Nord Stream 2 Is Losing Support In Germany

The Nord Stream 2 pipeline is running into some trouble amid withering opposition from the Trump administration.

Support for the Nord Stream 2 pipeline in Germany is slipping, according to a report from Bloomberg. Some politicians in Chancellor Angela Merkel’s coalition are moving against the pipeline for geopolitical reasons, citing fears that the project would allow Russia a freer hand in Ukraine.

As it stands, Russia still needs to ship large volumes of gas to Europe via Ukraine. Nord Stream 2 would allow Russian gas to bypass Ukraine, giving Russia more leverage to meddle in Ukraine while still reliably delivering gas to Europe.

Merkel has been supportive of the project, not least because several major western European companies have stakes in the pipeline, including Royal Dutch Shell, as well as major German companies Wintershall and BASF. Last year, Merkel, under intense pressure from the Trump administration and some countries in Eastern Europe, acknowledged that the Nord Stream 2 had geopolitical ramifications and suggested that the project could face roadblocks if the end result was harm to Ukraine. Still, she seemed to want to push the project forward.

However, those efforts are starting to run into trouble. The recent seizure of Ukrainian sailors by Russia is starting to increase unrest within Merkel’s coalition, Bloomberg reports. A growing block of German politicians view the project is a geopolitical liability.   

The timing is not great for Nord Stream 2. The Trump administration has aggressively opposed the project for quite some time. “There is not only Russian gas coming through the pipeline, but also Russian influence,” Richard Grenell, the U.S. ambassador to Germany, said in a statement to Bloomberg News. “Now is not the time to reward Moscow.” Related: Saudis Set Sights On $80 Oil

In December, the U.S. House of Representatives approved a non-binding resolution opposing Nord Stream 2. The resolution passed with bipartisan support, calling the pipeline a “drastic step backwards for European energy security and United States interests.” The resolution also called upon President Trump to “use all available means to support European energy security through a policy of diversification to lessen reliance” on Russia.

The U.S. suggested several times last year that it could hit the project with sanctions, and Bloomberg says that such measures could be “imminent.” The U.S. Congress has at times vociferously opposed some of President Trump’s foreign policy goals, but if his administration moves forward with sanctions on Nord Stream 2, it is unlikely there will be a constituency in Washington to defend the project.

While American motivations for derailing Nord Stream 2 are influenced by fears of Russian influence in Europe, the U.S. administration is also undoubtedly trying to force American gas into the European market to benefit American companies. American politicians like to cite European energy security when campaigning against Nord Stream 2, but from the European vantage point, the U.S. government is blocking a reliable source of gas in order to benefit its own companies. To some, that doesn’t sound very much like enhancing energy security.  Related: Why Goldman Just Drastically Slashed Its Oil Price Prediction

Last July, President Trump leaned very heavily on European allies at the NATO summit, essentially threatening them with a trade war unless they bought more American gas. European Commission President Jean-Claude Juncker agreed to take in more LNG, although his statements were sufficiently vague so as not to commit the EU to anything binding. “The European Union is ready to facilitate more imports of liquefied natural gas from the U.S. and this is already the case as we speak. The growing exports of U.S. liquefied natural gas, if priced competitively, could play an increasing and strategic role in EU gas supply,” Juncker said in a statement last summer.

Russia still supplies about 40 percent of the European Union’s natural gas needs. To be sure, U.S. LNG shipments to Europe have been rising, but despite its recent growth, American gas is still a rounding error in Europe. In the short run, the possibility of severe cold sweeping over Europe could bolster the economics of important LNG from the United States.

Gas demand in Europe is flat, and has been for quite some time. But an array of policies aimed at shutting down nuclear and coal-fired power plants will serve to increase gas consumption in Europe. And with European gas supply not able to keep up, more imports are likely.

That’s exactly why the developers of Nord Stream 2, and its proponents, say a new pipeline is needed. But the Trump administration is hoping to block that project in order to bolster the case for U.S. LNG.

By Nick Cunningham of Oilprice.com

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