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Yves here. It’s not hard to see that this tiff isn’t just about Russia. The US wants Germany to buy high-priced US LNG.
By Tsvetana Paraskova, a writer for the U.S.-based Divergente LLC consulting firm. Originally published at OilPrice
The United States and the European Union (EU) are at odds over more than just the Iran nuclear deal – tensions surrounding energy policy have also become a flashpoint for the two global powerhouses.
In energy policy, the U.S. has been opposing the Gazprom-led and highly controversial Nord Stream 2 pipeline project, which will follow the existing Nord Stream natural gas pipeline between Russia and Germany via the Baltic Sea. EU institutions and some EU members such as Poland and Lithuania are also against it, but one of the leaders of the EU and the end-point of the planned project—Germany— supports Nord Stream 2 and sees the project as a private commercial venture that will help it to meet rising natural gas demand.
While the U.S. has been hinting this year that it could sanction the project and the companies involved in it—which include not only Gazprom but also major European firms Shell, Engie, OMV, Uniper, and Wintershall—Germany has just said that Washington shouldn’t interfere with Europe’s energy choices and policies.
“I don’t want European energy policy to be defined in Washington,” Germany’s Foreign Ministry State Secretary Andreas Michaelis said at a conference on trans-Atlantic ties in Berlin this week.
Germany has to consult with its European partners regarding the project, Michaelis said, and noted, as quoted by Reuters, that he was “certainly not willing to accept that Washington is deciding at the end of the day that we should not rely on Russian gas and that we should not complete this pipeline project.”
In July this year, U.S. President Donald Trump said at a meeting with NATO Secretary General Jens Stoltenberg that “Germany is a captive of Russia because they supply.” Related: The Implications Of A Fractured U.S., Saudi Alliance
“Germany is totally controlled by Russia, because they will be getting from 60 to 70 percent of their energy from Russia and a new pipeline,” President Trump said.
Germany continues to see Nord Stream 2 as a commercial venture, although it wants clarity on the future role of Ukraine as a transit route, German government spokeswoman Ulrike Demmer said last month.
Nord Stream 2 is designed to bypass Ukraine, and Ukraine fears it will lose transit fees and leverage over Russia as the transit route for its gas to western Europe.
Poland, one of the most outspoken opponents of Nord Stream 2, together with the United States, issued a joint statement last month during the visit of Polish President Andrzej Duda to Washington, in which the parties said, “We will continue to coordinate our efforts to counter energy projects that threaten our mutual security, such as Nord Stream 2.”
The United States looks to sell more liquefied natural gas (LNG) to the European market, including to Germany, to help Europe diversify its energy supply, which is becoming increasingly dependent on Russian supplies. Related: High Prices Benefit Iran Despite Lost Oil Exports
The president of the Federation of German Industry (BDI), Dieter Kempf, however, toldGerman daily Süddeutsche Zeitung last month, that he had “a big problem with a third country interfering in our energy policy,” referring to the United States. German industry needs Nord Stream 2, and dropping the project to buy U.S. LNG instead wouldn’t make any economic sense, he said. U.S. LNG currently is not competitive on the German market and would simply cost too much, according to Kempf.
The lower price of Russian pipeline gas to Europe is a key selling point—and one that Gazprom uses often. Earlier this month Alexey Miller, Chairman of Gazprom’s Management Committee, said at a gas forum in Russia that “Although much talk is going on about new plans for LNG deliveries, there is no doubt that pipeline gas supplies from Russia will always be more competitive than LNG deliveries from any other part of the world. It goes without saying.”
The issue with Nord Stream 2—which is already being built in German waters—is that it’s not just a commercial project. Many in Europe and everyone in the United States see it as a Russian political tool and a means to further tighten Russia’s grip on European gas supplies, of which it already holds more than a third. But Germany wants to discuss the future of this project within the European Union, without interference from the United States.
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Thankfully liquefying gas and then reconstituting it uses no additional energy, and transportation into major harbors is perfectly safe.
