Raw Material Supplier for the EU's Energy Transition

Berlin and Washington make a deal on Nord Stream 2. The aim: include Ukraine in the EU's raw material supply chains for the energy transition.

BERLIN/WASHINGTON/KIEV | | ukraine

BERLIN/WASHINGTON/KIEV (Own report) - Washington and Berlin have reached an agreement, which temporarily ends a long-standing transatlantic power struggle over the Nord Stream 2 pipeline. With the agreement announced yesterday evening, the US government is implicitly withholding sanctions against German companies over Nord Stream 2. In return, the German government pledges to actively support Ukraine's inclusion in the EU's raw material supply chains for the energy transition. Germany will donate US $175 million to the "Green Fund for Ukraine" and promote private investments. Using wind and solar energy in Ukraine to produce "green" hydrogen and deliver it through Ukrainian natural gas pipelines to the West has been in discussion for some time. The EU is also planning to mine raw materials in Ukraine, such as Lithium, needed in large quantities to produce batteries, for example, for electric cars. Apart from supporting Ukraine, Berlin intends to increase its support for the Three Seas Initiative targeting Russia.

The Deal

Under the deal agreed to by Washington and Berlin, ending years of fierce disputes, the Nord Stream 2 pipeline will, most likely, not only be completed but also commissioned without German companies having to fear US sanctions - even though this is not explicitly stated in the agreement. In return, the German government has pledged to do all it can to have Russian gas continue to be delivered westward through the Ukrainian pipeline system. Receiving the transit fees - calculated recently to amount to roughly $2 billion annually by Ukrainian President Volodimir Selensky - is of prime importance to Kiev. It is, however, not clear how Moscow should be compelled to permanently use the Ukrainian pipelines. Berlin has successfully rejected a US demand to introduce an automatic so-called kill-switch clause for Nord Stream 2, in case Russia should halt the transit.[1] In return, Berlin has promised to press for "effective measures at the European level, including sanctions" against Russia, in case Moscow should seek to use the pipeline to achieve aggressive political ends." Any "attempt to use energy as a weapon" must be prevented.[2]

Urged to Stay Quiet

Prior to the announcement of the deal, the Biden administration had exerted massive pressure on Ukraine's government, which, in connivance with anti-Russian hardliners in the USA, including Republican congressmen, had tried everything to torpedo an agreement on Nord Stream 2. During his visit to Berlin on Monday last week, President Selensky reiterated that the gas pipeline was a threat to his country's "security", and prior to this he had explicitly described it as "a weapon," and "a very sharp one."[3] According to reports, the US government has recently rejected such statements - threatening that if Kiev dared to continue its public protest against the deal between Washington and Berlin, it would severely harm US-Ukrainian relations. Ukrainian politicians should also urgently refrain from plotting with US congressmen concerning Nord Stream 2.[4] This week, a senior State Department adviser is visiting Ukraine and Poland to dampen resistance in both countries. In addition, US President Joe Biden promised to receive his Ukrainian counterpart with much fanfare in the White House before the end of the month.

EU's Hydrogen Partner

In return, the German-US accord envisages for Kiev, Ukraine's integration into the EU's raw material supply chains for its energy transition. The first steps in this direction have already been made. In August 2020, the German and Ukrainian governments have signed a memorandum of understanding establishing an "energy partnership," which includes cooperation in the production of hydrogen as an energy source. Ukraine has attractive potentials for wind and solar energy, which could serve to produce "green" hydrogen and pipe it westward through Ukraine's gas pipelines.[5] On behalf of the German government, the German Energy Agency (dena) has begun to promote cooperation between the relevant German and Ukrainian enterprises. Some companies have reportedly already set their sights on specific projects.[6] In addition, the EU concluded a strategic partnership with Kiev last Tuesday, which includes the delivery of raw materials for the energy transition. The strategic partnership is focused on providing raw materials for the energy transition, of which Ukraine has an ample supply - for example Lithium, Cobalt, and rare earths.[7]

"Green Fund for Ukraine"

