U.S., Russia Vie For European Gas Dominance

Trump

 

WASHINGTON: U.S. legislation renewing and tightening sanctions on Russia, stalled in the House of Representatives, was not passed before the U.S. and Russian presidents met at the G20 summit in Hamburg. The proposed bill had already received criticism not only from Russia but also from Germany and Austria about the impact sanctions may have on Europe’s gas supply.

Europe and the United States need not worry: Energy markets have undergone significant transformation in favor of importers, and Russia’s tough talk warning against sanctions is little more than posturing. Russia needs Europe as a market for its oil and gas.

Russia’s majority state-owned gas company, Gazprom, complains that the new sanctions target European companies involved in Russia’s controversial Nord Stream II pipeline project. The planned project expands the existing Nord Stream system that pumps Russian gas under the Baltic Sea to Germany and bypasses Europe’s previous gas transit hub, Ukraine. With companies from Austria, France, Germany, the Netherlands and the UK on board with the project, Nord Stream II, if completed, would support the dominance of Russian gas in Europe. Gazprom controls about 15 percent of global reserves and more than 70 percent of Russia’s.

In response to the sanctions, Viktor Zubkov, chairman of Gazprom’s board and former prime minister stated, “As the project moves towards implementation, the basic design is completed, the construction of the pipes continues, there are now more insinuations and tightening of sanctions against Russia in the field of energy. In Europe, the region’s gas supply is being threatened. Washington pursues purely economic interests by lobbying for American energy companies in Europe.”

There are two ways to interpret Zubkov’s statement. First, given the Kremlin’s history of using energy as a weapon the statement reads as an innuendo that Russia could or has the potential to threaten Europe’s gas supplies. Another, that the Nord Stream II pipeline ensures European gas supplies from Russia, and thus US sanctions that threaten the pipeline’s completion indirectly threaten Europe’s imports. Neither is quite accurate though the threat could ring true to long-term Russia watchers.

Zubkov’s statement echoes the Kremlin’s tradition of veiled threats to cause disruptions in energy supplies to its rivals. Indeed, Russia has cut gas supplies to Ukraine on multiple occasions and hiked gas prices to Central and Eastern European countries when political tensions ran high.

Nonetheless, some in Europe prefer more Russian gas imports via Nord Stream II as exemplified by German and Austrian criticism to the new sanctions. German Foreign Minister Sigmar Gabriel and Austrian Chancellor Christian Kern said, “Europe’s energy supply is a matter for Europe, not the United States of America.”

Russia’s threats can only backfire. As explained in my new book, The New Geopolitics of Natural Gas, the changing nature of the natural gas markets are increasingly chipping away at the Russian monopoly over Europe, with growing LNG trade, new U.S. imports and a buildup of new infrastructure to bring alternative sources of gas from the Caspian. Russia no longer has the influence it once had over gas markets in Europe, and the new market realities will prove stronger than Russia’s sharp rhetoric.

Thus, European countries like Germany should not fear further U.S. sanctions on Russia. Europe has alternative sources and future gas supplies will not depend exclusively on Gazprom and Nord Stream II. Likewise, the House of Representatives should take advantage of the historic transformation in the global energy market and feel free to press for Washington’s long-term goals in Europe and vis-à-vis Russia.

Full article: U.S., Russia Vie For European Gas Dominance (OilPrice)

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