. The project has a capacity of importing up to ten billion cubic metres (bcm) per year into Poland via approximately 900 km of pipework (Baltic Pipe Project, 2022). Formal support had been declared for the venture by the European Commission in 2013, enlisting the Baltic Pipe investment as a project of common interest (European Commission, 2022). Such support signifies that the European Commission interprets the new pipeline as having the potential to strengthen and diversify the internal European gas network, which would contribute towards affordability and sustainability for member states, especially those within the Baltic region. 

The Baltic Pipe investment has also majorly benefitted from the Connecting Europe Facility, an EU fund established to promote economic growth and competitiveness through infrastructure investments for member states. Overall, the pipeline has received €267 million from the fund (ibid.), with the largest grant reaching €215 million (INEA, 2019). One may logically assume that such an intention to strengthen the internal European gas trade would be due to the fact that the EU imports approximately 77% of its natural gas, with around 43% coming from Russia (Kottasova, 2019). In consideration of the war in Ukraine, the President of the European Commission, Ursula von der Leyen, declared that the EU would end its “…dependence on Russian energy by 2027” (Fox, 2022). European importation of Russian natural gas subsequently decreased from 105.7 bcm to 54.2 bcm in the twelve months prior to November 2022 (Cooper, 2022). Consequently, the Baltic Pipe would be assumed to play a significant role in such promises and hence increase EU independence with their energy supply.

The Baltic Pipe became operational just one day after a series of officially unexplained explosions had damaged Nord Stream 1 and 2 pipelines beyond repair on 26 September 2022. Both Nord Stream pipelines run under the Baltic Sea and reach the EU in Lubmin, north-east Germany. Nord Stream 1 runs from Vyborg, in north-west Russia, close to Finland. It had been operational since 2011 and was responsible for 35% of the natural gas imported annually from Russia to EU member states (Horton & Palumbo, 2022). Nord Stream 2 was to run from Ust-Luga, also within the north-west of Russia, but closer to Estonia; this pipeline had yet to be operational but was designed to double Russian natural gas imports into mainland Europe. However, despite the inoperability of the Nord Stream pipelines, there is still a network of pipelines from Russia to EU member states and Turkey (which is a customs union member): the Yamal pipeline leading to the north-east of Germany (operating eastwards since December 2021, transporting natural gas to Poland from Germany, despite having the capability to operate westwards from Russia); the Blue Stream pipeline to Turkey via the Black Sea with an annual capacity of 16 bcm; and Turkstream (with a combined capacity of 31.5 bcm annually, of which half of the exported natural gas is intended to be sold to southern European states (Soldatkin, 2022)). Therefore, with the varied avenues for Russian natural gas to enter the EU, it is more than plausible that member states will still retain dependency on Russian natural gas within the coming years, despite the Baltic Pipe to Norway aiding in offsetting, to some extent, the Russian market power when it comes to natural gas.

The cut of gas supply via Nord Stream and the subsequent deficit in natural gas coming into Europe, despite the addition of the Baltic Pipe, may be somewhat compensated via the southern gas corridor. This corridor harvests natural gas from the Shah Deniz gas field in Azerbaijan to then funnel it into Italy, Greece, and Turkey, in addition to Albania, which has been taking part in accession negotiations since 2020. The largest section of the southern gas corridor, the Trans-Anatolian Natural Gas Pipeline, has a capacity of exporting 16 bcm per annum (Global Energy Monitor, 2022). The majority of this gas reaches the EU via imports from Turkey – where the Trans-Anatolian Pipeline ends. It has been reported that the Trans-Anatolian pipeline is to nearly double its exportation of natural gas into Europe, increasing its capacity to 31 bcm, once construction on its expansion has been completed (Marrow, 2022). Although imports via Azerbaijan do not strictly increase EU independence regarding natural gas, trading with a friendlier nation compared to Russia does help to avert hostile market conditions caused by the war in Ukraine.

In addition, without the Nord Stream pipelines, there is an opportunity for Norway to become the next major energy supplier to the EU due to the new exposure to the eastern European natural gas markets, which the Baltic Pipe investment provides. The Norwegian prime minister, Jonas Gahr Store, even hinted at discounted gas prices for struggling European nations (Jucca, 2022). Although Norway is not an EU member state, it is part of the European Free Trade Association (FTA), which allows negotiated access within the European single market. 

Despite the major benefits for Norway, Poland would be the main beneficiary of the Baltic Pipe project for a variety of reasons. Firstly, with a new direct source of natural gas, Poland would be able to trade this natural gas to bordering nations, such as Lithuania, via its bi-directional Gas Interconnection, which was also co-funded by the European Commission (Amber Grid, 2022), as well as back to Denmark due to the Baltic Pipe operating both to the east and west. 