Capitalism inaction!
Maybe the US thinks it will also have to go out of its way to accommodate Germany and the EU by offering to construct the necessary infrastructure in Europe for the import of LNG at exorbitant US prices. MAGA. How long would that take?
The question is, is it inevitable that the EU/US relationship goes sour?
Continentalism is on the rise generally, and specifically with brexit, couple this with the geographical gravity of the EU-Russia relationship makes a EU-Russia “alliance” make more sense than the EU-US relationship.
Ever since the death of the USSR and the accession of the eastern states to the EU, the balance of power in the EU-US relationship has moved in ways it seems clear that the US is uncomfortable with.
To all of this we must add the policy differences between the US and the EU – see the GDPR and the privacy shield for example.
I have said it before – the day putin dies (metaphorically or literally) is a day when the post war order in Europe may die, and we see the repairing of the EU-Russia relationship (by which I mean the current regime in Russia will be replaced with a new generation far less steeped in cold war dogma and way more interested in the EU).
“The post war order in Europe will doe and we see the repairing of the EU/Russian relationship…”
I think you mean the German/Russian relationship and that repair has been under way for more than a decade. The post war order is very very frayed already and looks close to a break point.
This Nord Stream 2 story illustrates more than most Germany’s attitudes to the EU and to the world at large. Germany used its heft within the EU to 1 ) get control of Russian gas supplies into Central Europe (Germany insisted that Poland could not invest in the project apparently and refused a landing point for the pipeline in Poland. Instead it offered a flow back valve from Germany into Poland that the Germans would control) 2) thumb its nose at the US while outwardly declaring friendship through the structures provided by EU and NATO membership.
Even Obama suspected the Germans of duplicity (the Merkel phone hacking debacle).
It’s is this repairing relationship that will set the tone for Brexit, the Ukraine war, relations between Turkey and EU and eventually the survival of the EU and NATO. The point ? Germany doesn’t give a hoot about the EU … it served its purpose of keeping Germany anchored to the west and allowing German reunification to solidify while Russia was weak. Its usefulness is in the past now, however from a German point of view.
Putin dying isn’t going to change Washington. As long as NATO exists, Washington will continue to use it to drive a wedge between the EU and Russia. Merkel foolishly went along with all of Washington’s provocations against Russia in Ukraine, even though none of it benefited Germany’s national interest.
Come to think of it, maybe Merkel dying off would improve German-Russian relations …
She did indeed go along with all the provocations and she sat back and said nothing while Putin railed against US sanctions. Yet Putin didn’t blame Germany or the EU. Instead he said that the Germany/EU is currently trapped by the US and would come to their senses in time. He is leaving the door open.
Germany won’t lose if NATO and the EU break up. It would free itself from a range increasingly dis-functional entities that, in its mind, restrict its ability to engage in world affairs.
I think you are right. Russia and Germany are coming together and there’s nothing we can do about it because “private commercial venture.” Poetic justice. And the economic link will lead to political links and we will have to learn a little modesty. The ploy we are trying to use, selling Germany US LNG could not have been anything more than a stopgap supply line until NG from the ME came online… but that has been our achilles heel. It feels like even if we managed to kick the Saudis out and took over their oil and gas we still could no longer control geopolitics. The cat is out of the bag and neoliberalism has established the rules. And it’s pointless because there is enough gas and oil and methane on this planet to kill the human race off but good.
@Susan
That exactly right. and Gerhard Schroder has been developing those political relationships for more than a decade. The political/economic links already go very deep on both sides.
if the rapprochement is occurring, Brexit, the refugee crisis and Italy’s approaching debt crisis are all just potential catalysts for an inevitable breakup. Germany likely views these as potential opportunities to direct European realignment rather than existential crises to be tackled.
What US LNG exports? The US is a net importer of NG from Canada. US 2018 NG consumption and production was 635.8 and 631.6 Mtoe respectively (BP 2018 Stats). Even the BP 2018 Statistical Review of World Energy has an asterisks by US LNG exports which says, “Includes re-exports” which was 17.4 BCM or 15 Mtoe for 2018.
