06.10.2020 Author: Henry Kamens

Shifting “Molecules” of Nord Stream 2 & “Why Now?”

NS244The US is heating up so many irons in so many different fires: new sanctions on Iran, (old one reintroduced) new allegations and arm twisting with China over COVID 19 and Chinese tech companies, and now threats of sanctions against German companies which work together with the Russians in the Nord Stream 2 underwater gas pipeline project.

Despite the fact Germany and Europe are seeking greater energy security, and have calculated that Russia, though a strategic enemy in the mind of NATO, is able to provide it, new moves being made to block the completion of the project in light of the alleged poisoning of a Russian opposition politician.

These moves are likely nothing more than political rhetoric from those with the least power to have any influence, especially on the real decision-makers. Nevertheless, the fact that such tactics are being resorted shows that the US is afraid of issues being complicated, because then it can’t control them as it once did.

Is this more than sheer happenstance?

The very fact that Nord Stream 2 can make a major contribution to EU energy security raises many issues. There is no doubt that additional supplies will be needed to fill the upcoming gap between supply and demand in the EU. The new pipeline will supplement existing transport routes and complement the development of other new sources such as liquefied natural gas (LNG), a market the US wants to enter as the preferred supplier.

Already the pandemic has crushed exports of liquefied natural gas from US shores, practically removing what was once considered to be an important sales outlet for the world’s largest gas producer. The second wave of Covid-19 hitting the shores of Europe has delayed resumption of deliveries even further, due to its effect on port infrastructures, connecting pipelines and the specialised ships needed to transport it.

Nord Stream 2 will not face these problems as it will travel through the Baltic Sea, from the coast of Russia to a landfall near Greifswald in Germany. It will run roughly parallel to the existing Nord Stream pipeline, which has proven the appropriateness of this route.

Therefore the US is pulling out all the stops to prevent this happening. Some of the names and political bullying methods being used are very familiar to those who have observed so-called energy projects in Georgia.

Once again one of the main actors is Frontera Resources, its’ 4-hire politicians, a Texas company, which has been targeted with stifling regulations and restrictions, and now faces possible expropriation from the Georgian government for corruption and allegations of being a “pump and dump” stock manipulation scheme.

It is generally the case that economic sanctions are politically motivated, another demonstration that, as Seth Ferris says in this journal, there is no such thing as economic policy, only political policy. Republican Sen. Ted Cruz of Texas, et.al, is one of those who ratcheted up tensions earlier this month in a letter to Fährhafen Sassnitz GmbH, which operates Mukran Port in Germany. Mukhran Port houses two pipe-laying vessels Gazprom plans to use to complete the project.

The letter warned of “crushing legal and economic sanctions, which our government (US government) will be mandated to impose,” if the company does not cease cooperating with Russia’s Gazprom in NS2.

With energy demand currently depressed due to the Covid-19 pandemic, it can be expected that the completion of the Nord Stream project will be delayed regardless. However the US still feels a need to toss “political monkey wrenches” into the process, scared of what a new reality at home, after its elections, may bring.

Moot issues

And let’s keep in mind that Merkel is not running again and we have an election in the US, and no holds are barred. The Nord Stream 2 pipeline is not currently a threat to any US exports. It would be completed next year at the earliest, even if everything goes to the existing plan. But it is likely to go ahead regardless of the present circumstances, further embarrassing the US after its own projects have been thrown into greater doubt.

When building of the pipeline started German forecasts showed a need for more gas. Although that is out of the window in the present circumstances, Germany needs to demonstrate that it expects to recover its former strength, so projects associated with such projects are likely to still go ahead. Furthermore Angela Merkel is not going to run again, and wants to leave a legacy, as all political leaders do.

Germany cannot look solely to the US for energy, as it needs continuity and diversity of supply and cheaper prices. Given the ongoing petty disputes between the US and EU over a wide range of issues, it cannot rely on the US as a partner in anything for very long, and at least with Russia it knows what it is getting, and has a built-in excuse to go elsewhere if it wants to.

Covid-19 may have provided some indirect economic advantages to Germany, because it has slowed the pace of any developments, and given it the opportunity the postpone the riskier projects – at least until the US elections are history. The sanctions now being threatened by the US are coming from both Congress and Trump, so a new president won’t necessarily change anything.

However any new US administration will have a public relations need to lower the level of rhetoric. Soon there will be another call for a “reset” of relations with Russia – and let us hope they don’t mistranslate the word again, like last time.

A completion and pre-testing schedule will probably be worked out in 2021, with a start-up in 2022. However it is also probable that any “deal” over Nord Stream will be tied to the Iran nuclear agreement, as a quid pro quo.

