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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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Washington Threatens Sanctions For Nord Stream 2

While Germany tries to make sure Ukraine will not suffer too badly from the addition of Nord Stream 2 to the European natural gas pipeline network, a senior State Department official has threatened sanctions for the controversial project.

Speaking to media in Berlin, Deputy Assistant Secretary of State for Energy Diplomacy Sandra Oudkirk said Washington deemed the pipe as a security threat because it would give Russia the chance to install “undersea surveillance equipment” such as “listening devices” in the Baltic. Oudkirk did not go into detail about the surveillance equipment that she suspected Russia might put on the seabed.

What she did make a point of noting was that the threat of sanctions was motivated by Washington’s strong desire to curb Russia’s influence in Europe and had nothing to do with the fact that U.S. LNG is one alternative to Russian gas. Oudkirk also said Washington did not believe there was a way to enforce guarantees for Ukraine’s transit fee revenues from current Russian pipeline exports to Russia.

These revenues have turned into a sticking point between Russia and Germany, with the latter showing genuine concern for Ukraine’s revenues, although it was clear from the beginning that an expanded Nord Stream would mean diverting part of current gas transit from Ukraine.

Europe has been very active in showing its support for gas transit revenue dependent Ukraine, although little of this support has been constructive, such as finding ways to generate other revenues besides those from transit fees. Besides, concern for Ukraine may be genuine, but it is not the single concern of all European countries when it comes to Nord Stream 2. Related: China Crushes Vietnam’s South China Sea Drilling Hopes

For Germany, Nord Stream 2 means more gas amid nuclear and coal power plant phasing out. Germany’s Chancellor Angela Merkel is today meeting with President Vladimir Putin in Russia to discuss, among other things, the pipeline, whose construction in Germany just started earlier this week. She has been stalwart in her support for the pipeline, just as she has been stalwart about EU sanctions against Russia for its involvement in Ukraine.

Meanwhile, President Trump is applying pressure on Merkel: German, EU, and U.S. government officials told the Wall Street Journal that Trump has offered Merkel a trade deal for the EU if she cancels Nord Stream 2. According to the sources, the U.S. President offered the deal back in April.

Also in April, Trump said “Germany hooks up a pipeline into Russia, where Germany is going to be paying billions of dollars for energy into Russia. And I’m saying, ‘What’s going on with that?”’ at a recent meeting with the leaders of Latvia, Lithuania, and Estonia at the White House. The remark certainly reflected the views of the Baltic leaders on Nord Stream 2, but what it did not reflect was Germany’s view on the matter, and it still doesn’t.

Should the U.S. go ahead with the threat and impose sanctions on the pipeline, under a bill passed in 2017 with relation to the allegations of Russian meddling in the 2016 U.S. elections, the companies that might fall within their scope would include Shell, Wintershall, Uniper, OMV, and Engie, who are Gazprom’s partner in Nord Stream 2.

These are all very large and very important European companies, and there is a good chance that Germany, France, and Austria will seek ways to shield them, just as they are shielding their companies doing business in Iran.

Speaking of Iran, now may not be the best time to threaten Europe with sanctions: the EU has already made it clear that it will not follow Washington’s example in Iran and will continue importing crude from it. Sometimes political pressure works, but other times if it becomes excessive it might spark the opposite reaction of the one sought by the one applying it. Related: Is Russia About To Abandon The OPEC Deal?

As for Oudkirk’s claim that the U.S. is not thinking about its own economic interest in LNG, this is the same as Moscow claiming that Gazprom is building Nord Steam 2 out of the goodness of their hearts, to supply gas-strapped Germany with fuel. There is nothing wrong with protecting your economic interest, but trying to disguise it as altruism could cause vicarious embarrassment to some.

Germany’s Economy Minister today shot back at Washington, by saying “They are looking for markets, which we can understand, and they can land it here easily. But it [U.S. LNG] is much more expensive than pipeline gas, so blocking Nord Stream 2 on its own won’t guarantee exports.”

Peter Altmeier warned the U.S. that “The U.S. are our friends and partners, and we want to defend our common values. “But if it’s America first, and they put their economic interest before others, then they have to expect Europe to define their own interests and fight for them.”

By Irina Slav for Oilprice.com

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  • Mamdouh G Salameh on May 20 2018 said:
    Lost for a valid reason to object against the Nord Stream 2, Deputy Assistant Secretary of State for Energy Diplomacy Sandra Oudkirk came with an ingenious reason saying Washington deemed the pipe as a security threat because it would give Russia the chance to install “undersea surveillance equipment” such as “listening devices” in the Baltic. If this is the case, then Russia must have installed such listening devices in November 2011 when Nord Stream 1 was inaugurated without the United States accusing Russia with seabed surveillance.

    Furthermore Ms Oudkirk who is Deputy Secretary of State for Energy Diplomacy has redefined the concept of diplomacy by starting her visit to Berlin by threatening sanctions against Germany if it did not drop the Nord Stream 2 project.

    The truth of the matter is that President Trump’s opposition to Nord Stream 2 is plain and simple an attempt to ensure markets for US LNG and displace Russia as gas supplier to Europe. His attempts to disguise it as loosening Russia’s grip on the European Union’s (EU) energy supplies are fooling nobody and certainly not the EU.

    And to show her disregard to the threat of sanctions, German Chancellor Angela Merkel defied the United States and started building its portion of Nord Steam 2.

    Once completed by the end of 2019, Nord Stream 2 along with its twin Nord Stream 1 will eventually provide a total of 110 billion cubic metres per year (bcm/y) of Russian gas supplies to Germany and the North-West European gas market. Gazprom also envisages building a Nord Stream 3 if there is more European demand for Russian gas.

    Germany receives 57% of its natural gas and 35% of its crude oil from Russia. Furthermore, Russian gas is and will remain cheaper for Germany than US LNG for the foreseeable future until US producers can match Russian gas prices.

    Germany wants to import more Russian gas as it phases out coal and nuclear power. And a combination of Russian gas and planned LNG facilities will make Germany an important European gas hub.

    Along Europe’s south eastern flank, Gazprom has also completed the first segment of the Turk Stream pipeline, which will send Russian gas under the Black Sea to Turkey and on to southern Europe.

    Should the US go ahead with the threat and impose sanctions on the pipeline and the European companies involved in it, the EU will retaliate targeting American companies doing business with the EU. After all, the EU is not without economic muscle.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Bill Simpson on May 21 2018 said:
    Germany won't be bullied by Trump. Nord Stream 2 will be completed.
  • Thomas on June 30 2018 said:
    States act in their own intrests, not Trimp's

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