The US is pushing Germany to buy US LNG. The US is busy building LNG terminals for export. You tell me.
The US produces annualy about 33,000,000 million cubic feets and consumes 27.000.000 million according to the EiA. So there is an excess to export indeed.
cubic feet :(
Leaving 6,000,000 million to be exported, until the shale gas no longer flows…
How farsighted.
Natural gas negotiations involve long term contracts so there are lots of money to exchange ensuring business for many years to come. Such a contract has recently been signed between Poland’s PGNiG and American Venture Global Calcasieu & Venture Global Plaquemines LNG (Lousiana). According to the Poland representative this gas would be 20% cheaper than russian gas. (if one has to believe it). Those contracts are very secretive in their terms. This contract in particular is still dependent on the termination of liquefaction facilities in Lousiana.
I don’t know much about NG markets in Poland but according to Eurostat prices for non-household consumers are very similar in Poland, Germany, Lithuania or Spain.
Gas contracts are usually linked to oil prices. A lot of LNG is traded as a fungible product like oil, but that contract seems different – most likely its constructed this way because of the huge capital cost of the LNG facilities, which make very little economic sense for a country like Poland which has pipelines criss-crossing it. I suspect the terminals have more capacity that the contract quantity – the surplus would be traded at market prices, which would no doubt be where the profit margin is for the supplier (I would be deeply sceptical that unsubsidised LNG could ever compete with Russia gas, the capital costs involved are just too high).
IIRC, the US is pushing LNG because fracking has resulted in a lot of NG coincident with oil production.
They’ve got so much NG coming out of fracked oil wells that they don’t know what to do with it and at present, a lot of it just gets flared, or leaks into the atmosphere.
IMO, the folks responsible for this waste are as usual, ignoring the ‘externalities’, the costs to the environment of course, but also the cost of infrastructure and transport related to turning this situation to their advantage.
So they turn to bullying the EU to ignore the price advantage that Russia is able to offer, due to the economics of pipeline transport over liquefaction and ocean transport, and of course the issues of reliability and safety associated with ocean transport, and high-pressure LNG port facilities compared to pipelines.
This doesn’t even take into account the possibility that the whole fracked gas supply may be a short-lived phenomenon, associated with what we’ve been describing here as basically a finance game.
Trump will probably offer the EU ‘free’ LNG port facilities financed by low-income American tax-payers, and cuts to ‘entitlements’, all designed to MAGA.
Just to clarify, fracked gas is not usually a by-product of oil fracking – the geological beds are usually distinct (shale gas tends to occur at much deeper levels than tight oil). Gas can however be a byproduct of conventional oil production. ‘wet’ gas (propane, etc), can be a by-product of either.
PlutoniumKun,
It’s common for oil wells both fracked and conventional to produce natural gas (NG) though not all do. The fracked wells in the Permian Basin are producing a great deal of it.
Natural gas does indeed form at higher temperatures than oil does and that means at greater depth but both oil and NG migrate upward. Exploration for petroleum is hunting for where it gets captured at depth, not for where it’s formed. Those source rocks are used as indicators of where to look for petroleum trapped stratigraphically higher up.
The TrumpAdmin would probably also like to see enough American natgas sold fast and hard enough to create a natgas shortage in this country, in order to raise the price of natgas so high that the price of coal can be made to look competitive and the use of coal can re-increase.
It seems we have been maneuvering for a while to raise our production of LNG and oil (unsustainably) in order to become an important substitute supplier to the EU countries. It sort of looks like our plan is to reduce EU opposition to our attacking Russia. Then we will have China basically surrounded. This is made easier with our nuclear policy of “we can use nuclear weapons with acceptable losses.” What could go wrong?
I wonder what the secret industry studies say about the damage possible from an accident at a LNG port terminal involving catastrophic failure and combustion of the entire cargo of a transport while unloading high-pressure LNG.
