PETROANALYSIS || ARTICLE

Nordstream-2: “An exclusively economic project”, Putin

Published on

October 7, 2018

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Article by

Stuart Wilkinson

“Mr Trump has criticised Ms Merkel for ‘being captive to Russia’”

President Donald Trump, his opponents in the US and his critics in Europe have found common cause, according to the Financial Times: opposing the planned Nord Stream 2 pipeline that would transport Russian natural gas to Germany.

Mr Trump’s opposition to Nord Stream 2 is about trade in the wider sense. He sees US liquefied natural gas (LNG) sales to Europe, Germany in particular, as a way to rebalance trade relations that he thinks work against US interests. He has repeatedly criticised Angela Merkel, the German chancellor, seemingly in the belief that this is the best way to win concessions. Meanwhile, Mr Trump’s critics on both sides of the Atlantic argue Nord Stream 2 raises Europe’s dependence on Russian gas, making it more vulnerable to pressure from Moscow. They tout US LNG imports as the alternative.

In reality, Europe is not overly dependent on Russian gas. Russia accounts for 37 per cent of EU gas imports, a share that has declined steadily from 75 per cent in 1990. (1)

As reported by Nordstream in October 2012, just 30 months after the start of construction of its first pipeline, Nord Stream’s twin pipeline system came on stream, on schedule and on budget.

The company’s second pipeline was officially inaugurated, completing the fully-integrated twin-pipeline system. The Nord Stream pipeline system would provide the capacity to transport up to 55 billion cubic metres of natural gas a year from Russia to the European Union for at least 50 years. Line 1 began transporting gas to Europe in November 2011.

“Nord Stream is without a doubt one of the most modern systems for transporting energy ensuring that Europe enjoys a reliable supply from the world’s largest deposits in Russia. Today, we can proudly say ‘We Deliver!”
Gerhard Schröder, Chairman of the Nord Stream Shareholders’ Committee, 2012

By starting the gas flow in the control centre of the nearby Gazprom Compressor Station Portovaya, Russian gas could be pumped without the need for interim re-compression all the way through the Baltic Sea, and onwards into the European gas transmission network. (2)

Coming back to the present, a top official in the Trump administration warned Congress recently that Europe was becoming increasingly dependent on Russian supplies of natural gas and the United States had to increase LNG exports in order to counter Russian influence there.

“Due to a lack of supply routes and insufficient pipeline buildout, Europe is also becoming more, not less dependent on Russian natural gas. That does not have to be the case. Our nation is endowed with vast supplies of natural gas and production is growing rapidly.”
Steven Winberg, assistant secretary of fossil energy in a hearing before the Senate Energy and Natural Resources Committee

And during a visit to Moscow to meet with Russian Energy Minister Alexander Novak, U.S. Energy Secretary Rick Perry said the administration was considering sanctions targeting Russia’s planned Nord Stream 2 pipeline into Germany. He called on Russia to “stop using its resources for influence and disruption”.

The Trump administration, like the Obama administration before it, hopes to increase U.S. LNG exports to Europe. (3)

The following TASS report makes the Russian position clear. In the words of Vladimir Putin:

“Russia attaches great importance to the development of mutually beneficial cooperation with Germany in the political, economic and other areas. One of the priority areas is energy.”

He noted that Germany was the largest buyer of Russian energy resources, with Russia delivering 53.8 billion cubic meters of gas in 2017, which covered more than 30% of the German market, adding that the consumption of Russian gas was constantly growing – this year increasing by 13%.

Furthermore, Putin said that Germany was not only a market for the supply of hydrocarbons from Russia, but also an important link in their transit to other European countries.

He recalled that June of this year marked 50 years since the beginning of gas supplies from the Soviet Union to Western Europe:

“Throughout this period, our country reliably provided uninterrupted power supply, made and still makes a significant contribution to the energy security of the entire European continent.”

“Together with the German partners we are working on the Nord Stream 2 gas pipeline project. Its implementation will make it possible to improve the European gas transportation system, diversify supply routes and minimize transit risks, and, most importantly, to meet Europe’s growing demand for energy,” he added. (4)

Nord Stream 2 is expected to come into service at the end of 2019, but not without vociferous opposition: In Germany more and more politicians are speaking out against the pipeline and Chancellor Angela Merkel has sometimes appeared to be wavering in her support.

The pipeline’s detractors, which include almost all the governments of Eastern Europe, say the pipeline puts the European Union’s energy security at risk because it makes the bloc more dependent on Russian gas. They also say it is designed to punish Kiev, enabling Russia to shut down its existing pipeline bringing gas to the EU through Ukraine. The U.S. is supporting them in their objection.

In July, U.S. President Donald Trump strongly criticised the pipeline, accusing Germany of making itself “completely dependent” on Russian gas. He has also threatened to sanction European companies that invest in the pipeline.

According to Forbes, Trump’s diatribe seemed to be more targeted at Germany than at Russia, and energy analysts suspect that there are commercial reasons why. The U.S. wants European countries to start importing American liquefied natural gas, a by-product of the country’s newfound gas surplus from the shale gas boom.

Moscow has accused Washington of trying to kill the pipeline in order to force countries like Germany to import U.S. LNG. The Americans, meanwhile, say it is better that the Europeans get their gas from an ally than from a foe. (5)

References:

1) “Opposition to Nord Stream 2 makes no sense for America or Europe”. FT, August 12, 2018

2) “We Deliver: Nord Stream’s Twin Pipelines Come On Stream”. Nordstream, October 8, 2012

3) “Europe becoming more dependent on Russian gas, DOE official says”.
Houston Chronicle, September 13, 2018

4) “Energy is one of the priorities of Russian-German cooperation — Putin”. TASS, August 18, 2018

5) “Russia’s Controversial Nord Stream 2 Pipeline May Now Be Unstoppable”. Forbes, September 5, 2018

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