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U.S. Ambassador to Germany Richard Grenell has sent a letter to several German companies, warning them that they could face sanctions if they continue to work on the Russia-led Nord Stream 2 gas pipeline project.
Germany is the end-point of the highly controversial Gazprom-led Nord Stream 2 pipeline project, which will follow the existing Nord Stream natural gas pipeline between Russia and Germany via the Baltic Sea. The U.S. opposes the project, as do EU institutions and some EU members such as Poland and Lithuania. Germany, however, supports Nord Stream 2 and sees the project as a private commercial venture that will help it to meet rising natural gas demand.
Several European companies—ENGIE, OMV, Shell, as well as Germany’s Uniper and Wintershall—are partners of Russia’s gas giant Gazprom in the Nord Stream 2 project.
Germany’s mass-circulation newspaper Bild am Sonntag first reported that Ambassador Grenell had sent letters to German companies warning them of potential sanctions, and used wording such as “Grennel was trying to blackmail” the German firms.
Speaking to Reuters, the spokesman for the U.S. Embassy in Berlin said that “The only thing that could be considered blackmail in this situation would be the Kremlin having leverage over future gas supplies.”
The letter of the Ambassador, which had been coordinated by U.S. government agencies in Washington, “is not meant to be a threat but a clear message of U.S. policy”, the U.S. Embassy spokesman told Reuters.
“The letter reminds that any company operating in the Russian energy export pipeline sector is in danger under CAATSA of U.S. sanctions,” the spokesman said.
The news of the letter irritated many German diplomats and politicians, some of whom have always insisted that the U.S. shouldn’t meddle in Germany’s affairs.
Before news of the U.S. Ambassador’s letter broke, German Foreign Minister Heiko Maas said last week that sanctions against Nord Stream 2 would be the wrong way to solve the energy supply disputes and issues. According to Maas, European energy policy issues should be decided in Europe, not in the United States.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.
Once completed by the end of 2019, the jointly European and Russian-financed Nord Stream 2 gas pipeline will deliver along with the already existing Nord Stream 1 a total of 110 billion cubic metres per year of Russian gas supplies under the Baltic Sea, to Germany and the EU thus bypassing the Ukraine.
Germany supported by the EU should ignore the threat of sanctions because it will come to nothing. The US interference will certainly strain relations between Germany and the United States and also between the EU and the US and President Trump knows that if he imposes sanctions on Germany, the EU has the economic muscle to retaliate against the United States.
The threat of sanctions might also be aimed at scaring the western shareholders in the Nord Stream-2 consortium (E.ON, BASF/Wintershall, Shell, OMV and Engie) to force them to withdraw from the project. However, even if he succeeds, Gazprom and Germany are capable of financing the entire project on their own.
Threats by President Trump against Germany are not new. 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”.
The German Chancellor 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. A few days later, Angela Markel defied President Trump and authorized the start of building its portion of Nord Stream 2.
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.
The United States’ opposition to Nord Stream 2 is mainly motivated by self-interest and partly by geopolitics.
The US has always been opposed to Nord Stream II, which it views as Russia’s attempt to tighten its grip on Europe’s energy supplies. Part of US opposition to the Nord Stream 2 is that it hopes to sell more of its LNG to the EU. And while the EU is willing to buy US LNG as part of its energy diversification, it is not prepared to buy it at any price.
Until US LNG matches the price of Russian piped gas, it stands no chance against Russian gas supplies in most of the EU countries. The Europeans buy Russian gas not because it is imposed on them but because Russian gas supplies are reliable, efficient and cheap.
The EU is determined to diversify its energy sources but not at any price. Germany is quietly building up LNG importing facilities not only for diversification of energy sources but also because of fast-rising demand for gas in Germany. Germany and the EU will only buy US LNG if its price matches the cheaper Russian piped gas.
Putting geopolitics and political pressure from the United States aside, Nord Stream 2 is an economic project first and foremost though it is viewed by the United States, Poland and the Baltic States as tightening Russia’s grip on Europe’s energy supplies. Russia provides roughly 40% of Europe’s gas needs.
Germany receives 57% of its natural gas and 35% of its crude oil from Russia. Furthermore, Russian gas is and will remain cheaper for Germany than US LNG for the foreseeable future until US producers can match Russian gas prices.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London