In a statement that is sure to provoke Russian backlash, while also sending a strong message to both Moscow and European energy markets, Department of Energy (DOE) Secretary Rick Perry said on Thursday before the Senate Armed Services committee that moving U.S. energy supplies into Eastern Europe is one of the more powerful ways to contain Russian influence.
He also agreed that Russian cyberattacks on the U.S. energy sector were "an act of war." His comments come just a week after the U.S. Treasury Department revealed that so-called Russian government actors targeted "multiple U.S. critical infrastructure sectors, including the energy, nuclear, commercial facilities, water, aviation, and critical manufacturing sectors" with cyberattacks at least since March 2016.
A report in UPI last week said that a ransomware cyberattack from the Petya or NotPetya bug targeted thousands of government and private corporate servers across the globe in 2017. The attack demanded a ransom paid in Bitcoin to release the encryption imposed by the virus that prevents users from accessing their devices. The U.S. Treasury claims the NotPetya attack was attributed to the Russian military.
"An energy policy where we can deliver energy to Eastern Europe, where we are a partner with people around the globe, where they know that we will supply them energy and there are no strings attached is one of the most powerful messages that we can send to Russia," Perry added in his remarks on Thursday.
Gas as a geopolitical weapon
The National Defense Authorization Act has said that U.S. efforts should promote energy security in Europe, stating Russia uses energy "as a weapon to coerce, intimidate and influence" countries in the region. Related: What Trump's Tariffs Mean For Global Oil And Gas
Perry's comments also come as ties between Washington and Moscow reach post-Cold War lows over numerous issues ranging from Moscow's meddling in the 2016 U.S. presidential election, its continued involvement in the Ukraine, and Syria, and its purported nerve agent poisoning of what is being referred to as a Russian double agent and his daughter on British soil.
However, Perry's message may not be as welcome as he would like in Europe. Though EU members, including an increasingly alarmed Germany, appear to be waking up to Russian influence and blatant geopolitical maneuvering, many in the EU are still equally as cautious over American motives to export its liquefied natural gas (LNG) to European markets.
Additionally, challenging Russia's dominance in European gas markets is no small feat - even for the U.S. which by the end of the decade will have as many as five major LNG exports projects operational, thus becoming the third largest LNG exporter after Qatar and Australia.
Russia's gas exports to Europe rose 8.1 percent last year to a record level of 193.9 billion cubic metres (bcm), despite rising competition and concerns about the country's dominance of supply, the London-based Financial Times recently reported.
The report added that Russian state-run gas giant Gazprom, the world's largest natural gas producer, has a monopoly over Russia's network of pipelines to Europe and supplies nearly 40 percent of Europe's gas. However, Gazprom has been forced to lower its prices in recent years to protect its market share in the face of moves by EU member states to buy more gas from the U.S., Qatar and other producers. Related: The Battle For China's Growing Gas Demand
Additionally, Nordstream 2, Russia's ambitious but controversial natural gas pipeline project, is set to be completed next year. This route will further secure Russia's grip on European gas market share, and its accompanying geopolitical influence will be a hard task for the U.S. to dislodge.
Economic factors also come into play. As discussed last week, American LNG is at a cost disadvantage compared to Russian piped gas. Using a Henry Hub gas price of $2.85/MMBtu as a base, Gazprom recently estimated that adding processing and transportation costs, the price of U.S.-sourced LNG in Europe would reach $6/MMBtu or higher - a steep markup.
Henry Hub gas prices are currently trading at $2.657/MMBtu. Over the last 52-week period U.S. gas has traded between $2.602/MMBtu and $3.82/MMBtu. Russian gas sells for around $5/MMBtu in European markets and could even trade at lower prices in the future as Gazprom removes the commodity's oil price indexation.
By Tim Daiss for Oilprice.com
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Comments
Moreover, Nord Stream II along with its twin Nord Stream 1 will eventually provide a total of 110 bcm/y of Russian gas supplies to Germany and the North-West European gas market. It is set to be completed next year. This route under the Baltic Sea not only bypasses the Ukraine but it will also tighten Russia’s grip on European gas market. Its accompanying geopolitical influence will be a hard task for the US to dislodge.
The US has always been opposed to Nord Stream II, which it views as Russia’s attempt to solidify its hold on Europe’s energy supplies.
Putin’s plan is to turn Russia into the world’s energy superpower and it is working.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London