Furthermore, the leading cause for concern for Poland was its dependency on Russian natural gas via the Yamal Pipeline, which begins in northern Siberia, and traverses the Russian Yamal Peninsula and Belarus, and ends in Poland. The Baltic Pipe replaces 60% of imported Russian natural gas (Easton, 2022) that had been blocked by Russian majority state-owned energy corporation Gazprom. Vladimir Putin demanded in March 2022 that “unfriendly” foreign buyers would have to pay for natural gas in Russian roubles (Chestney, 2022), in an attempt to somewhat stabilise the currency in response to its downturn following  the war in Ukraine and the subsequent reduction in foreign investment and confidence in the Russian economy. Poland refused to negotiate with Putin, unlike a few major EU states such as Italy, France, and Germany (Hernandez, 2022). This led to Gazprom announcing that it would stop exporting natural gas via the Yamal pipeline to Poland in April, as well as to Bulgaria, who also refused Putin’s demands due to an alleged breach of contract (Pokharel & Thompson, 2022).

However, there is the question of how significant the Baltic Pipe is regarding natural gas independence of the EU from Russia. This new injection of natural gas into eastern Europe is not of the same size and significance as Russian imports. The Nord Stream infrastructure was due to export 110 bcm of natural gas per year into Europe, whereas the Baltic Pipe transports less than 10% of that figure. Hence, although the EU’s independence regarding its natural gas supply has increased, the substantial loss of Russian gas has led to an increase in the market price of natural gas because of the deficit within its supply. In addition, consequent unstable market conditions have arisen that may result in doubts on whether the heightened fractional independence was worth the chaos. 

Nevertheless, the EU does objectively experience more independence regarding natural gas imports due to a further 10 bcm being funnelled into eastern Europe from Norway.  However, this refined sense of independence is dependent upon the mobility of natural gas from Poland. The Nord Stream pipelines had wider immediate geographical access to more prominent economies within western Europe, such as France, Switzerland, and Austria, because they ended in Germany. In contrast, Poland and the Baltic Pipe provide immediate access to weaker economies such as the Czech Republic, Lithuania, and Ukraine. Therefore, the new injection of natural gas into Europe fails to reach some of the strongest EU economies. Whilst this may help to build said weaker economies in the long term, the EU will suffer in the short term because the stronger economies will have to raise prices due to the deteriorated supply in natural gas. 

Moreover, Germany became efficient in transporting Russian natural gas via Nord Stream all over Europe. In contrast, Poland is relatively unfamiliar with such an operation, which may lead to doubts about whether Poland has the means and expertise to follow in Germany’s footsteps, albeit concerning a smaller volume of natural gas. This concern may suggest that although the EU has somewhat more independence than before, this may come with the cost of being, in some regard, limited within its distribution.

Despite Russia reducing its natural gas exports by roughly 88%, according to the chief economist of Argus Media (ibid), supplies of liquified natural gas (LNG) from Russia into the EU increased by 46% last year, from 11.3 bcm to 16.5 bcm between January and September 2022 (Cooper, 2022). Such an increase in LNG importation is by no means proportionate to the fall in natural gas supplies from Russia, but still reduces EU independence when considering control over its gas supplies. Therefore, in an attempt to offset the reduction of Russian LNG into Europe, the EU welcomed the U.S. President’s pledge in March 2022 to import an additional 15 bcm of LNG into Europe, at the expense of emerging markets predominantly in South Asia (Renshaw & Disavino, 2022).

The introduction of the Baltic Pipe and the suspension of the Nord Stream pipelines has increased natural gas independence for the EU. The EU has been forced to cut off annual imports of 55 bcm of natural gas from a provider that used its resources as leverage in its war with Ukraine. Russia has been replaced with Norway, which is part of the European FTA, and will export 10 bcm of natural gas annually to the EU. Nevertheless, it must be conceded that the EU is still heavily dependent on Russian energy due to its consistent importation of Russian LNG and the number of remaining natural gas pipelines into Europe which are still operational through Turkey, which serves as a proxy for Russia as a natural gas supplier. 

Also, the Baltic Pipe will inevitably weaken European independence from Russia in regard to their natural gas supply because of the inoperability of Nord Stream, which was the main Russian pipeline into Europe. Moreover, in an attempt to fill the Russian reduction, the EU has become more dependent on U.S. and Azerbaijani exporters, thereby simply shifting its external dependency elsewhere. Although the Baltic Pipe does therefore somewhat increase EU independence in regard to its natural gas supply, it is simply shifting their dependency from Russia to other nations that may be friendly in the short term, but are set to have power over the EU in the long term.  

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