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Poland’s Baltic Pipe project pumped full of EU cash

, April 14, 2019, 0 Comments

poland-baltic-pipeThe European Commission has signed a multimillion-euro grant that will allow a new gas pipeline between Denmark and Poland to proceed. The project is seen as Warsaw’s answer to the Russian-German Nord Stream 2.

Poland’s much-vaunted Baltic Pipe gas pipeline is to go ahead following the formal signing of a €215 million ($243 million) European Union grant.

Representatives from Poland’s gas pipeline operator Gaz-System and Polish Prime Minister Mateusz Morawiecki attended the ceremony at the European Commission’s headquarters in Brussels on Monday after the subsidy was agreed by EU member states last January.

Running between Poland and Denmark, the bi-directional offshore gas pipeline will link the North Sea, Denmark and the Baltic Sea, which will ultimately allow Poland to be supplied with 10 billion cubic meters (353.1 billion cubic feet) worth of gas annually from Norway’s deposits.

The value of the entire investment in the pipeline, to be completed in 2022, is €1.6 billion euro, of which around half is to be borne by the Polish side.

Warsaw’s new standing hailed

The EU hailed the new pipeline as “a key European energy infrastructure project with major cross-border benefits.”

Morawiecki, meanwhile, played up Baltic Pipe’s ability to boost the country’s energy security, at a time when one of its closest neighbors, Germany, will become increasingly reliant on Russian gas through the controversial Nord Stream 2 pipeline, currently under construction, also under the Baltic Sea.

“[The deal] is a strategic breakthrough for Poland. Our energy security will look completely different. Baltic Pipe is a kind of a counterweight to Nord Stream 2, because it increases the diversification of energy supply for the EU,” he said.

Long-standing and partly forgotten disputes between Warsaw and Copenhagen have been put aside in preparation for the construction of the Baltic Pipe. Both countries signed an agreement last year on the demarcation of water boundaries south of the Danish island of Bornholm, where the pipeline is to be laid.

The first grants from the EU budget for studies on the viability of the project were handed out in 2015 and last fall, the heads of Polish and Danish gas pipeline companies signed a deal approving their own investments in the gas pipeline.

Monday’s signing of the new grant took place as the European Council approved an amendment to the EU’s gas directive which will likely complicate and delay the construction of Nord Stream 2, which several Baltic and central European states oppose. Apart from Bulgaria, which abstained, all other EU states including Poland eventually approved the changes last month despite Brussels adding a special loophole to allow the project linking Russia and Germany to proceed.

Will EU clip Nord Stream’s wings?

The amended directive does, however, give the European Commission powers, to some extent quite discretionary ones, that could see Germany forced to prove that Nord Stream 2 is not hurting competition in the sector.

“Today, I’ve told the European Commission, including its vice-president [for Energy Union], Maros Sefcovic, that we will be looking for it to act to enforce the directive as regards Nord Stream 2,” Morawiecki said after Monday’s talks in Brussels.

Poland opposes Nord Stream 2 for three main reasons. First, Warsaw is concerned about increasing the EU’s energy dependence on Russia, mainly due to Germany’s reliance on natural gas. Opponents of Nord Stream 2 believe it may turn into political dependence.

Berlin, on the other hand, argues that Germany and Russia — and previously the Soviet Union — have kept energy trading and politics separate for decades. In addition, Germany will also build terminals to receive liquified natural gas (LNG) from the US under a deal made last year that should boost the diversification of gas supplies to Europe’s largest economy.

Ukraine’s key role weakened

Secondly, Poland fears that key ally Ukraine will lose its role as a key transit country for Russian gas deliveries to the EU. That would see revenues generated by the Kyiv government from transit charges reduced to a fraction of current levels.

Ukraine would also be more vulnerable to Russia cutting off its own gas supply. Most alarmingly, without its role as a key gas transit point, Ukraine could lose its geopolitical importance in the eyes of the West. Despite these concerns, German Chancellor Angela Merkel has assured she intends to maintain the transit role of Ukraine.

The third reason for Warsaw’s opposition is its own self interest. As well as benefitting from Baltic Pipe, Poland is keen to become a hub in Central and Eastern Europe for the import and distribution of US LNG.

That could be hindered by aggressive and even unfair competition from the increasing inflow of Russian gas exported by Gazprom, the business giant politically utilized and supported by the Kremlin.