Baltic States – CIS, Energy, EU – Baltic States, Good for Business, Legislation, Russia, USA

The Barack Obama administration opposed the Nord Stream 2 project, and the George W. Bush administration opposed the parallel Nord Stream pipeline before it became operational in 2011. Last week, in Warsaw, U.S. Secretary of State Rex Tillerson effectively endorsed those earlier positions by saying that the United States sees the pipeline “as undermining Europe’s overall energy security and stability.” The new pipeline — which, together with the original Nord Stream, will have the capacity to provide a quarter of Europe’s annual natural gas imports — was also specially targeted by U.S. sanctions on Russia adopted by Congress in August 2017.

This stance has always put the United States at odds with Russia — and, for some commentators, this might seem reason enough to endorse the policy. But the fact that American opposition to Nord Stream 2 is bipartisan doesn’t suggest it is right. Ultimately, Washington’s rejection of Nord Stream is a wasteful distraction and a hindrance to American interests.

This is true for a number of reasons. First, the United States needs to carefully choose its battles with its allies in Europe; it should oppose policies of its European allies only on vital issues and where it can win. Here, it is important to understand that Nord Stream doesn’t only have strong support in Moscow, but also in Berlin. Washington is unlikely to succeed in swaying the German government’s decision, since the pipeline and expanded direct gas trade with Russia enjoy broad political support.

In fact, the United States has a history of failing to prevent Russian gas exports to Europe. In 1981, the Ronald Reagan administration sanctioned both U.S. and European companies engaged in building gas pipelines from the Soviet Union to France and West Germany, creating a large rift with Europe. It eventually backed down when it was clear Europe would forge ahead despite American opposition. Current U.S. policymakers should refer to a declassified CIA report from 1982 explaining how Europe sees trade with Russia differently than the United States, and its assessment of the difficulties Washington faces in getting them on board to sanction energy trade. Nothing has changed in Western Europe’s attitude toward trade with Russia since the drafting of that memo.

Second, Europe needs more gas imports from all sources, including Russia. In the last two years, Europe’s gas imports have increased significantly. If economic growth in Europe continues on the current trajectory, together with declining domestic European gas production, gas imports will grow even more. While the portion of renewables in Europe’s fuel mix is growing, coal consumption remains very high, especially as Europe closes more nuclear energy facilities. Germany’s demand for gas is expected to soar after the closure of its last nuclear plant in 2022. Additional gas supplies into Europe will facilitate the much-needed switch from coal to natural gas, with its lower impact on the environment and specifically on climate change.

Additional gas supplies into Europe will facilitate the much-needed switch from coal to natural gas, with its lower impact on the environment and specifically on climate change.

Europe can’t ensure the security of its energy supply by reducing Russian gas supplies. Instead, it needs to increase additional supplies from diverse sources and through building robust infrastructure systems, such as extensive gas storage facilities and interconnectors.

Unfortunately, Russian gas cannot be replaced by and large by U.S. liquefied natural gas (LNG) exports. Many of the states in Europe most dependent on Russian gas imports are landlocked or otherwise inaccessible to shipping and thus cannot access LNG. Moreover, even states that have built LNG import facilities, such as Lithuania, continue to seek Russian imports due to the significant price gap between LNG and Russian pipeline gas.

Third, Washington’s attempt to pressure Russia to route its gas through Ukraine undermines European energy security. Transit states make gas supply inherently less stable, and it is a legitimate commercial goal for Russian state-owned oil company Gazprom to avoid them where possible. Today close to half of Russia’s gas supplies into Europe transit Ukraine. Gas supplies to Europe have been disrupted a number of times over the past two decades, caught up in the conflicts between Russia and Ukraine, including over Kiev’s lack of payments for its gas imports.

The expansion of the Nord Stream pipeline would indeed mean that the far more stable Germany would replace Ukraine as a transit state for some of Russia’s exports.

The expansion of the Nord Stream pipeline would indeed mean that the far more stable Germany would replace Ukraine as a transit state for some of Russia’s exports.

Indeed, in the wake of the 2014 Russian invasion of Crimea, when policymakers in Washington and Brussels assessed which gas supplies were stable and which were at risk, they counted those delivered by Nord Stream as among those least likely to be disrupted as part of the conflict between Ukraine and Russia. Germany and Russia possess uniquely interdependent gas trade relations, with Russia providing approximately 35 percent of German gas, and Germany serving as Russia’s largest gas export market (22 percent). Furthermore, German-Russian trade and cooperation is important for stability in Europe and is a cornerstone for building more cooperative East-West relations. Washington should coordinate with Berlin as it plays that role — not try to undermine it.

In reality, further removing Russian energy companies from the Ukrainian market is actually in Kiev’s interest. The loss of the transit fees to the Ukrainian budget can be compensated for by improved energy efficiency (through metering and raising of gas prices), and the reduced presence of Russian companies in Ukraine’s critical sectors will help Kiev to strengthen its sovereignty and reduce corruption. True, Ukraine will lose some geopolitical leverage over Russia through the loss of its transit role, but the United States and European Union can’t fairly lecture Moscow that it must act by market rules in its gas trade with Europe and then go and block a project to promote a geopolitical goal.

In order to obstruct the Nord Stream 2 project, policymakers in Brussels, backed by voices in Washington, are considering demanding that EU energy trade rules be applied not only in Europe but also on the portions of import pipelines located outside of Europe. In the long run, this would hurt Europe’s security of supply and deter producers who seek to export to the European market. EU gas trade laws were designed for trade between consumers and not for gas production and transit projects. Moreover, imposing EU gas trade laws on import pipelines prior to their arrival to the EU could actually enhance Russia’s position in various non-Russian gas supply projects. The EU’s laws would impose third-party access on these pipelines, which would open the door for Russia to join those projects.

For most of the post-World War II period, Washington has been a champion of European energy security, sometimes taking the issue more seriously than Europe itself. However, Washington has been successful when it championed policies in coordination with Europe, and not when it tried to impose a vision on Europe of what was best for it. It should use the same approach for Nord Stream 2 — even if that happens to overlap with what Russia wants.

http://foreignpolicy.com/2018/02/06/whats-good-for-russian-gas-is-good-for-america/