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Why $80 Oil Won't Destroy Demand

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Global oil demand is recovering…

Trump Threatens Germany With Sanctions Over Gas Pipeline Support

President Trump continued his relentless offense against Russian gas in Europe this week by threatening to slap sanctions on Germany for its equally relentless support of the Nord Stream 2 pipeline project that will increase the flow of Russian gas into Europe.

Bloomberg quoted the U.S. President as saying “We’re protecting Germany from Russia, and Russia is getting billions and billions of dollars in money from Germany,” during his meeting with his Polish counterpart Andrzej Duda in the White House.

Threats of sanctions have come from Washington earlier as well, targeting European companies involved in the Nord Stream 2 project, including supermajor Shell, Austria’s OMV, and German Wintershall and Uniper, along with French Engie.

The U.S. argument is that an expansion of the existing Nord Stream pipeline would deepen Germany’s—and Europe’s—dependence on Russian gas at a time when they should be reducing this dependence and diversifying into other sources, including U.S. LNG. The German argument, on the other hand, is that there is a market for any gas as long as the price is right.

Now, Reuters quoted Trump as saying the pipeline project would make Germany “a hostage of Russia if things ever happen that were bad.”

In the past, Russia has suspended the flow of gas through Ukraine because of pricing disputes between the two that have dragged on for more than a decade now. There has not been a major disruption in the European supply of Russian gas but European officials are uncomfortable with the degree of dependency of the continent on Russian gas: Gazprom’s market share in Europe last year hit 35 percent.

In response to Trump’s statement, Bloomberg quoted Kremlin spokesman Dmitry Peskov as saying it was “nothing other than blackmail and a form of unfair competition.”

Earlier this month, Energy Secretary Perry, on a visit to Europe, said U.S. LNG was competitive to Russian pipeline supplies: “This idea that somehow ... LNG can’t compete with pipelined gas is just false,” Perry said on the sidelines of the conference, as the United States authorized additional volumes of LNG exports, calling its LNG “freedom gas.”

By Irina Slav for Oilprice.com

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  • Mamdouh Salameh on June 13 2019 said:
    President Trump’s threat to slap sanctions on Germany for its support of Nord Stream 2 pipeline is not new and therefore can be ignored

    The last time he threatened Angela Merkel, the German Chancellor with sanctions, she responded the following day by ordering the start of work on Nord Stream 2 in German waters and territory. Therefore, his new threats will not fare better. They will be like the proverbial ‘closing the stable gate after the horse has bolted’.

    Nord Stream 2 is a fait accompli. It is unstoppable and by the end of this year it will be operational despite efforts by the United States, Ukraine and a few Baltic states to prevent it coming into existence.

    The Nord Stream project is first and foremost a viable economic project which will ensure security of the EU and the provision of cheap and reliable Russian gas supplies without interruption and also without interference by Ukraine.

    Russia’s position in the EU gas market is unassailable with almost 40% market share and growing. Moreover, Russia’s share will be enhanced further to 45%-50% in the next decade with the completion of both the Nord Stream 2 and the Turk Stream by the end of this year. Russian gas supplies to the EU are projected to continue rising at a time when the EU demand for gas and LNG is growing by leaps and bounds whilst European gas production is projected to decline significantly particularly with the planned shutdown of the Groningen gas field in the Netherlands by 2030.

    And while the EU will import US LNG in increasing volumes as part of its energy diversification strategy, US LNG supplies will hardly make a dent on Russia’s market share and dominance in the EU gas market because US LNG prices can never compete with the price of Russian piped gas now or for the foreseeable future. Still, significant volumes of LNG from the United States, Qatar and Russia will still be needed to meet growing demand in the fast-growing EU gas market.

    The EU nations are well aware that the United States’ opposition to the Nord Stream 2 has less to do with geopolitics and far more to do with US desire to replace most of Russian gas supplies with US LNG.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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