They call a fuel-air bomb the size of a school bus ‘The Mother of all bombs’, what about one the size of a large ocean going tanker?
Many years ago, someone was trying to build an LNG storage facility on the southwest shore of Staten Island 17 miles SW of Manhattan involving very large insulated tanks. In spite of great secrecy, there came to be much local opposition. At the time it was said that the amount of energy contained in the tanks would be comparable to a nuclear weapon. Various possible disaster scenarios were proposed, for example a tank could be compromised by accident (plane crashes into it) or terrorism, contents catch fire and explode, huge fireball emerges and drifts with the wind, possibly over New Jersey’s chemical farms or even towards Manhattan. The local opponents miraculously won. As far as I know, the disused tanks are still there.
This was a fuel-air bomb @ Burning Man about a dozen years ago, emanating from an oil derrick of sorts.
I was about 500 feet away when it went up, and afterwards thought maybe we were a bit too close to the action, as we got blasted with heat…
https://www.youtube.com/watch?v=Wyc6LTVxhJA
Does this page help Watt4Bob?
https://www.laohamutuk.org/Oil/LNG/app4.htm
That last one was a doozy as they say!
Nigeria 2005;
Here’s one from Cleveland;
The locals in Nigeria drill hole in pipeline to get free fuel.
The Nigeria Government has been really wonderful about sharing the largess and riches of their large petroleum field in the Niger delta. Mostly with owners of expensive property around the world.
I am trying to think of what might be in it for the Germans to go along with this deal but cannot see any. The gas would be far more expensive that the Russian deliveries. A fleet of tankers and the port facilities would have to be built and who is going to pick up the tab for that? Then if the terminal is in Louisiana, what happens to deliveries whenever there is a hurricane?
I cannot see anything in it for the Germans at all. Trump’s gratitude? That and 50 cents won’t buy you a cup of coffee. In any case Trump would gloat about the stupidity of the Germans taking him up on the deal, not feel gratitude. The US wants Germany to stick with deliveries via the Ukraine as they have their thumb on that sorry country and can threaten Germany with that fact. Nord Stream 2 (and the eventual Nord Stream 3) threaten that hold.
The killer argument is this. In terms of business and remembering what international agreements Trump has broken the past two years, who is more reliable as a business partner for Germany – Putin’s Russia or Trump’s America?
Apart from cost issues, If american companies rely on shale gas to keep or increase production will they be able to honor 20 year supply contracts?
I find it impossible to believe that a gas supplier would keep to an artificially low LNG contract if, say, a very cold winter in the US led to a shortage and extreme price spike. They’d come up with some excuse not to deliver.
Good question that. Poland has just signed a 20 year agreement with the US so I will be curious how that works out for them. Story at-
https://www.rt.com/business/441494-poland-us-gas-lng/
Trumps argument appears to be that Germany as a NATO member relies on US DOD for defense, to pay for that they must buy our LNG.
My recollection was that there was a law that prohibited export-sales of domestic US hydrocarbons. That law was under attack, and went away in the last couple years?
LNG with your F35? said the transactional Orangeman
The fracked crude is ultralight and unsuitable for the refineries in the quantities available, hence export, which caused congress to change the law. No expert, but understand that it is used a lot as a blender with heavier stocks of crude, quite a bit going to China.
The petroleum industry has been
bribinglobbying the administration for quite a while to get this policy in place, The so called surplus of NG today (if there is), won’t last long. Exports will create a shortage and will result in higher prices to all.Maybe even high enough to make coal competitive again.
also, if germany were to switch to american LNG, for how long would this be a reliable energy source? fracking wells are short lived, so what happens once they are depleted? who foots the bill?
We do. Shortage here to honor export contracts, as has happened in Australia.
