Estonia wary of Nord Stream expansion

Estonian Defense Minister Urmas Reinsalu sent a letter to Estonian Foreign Minister Urmas Paet on Oct. 23 urging the government to refuse to allow the third and fourth lines of the Nord Stream natural gas pipeline project to run through Estonia’s Exclusive Economic Zone. Reinsalu’s letter comes just a month after the Russo-German project requested permission to perform studies on Estonia’s seabed. Estonia rejected a similar request in 2007 for environmental and safety reasons and on the grounds that hosting a strategic Russian asset could create a security threat for the Baltic country.


Russia has tried to demonstrate to Estonia that Moscow will not use Nord Stream as a political tool, but the Baltic state appears to have misgivings about Moscow’s intentions. Although Estonia’s business community sees the pipeline as a business opportunity, the intelligence and military factions in the government still have security concerns. However, should the idea of expanding Nord Stream through Estonia gain momentum within the consortium, Moscow and Berlin could still get Tallinn to the negotiating table.


Increasing capacity to Europe


Russia’s main objective with the Nord Stream project is not to satisfy the growing natural gas needs of the Northern European market, but to develop an alternative to Russia’s traditional natural gas transport routes through Belarus and Ukraine. The first two Nord Stream pipelines have been completed - the second leg was inaugurated Oct. 8 - and now Moscow is testing Tallinn’s attitude toward the construction of a third and fourth line.


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If built, the third and fourth lines would double the Nord Stream project’s current capacity, from 55 billion cubic meters per year to 110 billion cubic meters per year. While the schedule is still under review for the new lines, preliminary feasibility studies will not be completed before 2015, making any completion date before 2017 or 2018 unrealistic.


Russia’s interest in running Nord Stream pipelines under Estonia’s territorial waters is based on ease and cost. The route through Estonia would be shorter and less technically challenging than the original pipeline route through Finland’s territorial waters. Moreover, Finland’s seabed is noticeably rockier than Estonia’s, making pipeline construction more arduous. The shorter distance and smoother seabed would decrease construction costs - a factor that makes the Estonian route even more attractive now that Russia wants to expand Nord Stream. The strain of the global economic crisis has decreased Europe’s appetite for large-scale, high-cost engineering projects, and while Russia continues to be flush with oil and natural gas revenues, the Kremlin is concerned about the future of high oil prices needed to maintain its financial stability.


Estonia’s mixed reaction


Although the reasons for wanting to run the two new pipelines under Estonia’s territorial waters might make sense to Russia and Germany, opinions within the Estonian government are mixed concerning the risks and benefits.


The more conservative segments of the government, particularly Estonia’s intelligence and military community, see the Nord Stream pipeline as a potential strategic threat. The main issue at hand is Russia’s longstanding policy of granting itself the right to intervene militarily should any of its strategic pipelines be threatened. This provision is particularly ominous for Estonia, which the Soviet Union invaded during World War II after coercing the country to allow strategic Soviet military bases on its soil. The fears voiced by Reinslau in his letter showcase Tallinn’s entrenched reluctance to give Moscow a potential excuse to intervene in the country.


However, the progressive business and political community in Tallinn considers Nord Stream’s query as an opportunity to obtain lucrative and strategic benefits from Russia and Germany. The continued and trouble-free operation of the project’s first line for a year has also assuaged many of the environmental and safety concerns that had been brought up in 2007.


The potential for negotiations


Germany has tools it can use to try to compel Estonia into an agreement on Nord Stream. Berlin’s favor could be very helpful in getting Brussels’ approval and funding for the construction of a Baltic liquefied natural gas import terminal in Estonia. Moreover, Germany’s increasing leadership within the eurozone - of which Estonia is one of the smallest and poorest members - is a powerful incentive for Tallinn to avoid antagonizing Berlin over energy issues.


Because of historic tensions between the two countries, Russia has fewer means to persuade Estonia to agree to the Nord Stream proposal. Nonetheless, Estonia - and many other peripheral European countries - is looking for economic partners other than the still-declining European Union. Russia has become a significant trade partner for Estonia; overall trade between the countries has increased by more than 50 percent since 2008, making it Estonia’s third-largest business partner.


For most of the 2000s, Moscow used energy to reassert its political influence within its former Soviet periphery. But changes in the European natural gas market and within Russia itself are prompting Moscow to present itself as a more reliable business partner. Estonia’s willingness to engage in business with Russia has increased, and Moscow has not actively resisted Tallinn’s energy independence efforts yet. However, some strong concerns remain within Estonia about Russia’s true intentions with Nord Stream. Estonia’s final decision will depend on Germany’s ability to guarantee Russia’s reliability as a partner in the strategic energy sphere and on Berlin and Moscow’s willingness to grant political and financial concessions.