RUSSIA SANCTIONS

Energy policy by another name

71958648 LNG Tanker Linde AG
Donald Trump would like more of these liquefied national gas tankers moving between the US and Europe. Source: Linde AG

Seen from the United States, its recent sanctions against Russia look like a measured reaction to Russian meddling in the election of 2016. Seen from Germany, the sanctions look like a back-handed attempt to squeeze American energy exports into Europe and Russian energy out, with several European investors suffering collateral damage.

Why? Because the sanctions come just as Europe and Russia are busy working on two natural gas pipelines that would more directly import the raw material into power-hungry Europe. And just as President Trump pushes fossil fuels as a jobs engine.

“The American government has realized that energy can become the biggest driver of exports,” said Jason Bordoff, head of the Center on Global Energy Policy at Columbia University and a former adviser to President Obama. “Nowhere is it as easy to realize Trump’s promise to create jobs for American workers than in the energy sector.”

Germany fears the Trump administration is using the latest sanctions against Russia to achieve that goal. It’s part of why Berlin fought hard (without success) to have the sanctions eased. Russia currently provides 40 percent of the natural gas consumed in Germany. Washington’s newest Russian hand slap includes provisions that would punish Western companies helping finance Russian energy projects, such as the Nord Stream 2 pipeline under construction beneath the Baltic Sea.

“America is toying with the security of Europe’s energy supply – and only to push through their own economic interests and create jobs in America,”

Klaus Schäfer,, CEO, Uniper

The 1,220 kilometer (758.1 mile) pipeline is forecast to come online by the end of 2019 and transport 55 billion cubic meters (1.9 trillion cubic feet) of Siberian natural gas to Europe per year. The project’s financing was already designed to circumvent previous sanctions against Russia by not giving its five European investors direct stakes in exchange for their individual investments, which top at out €950 million ($1.1 billion) each. Directives in the new sanctions prevent any investment and even refer to Nord Stream 2 by name, though it’s unclear if the language will be enforced.

Still, it’s enough to worry the investors, France’s Engie, Austria’s OMV and the Anglo-Dutch Shell as well as Germany’s Uniper and Wintershall. They’re covering about half the cost of the pipeline with 51 percent-owner Gazprom, of Moscow, picking up the rest of the tab.

“America is toying with the security of Europe’s energy supply – and only to push through their own economic interests and create jobs in America,” said Klaus Schäfer, chief executive of Düsseldorf-based Uniper. “The Nord Stream 2 project has now also become politicized even though it’s really just a purely economic project.”

Blocking Nord Stream 2 as well as its sister TurkStream through the Black Sea could make Germany look westward for natural gas, which is seen as a cleaner alternative to fuel power plants than coal. Europe’s biggest economy currently gets about 40 percent of its natural gas from Russia while the Netherlands provides about 29 percent, making it the second-largest supplier ahead of Norway at 20 percent.

But the Netherlands will halt exports of natural gas in 2029 after wells were proven to be the cause of a 2012 earthquake near Gronigen. That led to a citizen uprising and a new approach to natural gas exports.

WiWo32 p24 From East to West-01

Staunching the Nord Stream 2 and Turkstream pipelines would not only further squeeze supply at a crucial moment, it would also give the US a technological advantage. About 90 percent of Europe’s natural gas arrives on the continent through pipelines. But many countries are beginning to look to compressed natural gas, which then becomes a liquid better known as LNG, to diversify their energy supplies.

Major exporters pump their LNG onto special ships that steam to about 200 LNG ports around the world, including Rotterdam, the biggest of about 24 European LNG ports. The same port ships are laden with U.S. LNG use.

Qatar dominates the global LNG market with about a 30 percent share followed by Australia (17 percent) and Malaysia (10 percent). And here cynical Trump observers will see a connection – Qatar was slapped with economic sanctions of its own by neighboring Arab nations after Mr. Trump visited the region in June. Indeed, Qatar even suffered the wrath of a Trump tweet.

“Sanctions should not be abused for one’s own economic interest,” said Mario Mehren, CEO of Kassel-based Wintershall, a unit of Ludwigshafen chemical giant BASF, echoing the sentiment of other top executives on the project.

That’s not to say that Europe is happy with its current dependence on Russia. Even though Europe is facing a 120 billion cubic meter natural gas shortfall over the next 20 years, the Nord Stream 2 and TurkStream projects haven’t been very popular with Brussels. The projects would increase Europe’s reliance on temperamental Russia in general and a handful of companies in particular.

“We want to make our energy supply less dependent on individual suppliers, not more dependent,” said Maroš Šefčovič, the EU vice president tasked with energy policy. “We’ve never gotten so many letters from the top offices of member states.”

Donald Trump, Vladimir Putin
Germany feels caught in the middle, especially when it comes to energy. Source: AP Photo

Another reason Berlin is miffed: Simplifying the supply of fossil fuels goes against pushes toward sustainable sources, a years-long calling card of modern Germany. While Europe may or may not be feeling Mr. Trump’s energy policy through sanctions, those upstream in the US are already profiting from his emphasis on fossil fuels.

In Casper, Wyoming, the number of permits for new natural gas wells has jumped 43 percent over a year earlier. At the remote town’s C&Y Transportation, CEO Roy Cohee can’t find enough new hires for open positions. The company stores and transports the pipes necessary to pull natural gas from the ground via fracking. Cohee’s ordered 4 new trucks to add to his fleet of 20. “We’re back,” Mr. Cohee said, remembering the dry years under former president Barack Obama, who preferred to push renewable resources. Back then, Mr. Cohee had to lay off half of his 62 employees: “Now we’re desperately looking.”

Back at Nord Stream, few really believe the sanctions will lead to layoffs on the Baltic Sea. Whether the provisions will be enforced is anyone’s guess and the European investors are such heavy hitters that they can expect some backup from their own elected officials. “We’re confident that we’ll stay on schedule and can start construction in early 2018. The project won’t fail,” Mr. Schäfer, the Uniper CEO. “The possible sanctions are just political leverage.”

Angela Hennersdorf is Energy Editor at Wirtschaftswoche. Marc Etzold in Mukran (Germany), Philipp Mattheis in Istanbul, Tim Rahmann in New York, and Silke Wettach in Brussels contributed to this article. To contact the lead author: angela.hennersdorf@wiwo.de

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