Pipeline Politics In Europe – OpEd

By John Defterios*

The US and Russia, for decades Cold War adversaries, are now preparing for what appears to be a showdown over delivering natural gas to the EU.

While US President Donald Trump refused to denounce Russia’s election meddling at the conclusion of the Helsinki Summit with Vladimir Putin, he on multiple occasions took swipes at Germany for agreeing to a long-term gas agreement with Moscow.

There can be no doubt that the US is gearing up to challenge the No. 1 provider of gas to a market of more than half a billion consumers. It will get even more complex as supplies in Western Europe drop, demand continues to rise and others try to reduce their dependency on coal and nuclear power in the wake of the Fukushima Daiichi nuclear disaster in 2011.

Donald Trump put the latest pipeline, the Nord Stream 2 , and its predecessor, the Nord Stream 1, at the center of the debate about the potential dominance of Russia over the Europeans for two reasons: They run directly from southwest Russia through the Baltic Sea to Northern Germany, Europe’s largest economy. They also bypass Ukraine entirely, starving Russia’s adversary of vital supplies and transit fees.

To use an American basketball analogy, the US president is crying foul on Russia (although not on stage with his Russian counterpart) and suggesting Germany, as a NATO ally, is being “captive” of Moscow. “It should never have been allowed to happen; but Germany is totally controlled by Russia because they will be getting 60-70 percent of their energy and a new pipeline,” said Trump. “You tell me if that is appropriate? I think it is not!”

Trump voiced his complaint to NATO’s Secretary General Jens Stoltenberg and underscored the role of German ex-chancellor Gerhard Schröder, who is the chairman of the shareholders’ committee for Nord Stream, in securing the deal.

The reality is that the US president has tried to enter this hard-fought contest of pipeline politics very late in the game.

The Nord Stream 2 pipeline is controlled by Russia’s gas giant Gazprom and has five European energy companies as shareholders: Global giant Royal Dutch Shell, ENGIE of France, OMV of Austria and two German-based players — Uniper and Wintershall.

By design, the Nord Stream pipelines are meant to last for decades, especially since natural gas is seen in the industry as a key driver of power plants for electric cars.

The nasty narrative continued while Trump and Putin met in Finland. “Nord Stream 2 is first and foremost a commercial project,” said Steffen Seibert, Germany’s government spokesman during a routine briefing of reporters.

There has been a great deal of numbers being bandied about, especially from President Trump, about Russia’s widening sphere of energy influence, but the latest figures available paint a very different picture.

According to the Paris-based International Energy Agency (IEA), Germany obtains 35 percent of its natural gas from Russia, 34 percent from Norway and 29 percent out of the Netherlands.

While the Nord Stream 2 will double the amount of gas coming into Germany, it will offset supplies currently passing through Ukrainian pipelines, so the number according to London-based consultancy Energy Aspects will clearly not double and will hover around 40-45 percent through the middle of next decade.

Germany, with supplies dropping rapidly from the Netherlands, is seeing its role as a gas transit country only grow in importance, exporting to the rest of Europe about half of what it takes in.

The latest figures from the European Commission show that the EU imports just over two thirds of its natural gas, with Russia at 37 percent, 33 percent from Norway and 11 percent from Algeria, which is supplying Southern Europe.

Russia, while clearly looking after its own long-term interests, is suggesting President Trump is using a geo-political argument as a trojan horse to usher in US LNG exporters into the European market.

“This is nothing else but an attempt to force European buyers to buy more expensive LNG,” said Dmitry Peskov, the long-serving spokesman for the Kremlin. “We think it is a question of economic competition,” he added.

The shale revolution is indeed changing the game and the US is exporting the equivalent of 3 million barrels a day of oil and gas, a similar scale of long-time Gulf producer the UAE.

The US already has two export terminals up and running and will add four more by 2020, when it hopes to be the third-ranked LNG player behind Qatar and Australia.

Allowing for future competition is another matter worth considering according to European diplomats who briefed me on the current energy landscape.

The Southern Gas Corridor is being developed with a new supply route called the Trans-Anatolia Pipeline (TAP) bringing supplies from Azerbaijan through Turkey and Greece to Italy.

Egypt, after the major discovery of the super-giant Zohr gas field, and Cyprus, with its Aphrodite field, are poised to be major suppliers to Europe if their efforts are not stymied to enter the European market by Russian and Turkish manouvers, as some EU diplomats suggest.

Russia does not yet control Europe with its multiple-pipeline routes supplying natural gas, but having greater competition from the Mediterranean and from LNG exporters, including the US, will indeed check their sphere of influence in the high stakes game of pipeline politics.

*John Defterios is CNNMoney emerging markets editor and anchor based in Abu Dhabi