A "Green Fund for Ukraine" is being created to promote these projects. Initially Germany will donate $175 million, which will be augmented to at least $1 billion - with private investments. The German government will also appoint a "special envoy" for elaborating the German-Ukrainian cooperation in renewable energy. Observers have, however, expressed skepticism regarding the state of that branch of Ukraine's industry. In February, for example, one analysis noted that foreign investors had put around €10 billion "into green energy in Ukraine."[8] However, business is not doing well, also because it hardly has any political backing - not least of all because of the coal interests of Ukraine's oligarchs. For example, the Ministry for Energy and Environmental Protection, which is also in charge of renewable energy, "has scratched environmental protection ... from its objectives." Renewable energy has "fallen victim to the interests of fossil fuels producers." Kiev has "determined that ... the amount of deliverable electricity derived from renewable energy" is "too unstable due to fluctuations." The domestic "energy independence of Ukraine" should be achieved by expanding its own natural gas production.

The Three Seas Initiative

Apart from its support for Ukraine, and in return for the US not imposing sanctions on German enterprises, the German government has agreed to support energy policy needs of the Three Seas Initiative. This initiative, linking 12 countries between the Baltic and the Black Seas,[9] had been initiated in 2015 by Poland's President Andrzej Duda and Kolinda Grabar Kitarović, President of Croatia, at the time. However, the impetus for that initiative had come from the United States. Resorting to the old interbellum Polish strategy, the aim is to form a corridor comprised of a majority of anti-Russian oriented countries. (german-foreign-policy.com reported.[10]) The Three Seas Initiative derives its name from the fact that its member-countries border on the Baltic, the Adriatic, or the Black Sea. Its objective is, on the one hand, to add a north-south component to the existing east-west transportation infrastructure in the direction of Germany. And on the other, they seek to import and distribute US fracking gas also along a north-south axis, to force Russian natural gas from the region's market. For years, the Three Seas Initiative's orientation on the USA has been an annoyance to Berlin. Two weeks ago, Germany's President, Frank-Walter Steinmeier urged that the initiative's leadership be consolidated within the EU, thereby exposing it to German influence.[11] Germany's agreement to support the energy policy of the Three Seas Initiative serves the same goal.

 

[1] Bojan Pancevski, Brett Forest: U.S.-German Deal on Russia's Nord Stream 2 Pipeline Expected Soon. wsj.com 20.07.2021.

[2] Gemeinsame Erklärung der USA und Deutschlands zur Unterstützung der Ukraine, der europäischen Energiesicherheit und unserer Klimaziele. 21.07.2021.

[3] Konrad Schuller: Merkels Gratwanderung. Frankfurter Allgemeine Zeitung 13.07.2021.

[4] Betsy Woodruff Swan, Alexander Ward, Andrew Desiderio: U.S. urges Ukraine to stay quiet on Russian pipeline. politico.com 20.07.2021.

[5] Deutschland und Ukraine vereinbaren Energiepartnerschaft. bmwi.de 26.08.2020.

[6] Mathias Brüggmann, Moritz Koch, Klaus Stratmann: Die Ukraine soll Hersteller grüner Energien werden. handelsblatt.com 13.07.2021.

[7] EU and Ukraine kick-start strategic partnership on raw materials. ec.europa.eu 13.07.2021.

[8] Sergej Sumlenny: Eine Riesenverschuldung gegenüber den Erneuerbaren: Selenskyjs Energiepolitik könnte katastrophale Folgen für die Ukraine haben. In: Ukraine-Analysen Nr. 246, 17.02.2021. S. 2-6.

[9] Der Drei-Meere-Initiative gehören Estland, Lettland, Litauen, Polen, Tschechien, die Slowakei, Ungarn, Österreich, Slowenien, Kroatien, Rumänien und Bulgarien an.

[19] See also Osteuropas geostrategische Drift.

[11] Krassen Nikolov: Germany wants EU to take the leadership of Three Seas Initiative. euractiv.com 09.07.2021.