Nord Stream 2, a Russian pipeline project, is going to increase natural gas market share for the Kremlin, but is it going to become the next Cold War?
Being born in the early 1980’s, I missed out on the majority of the Cold War. Recently, I have been reading a lot about this period of time and how it began, what played out, and the way it ended. Since the fall of the Soviet Union, the Cold War has largely been considered over. The way I see it, though, their battle for control over natural gas could be my generation’s Cold War.
Historically, major exporters of oil and natural gas have been bullies. Russia has held the world hostage for decades by leveraging their oil and natural gas as bargaining chips; “do what we want or we cut off your supplies.”
Those supplies heat people’s homes, power their grids and fuel their industries. People around the world depend on oil and gas, so when there is a threat to be cut off, countries have long just fallen in line. This is not an empty assessment as Russia has done just this numerous times, especially in Central and Eastern Europe. Gazprom, Russia’s state-run natural gas company, has increased market share from a quarter to one-third of the EU’s gas market since the 1990’s. This significantly increases their sway within the EU.
Now, there is a chance for Russia to swell their market share even further and, defacto, their political influence as well. Russia has been working on a new pipeline in conjunction with energy companies from France, Germany, the Netherlands, Great Britain and Austria. This new pipeline, Nord Stream II, will cross the Baltic Sea heading towards Germany, bypassing Ukraine, whose bread and butter is transferring gas across their country.
This has put US administration officials on alert. They say the $11 billion pipeline is giving Russia political power to coerce countries to fall in line. In fact, Secretary of State, Rex Tillerson referred to it as an “Energy Weapon.” President Trump is not backing Russia in this endeavor. Rather, the US is imposing sanctions on Russia to make funding more difficult, which could also create pressure on European companies depending on the deal to resist Russian entreaties. Meghan O’Sullivan, Director of the Geopolitics of Energy project at Harvard University’s Kennedy School, sums it all up saying:
“Even if Gazprom takes no actions to exert political power through energy trade, the fact that it has the means to do so, the mere threat of a cutoff, gives Russia political leverage.”
The Russians and Europeans working with them are obviously feeling the US pressure and getting quite defensive about it, suggesting US fears are on the money. The Nord Stream website not so persuasively argues the increased power of Russia is no big deal:
“This kind of scaremongering does not reflect reality. The only country completely dependent on Russian gas is Russia. Russian gas currently accounts for around 30% of the EU’s gas consumption. This share will not fundamentally change with Nord Stream 2 because it will only account for part of the increased import capacities that the EU will need. Diversification is a real EU success story. There are 22 LNG terminals, and with a capacity of 216 bcm, they could import 50% of the current demand. However, these terminals are only utilised [sic] at some 20%. Meanwhile, pipelines connecting the Central and Eastern European countries can already deliver 147 bcm from West to East. Even Ukraine’s import demand has been fully supplied via a West-East connection since November 2015. Think resilience, not dependence.”
The importance of this and the many not-covered moving parts is the opportunity for the US exported Liquefied Natural Gas. Not all countries are buying the Russian pipeline. Poland and Lithuania have built LNG import terminals for US Gas. Poland has already received US LNG with a first shipment to Europe from Cheniere Energy’s Sabine Pass (as I covered here). Those European countries with good memories have every right to be fearful of the Russian Bear and this is an opportunity for the US as we are well-poised to further increase our LNG exports to them.
Just as happened in the Cold War, propaganda and political pressure from the Soviets/Russians is going to be used to interfere as much as possible with the any nation foolish enough to tie into the Russian gas line. While it may be unlikely we’ll ever have to face off in a nuclear contest as was once feared, the battle over gas may well become my generation’s Cold War.