[NGW Magazine] Editorial: Trump's whirlwind tour
It has not been a good time for markets. National subsidies to give renewables an easy ride in large swathes of Europe, at the expense of gas, are the cares of past eras: now the concerns are about a bigger moral hazard: what happens if the US copies the USSR and uses gas as a political lever?
An intense week of politicking has left the Russia-Ukraine-Europe gas triangle as knotted as ever, thanks to some well-meant but hard to ignore advice. Ideas that have been dismissed in recent years as unworkable or fanciful, such as bringing US ‘liberty’ LNG to displace Russian gas from an enslaved European market are now taking on the semblance of an almost imaginable reality.
Not satisfied with the existing law, Republican senators have introduced a bill that would impose sanctions on entities involved in the controversial Nord Stream 2 pipeline to carry Russian natural gas to Germany: French Engie, Anglo-Dutch Shell, German Uniper and BASF and Austrian OMV.
They also want the US Department of Energy to speed up approvals of LNG exports to Nato members. “Where those countries don't see it for themselves, we need to show them how important it is for their own security,” said one senator. That bill was introduced a week after the US president Donald Trump met Nato representatives in Brussels, called Europe a foe, and offered Europe more criticism.
Accusing Germany of pouring billions of dollars into the 55bn m³/yr NS2 export project and thereby making itself Russia’s hostage, he said US LNG could play a bigger role in Europe than it does now. On the other hand, he said, Germany – along with most other members – was failing to stump up adequate funding for Nato, suggesting that its guiding principle in each case was not to offend Moscow. There is no equivalence: it is not Germany pouring money into NS2, but privately-held companies who hope to recover their loans with interest, while it is the citizens of the member states that fund Nato.
Similarly, once the gas lands in Europe it will disregard national borders and go to the highest bidder. So German consumers may not use that much of the NS2 throughput. Uniper’s and BASF’s shareholders will benefit, wherever it goes; but only if the throughput is sufficient to cover costs.
That is the gamble the five companies are taking: after all, it might not. Trump repeated his views about NS2 to the UK prime minister Theresa May the next day; but in Helsinki, after a weekend of golf, he changed his tone, describing Russia as no worse than a competitor when it came to meeting European gas demand. He also conceded that Russia had the advantage of being closer to Europe than the US. Putin agreed that a balance would be struck, and also said he was also ready to extend the transit contract with Ukraine after it expires next year.
How that will work, if Ukraine manages to unbundle its gas supply and transmission businesses by that time, is anyone’s guess: the network codes that Ukraine is adopting do not consider distances travelled when calculating transit fees. Putin’s suggestion also rules out the option of transferring title to European customers at the Russia-Ukraine border. And what use anyway is a contract that cannot be enforced, even after arbitration, as the present one cannot?
A few days after the Helsinki meeting the European Commission weighed in, hosting in Berlin the first of what could be a lengthy series of trilateral talks with Kiev and Moscow about next steps, and how to keep transit open through Ukraine once NS2 is built.
This is also a political rather than a commercial decision and unfortunately for those concerned with maintaining security of supply it carries risks. The more Russian gas that flows through Ukraine after Nord Stream 2 and later TurkStream 2 are built, the more Russian gas there will be in Europe; and all things being equal, the higher will be the bloc’s reliance on Russia in the next few years. This is the exact opposite of what policy-makers want.
They do not see gas trade as a two-way street or agree that Russia cannot afford to risk its reputation as a reliable gas supplier. If push came to shove, Gazprom's commercial considerations might well come second to other imperatives.
Nevertheless, there are alternative suppliers able to bring gas into Europe to cushion the blow, which was not the case in earlier intentional disruptions to gas supply, where Slovakia and Bulgaria came close to a humanitarian crisis.
One thing is clear: Ukraine has played a weak hand – it boils down to a cash demand for cash, posing as a plea to limit Russian influence in Europe – very consistently and the Ukrainian diaspora did its bit in the US. But was the money spent on lobbying wasted, given Trump’s keenness to export US gas anyway? To paraphrase the old joke about advertising, half the money you spend is wasted – but you never know which half.
US politicians in Trump's own party also want to accelerate US exports and think that will be easier without Nord Stream 2. Whether or not these LNG sales materialise ought to depend on the netbacks the exporters can achieve, and not on the imaginary benefits to European citizens of not buying Russian gas. Funding Nato and selling gas should be separate matters for the West.
NGW