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Russia Outmaneuvers U.S. LNG

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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and…

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Trump’s Tariffs On EU Are Great News For Russia

The trade relations between the U.S. and the European Union took a turn for the worse last week, after U.S. President Donald Trump imposed steel and aluminum tariffs on Canada, Mexico, and the EU.

While these trade tariffs are deteriorating the relations between the United States and its European allies, trade in one particular energy commodity—natural gas—between the EU and Russia is strong, and Vladimir Putin and Russia’s gas giant Gazprom aim to boost (even more) energy trade with the EU.

The U.S. alienation of EU allies on trade is a welcome boost for Russia-EU energy ties, some analysts say.

“Trump is forcing the Europeans closer to the Russians,” Stefan Meister, Russia expert at the German Council on Foreign Relations in Berlin, said in an interview with Bloomberg. “This is playing right into Putin’s hands.”

Responding to the U.S. tariffs, the EU said that “this is protectionism, pure and simple.”

“The US now leaves us with no choice but to proceed with a WTO dispute settlement case and with the imposition of additional duties on a number of imports from the US,” President of the European Commission, Jean-Claude Juncker, said.

While the EU and the U.S. are in a trade dispute over steel and aluminum and potential EU tariffs on American bourbon, motorcycles, or cranberries, Russia’s Gazprom—which already supplies around one-third of Europe’s gas—is selling record amounts of natural gas to Europe. The Russian gas giant has also just settled a seven-year-long antitrust dispute with the EU without a fine, after Gazprom agreed to change market behavior and ensure competitive gas prices in Central and Eastern Europe. Related: Will Saudi Arabia Listen To U.S. Demands For More Oil?

In addition, the Gazprom-led Nord Stream 2 gas pipeline project to twin the existing Nord Stream pipeline is also making progress despite the U.S. threatening sanctions on the companies involved in the project.

For Russia, Nord Stream 2 not only boosts its gas supplies to the EU, but also bypasses the Ukrainian transit route. For the Baltic states and Poland, as well as the EU institutions, the project undermines the diversification of supplies as it would only tighten Russia’s gas grip over Europe. For the U.S., Nord Stream 2 is a security concern, and sanctions on companies involved in the project—apart from Gazprom those include European companies ENGIE, OMV, Shell, Uniper, and Wintershall—are not off the table.

U.S. officials are considering other ways to block Nord Stream 2, but some key officials think that sanctions could be an increasingly likely option, Foreign Policy magazine reported last week, quoting three sources familiar with the matter.

Full sanctions threatening to prevent say, Shell, from doing business in the U.S. could be fatal to its participation in Nord Stream 2.

Meanwhile, Nord Stream 2 has received all necessary permits in Germany and Finland, with Denmark and Sweden yet to decide on permits, and Nord Stream 2 began in mid-May offshore preparatory pipelay works in Germany.

At the same time, Gazprom is exporting record volumes of natural gas to European countries. Between January and May, Gazprom’s exports increased by 5.8 percent compared to the previous record sales for the same period last year, the Russian company said last week. Related: The Soccer Player Saving Egypt’s Energy Sector

Russia, via its exclusive gas export company Gazprom, boosted deliveries in the winter, one of the coldest winters in Europe in the past decade, and continues to ship higher volumes even after the winter, as gas importing countries replenish gas storage supplies that had been drained amid the cold snaps.

These days, Russia is celebrating 50 years of “reliable supplies” of gas to Austria.

“In the past 50 years, we have received reliable gas supplies from Russia and have been able to provide our industrial and household customers with high-quality natural gas without interruption. This is a good base for expanding the partnership with Gazprom in the long term,” Rainer Seele, Chairman of the Executive Board of Austria’s OMV, said in a Gazprom press statement.

While the EU and the U.S. bicker over tariffs, Russia is boosting its gas trade with Europe.

By Tsvetana Paraskova for Oilprice.com

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  • John on June 07 2018 said:
    Surprise! Trump does something to help Russia.
    Who could see this coming.
  • Douglas Houck on June 07 2018 said:
    Good article but it needs some clarification and an update.

    The statement: "For the Baltic states and Poland, as well as the EU institutions, the project undermines the diversification of supplies as it would only tighten Russia’s gas grip over Europe. For the U.S., Nord Stream 2 is a security concern, ..." is not really true.

    The Baltic states and Poland just don't like Russia, and can easily buy natural gas from other sources. In 2016 Poland built an LNG site and is proposing the Baltic pipeline to buy other than Russian natural gas. The rest of Europe wants less expensive Russian gas and has signed long term contracts for such. Nord Stream 2's capacity is 55 billion cu.ft./yr or 28% increase of last years 194.4 billion cu.ft. For the US, it is much more about wanting to sell LNG to Europe than any supposed "security" concern.

    The Nord Stream 2 is about making up for the decreases in North Slope and Norweign natureal gas production and due to the ugly divorce between Ukraine and Russia, Gasprom is not going to extend the transportation contract with Naftogaz when it expires in 2019. Simply put, most European countries have had a long >50 year relationshipe with buying Russain natural gas and want the least cost price. It's a business decision.

    And finally, the update. Sweden has just given its permission to construct the pipeline with Minister for Enterprise and Innovation, Mikael Dambergis stating that "Sweden has no way of saying 'no' to the project." That leaves just Denmark to give its permission which is expecteed sometime this summer.

    While most of Europe wanted the Nord Stream 2 pipeline before all these crazy sanctions/tariffs, the most recent US tariffs are forcing the EU to make a choice of being with the US or against, and it looks like it will be against in this instance.

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