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Tim Daiss

Tim Daiss

I'm an oil markets analyst, journalist and author that has been working out of the Asia-Pacific region for 12 years. I’ve covered oil, energy markets…

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Germany Blinks First In Ongoing European Gas War

The U.S. is increasingly finding itself at odds against not only Beijing as Trump executes a sledge hammer approach to ongoing trade disputes with China, but also with Moscow, a potentially more lethal and unpredictable opponent both geopolitically and on the energy front.

Much of Washington’s angst with Russia includes the country’s annexation of Crimea in 2014, it's meddling in recent U.S. elections, being on opposing sides in the ongoing Syrian Civil War and having differing views over energy security for Europe.

Russia, for its part, with its long-entrenched hold on European gas markets, seeks to solidify its grasp by keeping its gas monopoly largely unchallenged and also by pushing through with Russian energy giant Gazprom’s controversial Nord Stream II gas pipeline project.

Nord Stream 2 is a 759 mile (1,222 km) natural gas pipeline running on the bed of the Baltic Sea from Russian gas fields to Germany, bypassing existing land routes over Ukraine, Poland and Belarus. It would double the existing Nord Stream pipeline’s current annual capacity of 55 bcm and is expected to become operational by the end of next year.

Washington has long opposed the pipeline, claiming that it undermines EU security, which the U.S. is obliged to defend. Russia and most EU members counter that it’s purely a commercial development. Trump lambasted the EU in July, accusing them of being “captive” to Russian gas and called on Germany to stop its support for the $11 bn gas pipeline.

Germany has been the strongest supporter of the pipeline and claims it’s needed to increase natural gas supply as some EU members move away from nuclear for power generation.

Many within Germany have also maintained, even vehemently, that Washington’s resistance to the Nord Stream 2 project is purely in its own self-interest since its cancellation would increase EU members’ need for alternative gas supplies, including U.S. LNG imports.

Germany rethinks its strategy

Now, however, German is rethinking its energy security strategy. Uniper, a major German electric utility, said on Monday it’s ready to import LNG into the country and distribute it should a terminal be built at Wilhelmshaven, close to its storage facilities.

Uniper board member Keith Martin said that the company is in talks with a number of parties including those from the U.S. and that more concrete news should be announced before the end of the year.

Related: Diesel Demand Is Set To Soar

Martin said the company could build a Floating Regasification and Storage Unit (FSRU) at Wilhelmshaven. A FSRU has several distinct advantages over a land-based LNG import terminal, including being less CAPEX intensive and also having a much shorter construction time. It is also more flexible and can be moved to other locations if needed.

Earlier this month, German firm RWE said it had secured capacity to import LNG at a planned terminal in Brunsbuettel, with a final investment decision (FID) slated for some time next year.

Goodwill gesture

On Tuesday, Germany economic minister Peter Altmaier picked up the theme, stating that the country will chose where to build an LNG terminal by the end of 2018 as a gesture to the U.S. which wants to ship more gas to Europe.

“This is a gesture to our American friends,” Peter Altmaier said of plans to decide on a site for the LNG terminal.

“We have three competing cities and we will take a decision before the end of the year,” he said after meeting Maros Sefcovic, the European Commission vice president and EU energy chief. However, Altmaier pointed out that his remarks were not related to Germany’s support for Nord Stream II. Related: The Biggest Risk In Today’s Oil Markets

His comments come just a few months after the EU said it would work to increase imports of U.S. soybeans and LNG to oppose Trump’s tariff threats on EU exports to the U.S.

Turning up the heat

Despite Germany’s recent willingness to pivot toward the possibility of future U.S. LNG imports, the Trump administration is still turning up the heat over the matter. Steven Winberg, assistant secretary of fossil energy, said during a Senate hearing Thursday that the U.S. needs to increase its natural gas exports to Europe to counter Russia's increasing energy dominance in the region.

"Due to a lack of supply routes and insufficient pipeline buildout, Europe is also becoming more, not less, dependent on Russian natural gas," Winberg said. "That does not have to be the case. Our nation is endowed with vast supplies of natural gas and production is growing rapidly."

The U.S. push to capture a share of Europe’s geopolitically charged gas market, and even Germany’s willingness to appease Washington notwithstanding, at the end of the day Russian gas will remain cheaper than U.S.-sourced LNG imports.

Due to transportation and liquefaction costs, boil-off during long voyages to transport the super-cooled fuel and other charges, U.S.-sourced LNG is unable to compete head to head on a cost basis with Russian gas.

Gazprom already has a monopoly over Russia’s network of pipelines to Europe and supplies close to 40 percent of Europe’s gas. Meanwhile, Russia's gas exports to Europe rose 8.1 percent last year to a record level of 193.9 billion cubic metres (bcm), even amid concerns over Russia’s cyber espionage allegations, and its activities in Syria, the Ukraine and other places.

By Tim Daiss for Oilprice.com

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  • Steven Conn on September 30 2018 said:
    Recounts the same standard accusations, distorting popular reunification as "annexation", hiding the fact that in Syria "opposing sides" means Washington is backing jihadists, and if course the new WMD in Iraq - baseless claims of Russia election meddling from a country that has grossly interfered in many ways in elections all over the world.

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