Will Trump Push Back Against Putin’s Pipeline Play?

Russia’s natural gas strategy in Europe is getting increased scrutiny from some U.S. lawmakers who worry about European energy dependence on their eastern neighbor. However, a major pipeline is inching forward just as there is a growing sense that the issue could be deprioritized by the Trump administration.

“Russia has a track record of weaponizing natural gas,” Senator Jeanne Shaheen (D-NH), a member of the Senate Foreign Affairs subcommittee on European Affairs, said recently. The immediate issue of concern is the Nord Stream 2 pipeline, an expansion of an existing natural gas pipeline that runs from Russia to Germany via the Baltic Sea. The criticism that the project is mostly political in nature – that is, that Russia is seeking to bypass Ukraine as a transit country in order to neutralize one of Ukraine’s most potent sources of geopolitical leverage – is not new.

Nord Stream 2 would “give Russia even more options for influencing and intimidating Europe, specifically Ukraine,” Senator Shaheen said. She went on to add that the Obama administration worked hard to oppose the project and “the Trump administration, I believe, will be well advised to continue this important priority.”

The issue has taken on renewed importance as it moves closer to a reality. More importantly, the Trump administration’s softer tone towards Russia has raised speculation that opposing Nord Stream 2 could be pushed to the back burner, dialing back the Obama administration’s efforts to break European dependence on Russian gas. Related: Russia Has No Plans To Further Privatize Oil Industry

Europe is divided over Nord Stream 2. The European Commission has stepped up criticism of the project on antitrust grounds – Russia’s Gazprom would own a large portion of the pipeline and 100 percent of the gas that flows through it. But the Commission has also struggled to make the case that it has the legal authority to block it. The Commission has fought with Gazprom over anti-competitive pricing, winning some concessions from the Russian gas giant. But the Nord Stream 2 is an offshore project, which some argue puts it out of the Commission’s jurisdiction.

Still, many countries, led by Poland, are vociferously opposing it. The project has created a divide that is mostly geographical in nature, with Eastern Europe much more opposed than their Western compatriots.

Gazprom, along with the western energy companies involved in the project, argue that Nord Stream 2 is strictly commercial, not political.

But a new report from the Washington-based Atlantic Council casts doubt on that argument. Nord Stream 2 is very clearly a political project, the Atlantic Council says, noting that Nord Stream 1 wasn’t even profitable, costing Gazprom just as much - and arguably more - to transport gas through Nord Stream 1 as it does through existing pipelines through Ukraine. In fact, “the gas being diverted through Nord Stream 1 is simply being diverted from pipelines that go through Ukraine,” the report argues. Nord Stream 1 did not bring a windfall to Gazprom because “the same volume of gas is being transported to the same customers under the same contract only through more expensive export routes.” Related: Saudis, Russia Will Do “Whatever It Takes” To Bring Oil To Balance

Clearly, then, the pipeline was a political project. Gazprom’s CEO admitted as much in 2015 when he announced Gazprom’s intention not to sign an extension of a gas contract with Ukraine in 2019, and he suggested that Russian gas could stop flowing through Ukraine entirely by then.

But in order for that to be possible, Gazprom must see the completion of Nord Stream 2, an expansion that would double the capacity of Nord Stream 1.

The Atlantic Council argues that this should be unacceptable because it would threaten EU energy and economic security, and by extension, would threaten U.S. national interests.

The EU, on the one hand, has gone to great lengths to bolster energy security over the past decade by unbundling monopolies, allowing for freer movement of electricity and gas around Europe, and by building greater interconnections between countries. The goal is an “energy union” so that the entire bloc is more connected and supply disruptions could be more easily overcome. A more integrated Europe, the logic goes, would defang the Russian threat.

But approving Nord Stream 2 would undermine those goals. “By giving the green light to Nord Stream 2, the EU will be endorsing a schizophrenic policy, in effect helping to empower a country whose policies are designed to undermine the EU,” the Atlantic Council wrote.

Top European oil companies that have stakes in Nord Stream 2 are lobbying hard for approval. Five companies involved – Royal Dutch Shell, OMV, Engie, Uniper and Wintershall – recently agreed to finance 10 percent of the cost of the pipeline, pushing the project forward.

The project still needs to be settled at the European level, but Gazprom wants to see the pipeline break ground next year.

By Nick Cunningham of Oilprice.com

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