The United States than she lead by example. Telling Germany not to import Russian gas is rich considering the U.S. also imports from Russia. https://www.forbes.com/sites/rrapier/2018/07/12/russia-was-a-top-10-supplier-of-u-s-oil-imports-in-2017/
I just love the fact that Trump is publicly calling out Merkel on this; she has been nothing but two-faced and hypocritical on the Russia question.
She was one of the ones who pushed the EU hard, for example, to sanction Russia in the wake of the coup in Ukraine (which she had also supported). And then she pushed the EU hard to kill off the South Stream pipeline, which would have gone through SE Europe into Austria. She used the excuse of ‘EU solidarity’ against ‘Russian aggression’ to accomplish that … only to then turn around and start building yet another pipeline out of Russia and straight into Germany! The Bulgarians et al. must feel like real idiots now. It seems Berlin wants to control virtually all the pipelines into Europe.
So, three cheers for Trump embarrassing Merkel on this issue!
Putting money aside for a moment, Trump, as well as the entire American establishment, doesn’t want Russia “controlling” Germany’s energy supplies. That’s because they want America to control Germany’s energy supplies via controlling LNG deliveries from America to Germany and by controlling gas supplies to Germany through Ukraine. This by maintaining America’s control over Ukraine’s totally dependent puppet government. The Germans know this so they want Nord Stream 2 & 3.
Ukraine is an unreliable energy corridor on a good day. It is run by clans of rapacious oligarchs who don’t give one whit about Ukraine, the Ukrainian “people”, or much of anything else except business. The 2019 presidential election may turn into a contest among President Poroshenko the Chocolate King, Yulia Tymoshenko the Gas Princess, as well as some others including neo Nazis that go downhill from there. What competent German government would want Germany’s energy supplies to be dependent on that mess?
It has been said that America’s worst geopolitical nightmare is an economic-political-military combination of Russia, Iran, and China in the Eurasian “heartland”. Right up there, if not worse, is a close political-economic association between Germany and Russia; now especially so since such a relationship can quickly be hooked into China’s New Silk Road, which America will do anything to subvert including tariffs, sanctions, confiscations of assets, promotion of political-ethnic-religious grievances where they may exist along the “Belt-Road”, as well as armed insurrections, really maybe anything short of all out war with Russia and China.
Germany’s trying to be polite about this saying, sure, how about a little bit of LNG along with Nord Stream 2 & 3? But the time may come, if America pushes enough, that Germany will have to make an existential choice between subservience to America, and pursuit of it’s own legitimate self interest.
Study a map of the ME, and consider the silk road Terminii.
Going from east to west, Djibouti, Yemen, Gwadar, and Myanmar with energy corridor in development through the Rakhine State of Myanmar to China. This may suggest a picture but someone more knowledgeable than me should paint it.
It’s hard to make NG explode, as it is with all liquid hydrocarbons. It is refrigerated, and must change from liquid to gaseous for, and be mixed with air.
I’ve also worked on a Gas Tanker in the summer vacations. The gas was refrigerated, and kept liquid. They is a second method, used for NG, that is to allow evaporation from the cargo, and use it as fuel for the engine (singular because there is one propulsion engine on most large ships) on the tanker.
I dunno, there are other opinions.
It’s been a while since I’ve really read about this pipeline issue, but it’s also about regional control. Russia uses gas supplies (especially in the winter) to pressure the Baltic states, Poland, and Ukraine.
I’m not sure this is accurate, but i remember reading that the pipeline to Germany allows them to cut off supply to, say, the Baltic states without affecting supply going to Germany or other Western European states.
Here we have it again. The U.S (bigly) intervening in a supposed souvereign country, threatening in mafia-style manner. I remember a German talkshow a few years back where a former diplomatic representative for German-American cooperation was talking about how American representatives were bargaining behind closed doors in 3 different ways on political and economical issues. 1) If you agree with them, then they pretend to be your best friends and everything is fine, 2) if you disagree on minor political or economical issues, then they play the ‘gratitude’ card rebuking on how Germany had been liberated by the altruistic U.S., 3) but if you object them on primarily issues they will threating you with releasing CIA documents.