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Vanand Meliksetian

Vanand Meliksetian

Vanand Meliksetian is an energy and utilities consultant who has worked with several major international energy companies. He has an LL.M. from VU Amsterdam University…

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Nord Stream 2's Confusing Endgame

Pipeline

The summer of 2018 will go into history as the moment when a US president fundamentally and decisively changed the international world order which its predecessors worked hard on during the past decades. Within approximately a week from 11 July until 16 July, President Donald Trump achieved to insult its key allies in Europe and fundamentally undermine NATO and the EU, while cozying up to what seems to be the most important adversary of the West. While this week will go into history as an arduous one for the presidency of Trump, for President Vladimir Putin, in contrast, it is one of his best since the Ukraine crisis began in 2015.

The strategic interests of Russia were met in considerable ways as its key adversaries are divided due to Trump’s bellicose and aggressive language before and during the yearly NATO summit in Brussels. The unprecedented attack on Germany during a televised lunch, which caught off-guard the host Secretary-General Stoltenberg, in many ways showcased the current administration’s interest in the financial and energy domain.

Trump claimed “Germany is totally controlled by Russia. They will be getting between 60 and 70 percent of their energy from Russia and a new pipeline.” Although this is factually untrue, Germany imports 33 percent of its gas and 40 percent oil from Russia, these statements spread confusion as to what Trump’s actual endgame is. Several options are possible as to the true intentions of these statements. Related: Houston To Get Its Own Crude Oil Futures As U.S. Exports Rise

This could be a negotiating strategy of Trump by putting pressure on Germany in order of significantly increasing its defense expenditure. Although NATO leaders reaffirmed after the gathering on 12 July their commitment to the pre-Trump agreement of gradually increasing defense expenditure, the US president seems adamant on even more. Trump claimed that the remaining NATO members have agreed to increase expenditure to 4 percent instead of 2 percent. This was rebuffed by the other alliance members.

Another alternative goal of the presumed negotiating strategy could be not defense spending but forcing US energy on Europe and primarily Germany. The shale revolution has transformed the North American country from an importer into an exporter within a couple of years. Some analysts have long predicted that the US’ intentions on obstructing the construction of Nord Stream 2 are not based on benign security concerns but commercial interests.

Russian natural gas traveling through pipelines is significantly cheaper than LNG. Therefore, US exporters would be facing major difficulties in finding buyers for their product as commercial customers obviously will want to pay as less as possible. The US’ objections have been steadily increasing and changing from political pressure into the threat of sanctions as Nord Stream 2 is partly financed by Western companies but wholly owned by Gazprom.

The most stunning of Trump’s actions during the past week came during his press conference alongside Russian president Vladimir Putin in Helsinki on 16th July. Although the Kremlin did get nothing on several crucial subjects such as the lifting of sanctions, Syria, and Ukraine, Trump did manage to provide Putin something he has long aimed for, legitimacy as a great power. Since his ascension as President of the Russian Federation, he has sought equal footing with the American superpower in order to reposition Russia globally.

Related: Chinese Oil Demand Growth Could Slow Down Soon

On the energy side, Trump’s actions caused even more confusion. Although it could be said that the US president in some ways reduced his opposition to the construction of Nord Stream 2, his erratic and unpredictable behaviour give no cause for celebration for the Russians yet. Trump declared that the US will compete for market share with Nord Stream 2, thus acknowledging its construction. Vladimir Putin from his side, reaffirmed his commitment to maintaining using Ukraine’s transit role even after the pipeline has been built.

President Trump’s unpredictable behaviour does not provide analysts and policymakers with clear outcomes when it comes to the US’ objections on Nord Stream 2. Recent developments have proven that the US’ position towards the construction of Nord Stream 2 is not decided yet, despite bellicose language before the meeting with Putin in Helsinki. However, European resolve will be the decisive factor in this matter as Trump increasingly has put pressure on his allies. European policymakers have to decide soon whether the time has come to confront the US on topics where soft language has proven not to work.

By Vanand Meliksetian for Oilprice.com

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  • Mamdouh G Salameh on July 22 2018 said:
    The Nord Stream 2 has become a battle of wills between President Trump and German Chancellor Angela Merkel. Trump’s antagonism towards Merkel is partly personal, a reaction to her standing up to him and her very evident dislike of him, which she makes little attempt to hide.

    President Trump broke all norms of diplomacy and protocol during the NATO meeting in Brussels on the 11th of July 2018 when he accused Germany of being “a captive of the Russians” because of its dependence on Russian energy supplies. He went on to say that “Germany is totally controlled by Russia because they will be getting 60-70% of their energy from Russia and a new pipeline”.

    He was, of course, referring to the jointly European and Russian-financed Nord Stream 2 gas pipeline that would deliver a total of 110 billion cubic metres per year of Russian gas supplies under the Baltic Sea, to Germany and the European Union (EU) thus bypassing the Ukraine. It will be completed by the end of 2019.

    Angela Merkel hit back at President Trump saying Germany makes its own independent decisions and denying his claim that her country was “totally controlled” by Russia. The German chancellor made the point that she needed no lessons from Trump in dealing with authoritarian regimes having been brought up in East Germany when it had been part of the Soviet Union’s sphere of influence.

    However, President Trump was right about Germany’s increasing dependence on Russia for its energy needs.

    Whilst the EU depends on Russian natural gas supplies to the tune of roughly 40%, Germany imported 57% of its gas needs amounting to 47.8 billion cubic metres (bcm) and 35% of its oil needs amounting to 856,450 barrels a day (b/d) from Russia in 2017.

    The US has always been opposed to Nord Stream 2, partly because it will tighten Russia’s grip on Europe’s energy supplies but mostly because of self-interest. Many in the EU have accused the United States of trying to replace Russian piped gas supplies with US LNG plans. However, Russian gas traveling through pipelines is significantly cheaper than LNG particularly US LNG.

    With Germany starting to build its portion of the Nord Stream 2 and with the necessary permits from Germany, Sweden and Finland to start the construction of the gas pipeline in the Exclusive Economic Zone (EEZ) of the three countries, the project is unstoppable. It will be completed by the end of 2019.

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

    While it is true that rising Russian gas supplies to the EU and Germany in particular tighten Russia’s grip on the EU oil market and that gives Russia a geopolitical leverage with the EU, the Nord Stream 2 is first and foremost an economic project which is beneficial to the EU.

    During the Helsinki summit between President Trump and President Putin, Trump appeared to reduce his opposition to the Nord Stream 2 when he declared that the US will compete for market share with Nord Stream 2, thus acknowledging its construction. Vladimir Putin from his side, reaffirmed his commitment to maintaining Russian gas shipments through the Ukraine possibly to the tune of 10-15 bcm.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Andrew on July 23 2018 said:
    Russia doesn’t need Trump to recognize it as a great power, it is one by virtue of its nuclear arsenal, to say nothing of its conventional military or massive landmass. Disappointing article, thinly disguised politics masquerading as price news. By the way, your first assumption is the most correct, a tactic to get the EU bums to actually fund their militaries rather than the endless streams of 3rd world squatters.

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