Iran is not the actual threat, and even people in the US are becoming more aware of the energy circus in Saudi Arabia and the region. However the bottom line is that US interests are threatened any time a country achieves energy independence and that is the threat Iran has always posed, as it has the means to achieve that

Not What it Says on the Tin

The US desperately wants to be seen as the country which boosts energy security, rather than diminishes it by tying so many political and strategic strings to it. This is why it has been involved in a number of major energy projects, such as the BTC with its “hot taps.”

These projects do not contribute to US energy security, but ensure that the US controls everyone else’s supplies, and thus the “allies” these are sourced from and who host the pipelines. It never occurs to the US however that if this dominance is going to be maintained it has to give these countries the things they expect from the US, such as democracy, human rights and rule of law.

Whatever the political pressure, it is easier for consumer countries to deal with Russia because it does not pretend to offer these things. It offers resources and expertise, and the capacity to get its own way.

The countries which host pipelines may not want Russia’s overtures, but the consumer countries are happy to deal with it, as they already have the things the US is offering, and don’t need to be lectured about them. So the Western countries which need most of the energy will want Russia involved in pipeline projects even if the US doesn’t, and European countries may prove more useful friends than the US for the developing countries where the energy is.

This is why the US is demanding that Germany must not deal with Russia due to the alleged poisoning of the opposition leader. The poor politician was flown to a German hospital from Russia for treatment, which could equally indicate that Germany supports the opposition, not the Russian government and its state-controlled companies. Any excuse is better than altering US foreign policy, with so many people who operate a certain way embedded on the ground.

Writing Only on the US Wall

If the long-trumpeted Covid-19 vaccine gets rolled out and is effective, energy demand will return. Right now Germany can afford to wait, and make it look like it is considering the effects of the sanctions. But when the German economy recovers it will want more and more gas, and Russia will be as reliable a partner as the US has been for the past few years.

Germany is also undertaking a nuclear shutdown, like many other countries. Many developing countries are reopening their mothballed nuclear power plants, as they cannot reach their carbon emission targets otherwise, a most ironic outcome for those who invented them. If Germany is shutting them down, without a wholesale conversion to green energy, it is saying that it is intending to use more gas.

All the German nuclear power plants are scheduled to close in 2022. So replacement energy sources have to be in place by then, and the US has never pretended it can supply all this demand.

Germany also wants to get rid of the old coal plants and use renewable plus imports plus gas fired generation to cover peak demand. Germany was always going to need reliable gas supplies at the right price, and it is a failure of politics that has driven it into the arms of Russia, which would be the last country it would look to if the US had behaved with basic courtesy towards its allies.

Dutch Plague

As an EU member, Germany has a vested interest in obtaining most of its goods from other EU members. It does have energy contracts with some. But official news reports indicate that The Netherlands, one of these, will halt production at Groningen, Europe’s largest onshore natural gas field, by 2022, eight years earlier than initially planned.

Discovered in 1959, the Groningen field was long one of Europe’s main suppliers of natural gas. Output hit a peak of 88 bcm in 1976. With that gone, Germany will need new supplies which expand the EU’s own trading reach.

Poland is trying to get into the energy import and export business, and the Polish Oil and Gas Company (PGNiG) has purchased a cargo of liquefied natural gas (LNG) from the US and, following regasification, sold it to Energy Resources of Ukraine (ERU). Germany will therefore see no obstacle to purchasing Russian gas supplies which it can then export if it does not need them, as the US has no objection to what Poland is doing.

Molecules of Freedom

The US has shot itself in the foot by blaming those nasty foreigners and the foreign industries for everything. US allies have seen what the US does when it doesn’t like somebody. No one wants its energy supplies controlled by a country which could easily do the same to them at any time.

Once, economic realities might have twisted the arms of skeptics. But the US does not have the infrastructure to provide consistent and reasonably priced gas supplies to Europe. For Germany to achieve its economic purposes, its gas must come from various sources, and to achieve its political purposes, it does not care if that damages its short term relations with the US.

The US State Department last year hailed its new LNG capacity as allowing “molecules of freedom to be exported to the world.” Given what the world has gone through for the sake of US energy supplies, this would sound better as a joke, like the French and “Freedom Fries” but the statement was expected to be taken seriously.

As the FT reported, the fuel price slump then put North American LNG projects on ice. Freedom Gas, as designated by Trump and the US Department of Energy, must be cost competitive and geopolitically realistic to work. It may take some time for Europeans, especially Germans, to consider “Freedom Gas” as a viable alternative to anticipated supplies of Russian gas which will not only keep homes warm, but warm up trade and relations with geopolitically close neighbour.

It will take more than allegations of poisoning of a Russian opposition candidate to change the economic, energy security and political realities which connect Germany with the Russian Federation. All of Europe has a vested interest in the Nord Stream 2 project, and it seems this is something political short sighted players (paid politicians) and lobbyist in the US have failed to consider.

Henry Kamens, columnist, expert on Central Asia and Caucasus, exclusively for the online magazine “New Eastern Outlook”.


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