The Kremlin seeks to speed up the commissioning of the Nord Stream 2 gas pipeline, which could affect the prospects for U.S. exports of liquefied natural gas to Europe and result in losses for U.S. exporters. Speculation on the timing of the pipe launch proves the project’s political nature.
In June, President Donald Trump warned Germany was making a “tremendous mistake” by relying on the pipeline, warning the project “really makes Germany a hostage to Russia.”
The U.S. strongly believes Nord Stream 2 threatens the energy and national security of its European allies because it increases Russia’s control over the region’s energy supply. The White House is also believed to be keeping all options on the table as the pipeline nears completion.
Thus, the commissioning of the gas pipeline will create risks for a number of gas exporters:
1. Norway will receive a powerful competitor in the person of Russia, which will lead to increased competition, lower prices for Norwegian gas, and reduced investment in Norway’s gas fields;
2. Reduced competition in U.S. LNG supplies;
3. Decrease in investments and potential of the North Sea deposits.
Despite Denmark’s permit issued to Nord Stream 2 for passing through its territorial waters and Bundestag’s efforts pushing lobbying amendments to the EU Gas Doctrine, Nord Stream 2 cannot be launched before the first quarter of 2020. Thus, during this period, the Russian gas transit channel to Europe will remain via the territory of Ukraine, which acts as a safeguard against the Kremlin’s direct pressure on the EU. Over the past 10 years, Ukrainian transit has made impossible direct conflict and Russian pressure on Europe regarding the volumes and prices of natural gas supplies.
The Ukrainians would like to negotiate a new long-term contract, ideally, for 10 years. Russian negotiators, however, have proposed an agreement that would last only one year, anticipating completion in 2020 of Nord Stream II and a separate pipeline to Turkey. The two new pipelines will have a combined capacity of about 71 BCM, meaning that they could take most of the gas that now traverses pipelines through Ukraine.
European Union officials have suggested a 10-year contract with a provision requiring that 60 BCM of gas be shipped each year via Ukraine. While making clear her support for Nord Stream II, German Chancellor Angela Merkel also expressed support for Ukraine continuing to transit significant volumes of Russian gas.
Steven Pifer, Nonresident Senior Fellow in Center for 21st Century Security and Intelligence, Center on the United States and Europe, Arms Control and Non-Proliferation Initiative said, that Congress could help protect gas transit through Ukraine. It could amend the legislation, perhaps by adding provisions to provide for waiving the Nord Stream II-related sanctions if a long-term gas transit contract were agreed on between Kyiv and Moscow, a contract that entailed a significant flow of gas through Ukraine.
Committees in both houses of Congress have developed legislation to sanction companies involved in constructing the pipeline, particularly those owning the ships that are laying the pipes.
Meanwhile, the United States may lose a promising gas market in Europe. Statements by French President Macron about a “brain-dead NATO” and Berlin’s gas pipeline deal with Moscow are part of Kremlin’s sophisticated policy of ousting Washington from the European continent.
In July 2018, Donald Trump announced that the 28-nation European Union would be “a massive buyer of LNG,” before adding, “We have plenty of it”
Europe’s consumption of natural gas is increasing, and its domestic production is falling. Its imports have risen rapidly in recent years, and will most likely increase further in the future. But the commissioning of the Nord Stream 2 gas pipeline will make it impossible to implement such plans. The potential share of the American LNG market will go to Russia, due to a cheaper logistics component of gas deliveries and a possible government subsidy for the development of Siberian gas fields, which does not require compliance with market requirements such as payback, depreciation, etc.
Along with the loss of economic cooperation mechanisms, Washington risks losing its political alliance with Europe. This will contribute to the geopolitical isolation of the United States within the continent. Russia is already pushing Washington out of the Middle East, having strengthened its positions in Syria and having entered into partnership with Turkey and Iran. The loss of economic independence of the European Union will lead to irreversible consequences for the Euro-Atlantic security system, and in the economic dimension it will destroy all those positive achievements from the implementation of the Third Energy Package, which guaranteed energy independence of European countries.
