This week, Denmark granted Gazprom approval for its Nord Stream 2 gas pipeline project, a project that is set to bring 55 billion cubic meters of Russian gas into Europe annually. It is one of the most controversial pipeline projects in the world and is now moving ahead despite strong opposition from multiple EU members and the United States.
The geopolitical tensions surrounding the development of Nord Stream 2 are unprecedented. To begin with, Russia has very poor relations with the Baltic states and Poland, nations who will almost always fight against anything they see as empowering Russia geopolitically. Then there is Ukraine, a nation that is strongly against the pipeline due to its fear of losing the transit fees that it currently charges Russia for exporting gas to Europe. Finally, and perhaps most importantly, the United States sees this pipeline as a direct threat to its soft power in Europe as well as a threat to its growing LNG exports.
But for all the politics and attention that this pipeline is attracting, the simple truth of the matter is that Europe, and more specifically Germany, needs this natural gas. Germany plans to shut down all its nuclear reactors by 2022. Many have questioned the wisdom—and some even the sanity—of that decision, but it remains government policy. The generation capacity the is being lost in that sector will need to be replaced, in the short term at least, by natural gas.
Despite its green reputation, Germany is a country that generates a surprisingly large portion of its total energy from coal. Its total installed coal-fired capacity is close to its solar capacity, at 44.9 GW, versus 47.9 GW for solar. At today’s growth rates, it’s current solar and wind capacity will not be enough to replace the retired nuclear plants.
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