For all of 2019 December has been a magnet. A number of major
geopolitical issues come to head this month and many of them have everything to
do with energy. This is the month that Russian gas giant Gazprom was due to
finish production on three major pipeline projects – Nordstream 2, Turkstream
and Power of Siberia.
Power of Siberia is here. It’s finished. Russian President
Vladimir Putin and Chinese Premier Xi Jinping christened the pipeline to begin
the month. Next month Putin will travel to Turkey to join President Recep
Tayyip Erdogan to open the first of four potential trains of the Turkstream
pipeline.
It is only Nordstream 2 that continues to lag behind because of
insane levels of pressure from the United States that is dead set against this
pipeline coming online.
And the reason for that is the last of the major energy issues
surrounding Gazprom needing resolution this month, the gas transit contract
between it and Ukraine’s Naftogaz.
The two gas companies have been locked in legal disputes for
years, some of which center on Crimea’s decision to break away from Ukraine and
rejoin Russia in 2014. Most of them, however, involve disputes over costs
incurred during the previous and expiring gas transit contract.
The particulars today are ultimately irrelevant as these
lawsuits have been used as nothing more than blackmail to keep a new contract
from getting signed. Ukraine has sued Gazprom in courts, like in Sweden, that
rule not by the tenets of contract law but rather through the lens of social
justice.
These have been political decisions that allowed Naftogaz to
seize Gazprom’s European assets, further complicating any resolution to the
conflict. These policies were pursued aggressively by former Ukrainian
President and long-time US State Department asset Petro Poroshenko and they
have done nothing to help Ukraine.
All they have done is strip-mine the country of its assets while
keeping a war to prevent the secession of the Donbass alive.
This dovetails with the external pressure applied to EU member
states, like Denmark, to delay if not outright thwart completion of Nordstream
2.
Opposition to Nordstream 2 in the US is all about leveraging
influence in Ukraine and turn it into a client state hostile to Russia sharing
a border with Russia. If there’s no gas transit contract and there’s no
Nordstream 2 then US LNG suppliers can sell gas there and deprive Russia of the
revenues and the business.
It’s truly that simple. But that strategy has morphed over the
years into a convoluted chess match of move/countermove in the vain hope of
achieving something that looks like a victory. But this isn’t a game of real
chess but rather a timed match.
Because the end of 2019 was always coming. And Ukraine would
eventually have to decide as to which direction it wanted to go. Moreover, that
same choice was put in front of the EU who have clearly, in the end, realized
that the US under President Trump is not a long-term reliable partner, but
rather a bully which seeks its goals through threat and intimidation.
Stay with the US or green light Nordstream 2. The choice in
Europe was clear. Nordstream 2 gets finished, as Denmark finally granted the
final environmental permit for its construction in October.
That delay moves the completion date out into 2020. And that now
gives the US Senate one last chance to stop the completion of the pipeline
because everything else to this point has failed, including the EU changing the
rules on its gas pipeline rules to force Gazprom to ‘unbundle’ the pipeline
from the gas flowing through it.
Germany amended that directive to allow Nordstream 2 to be
regulated at the German federal level and not at the EU level. This was as much
of a win as could have been hoped for.
This prompted the response from the US Senate Foreign Relations
Committee head Jim Risch who wants to sanction anyone assisting Gazprom
building the pipeline to be sanctioned and forced out of business.
“The reason for the push is that this window is closing. A lot
of Nord Stream is done already. … It will cost them dearly. I think if those
sanctions pass [the companies] will shut down, and I think the Russians will
have to look for another way to do this if they can do this,” Risch said.
In reality the window has closed.
At the end of the day even if this legislation passes there will
be no way to stop the pipeline from being completed or the gas to flow through
it. With so little of the pipeline left to complete there is no practical way
to stop it from happening. Risch and other US senators are hoping to strand
Nordstream 2 as an unfinished boondoggle but that’s folly.
The German government wants this pipeline, therefore the German
government will put up the funds to ensure the contractors are paid and the
pipeline completed.
There is a limit to the extent which sanctions can block
commerce and once completed the US will have no ability to sanction the gas
flowing through the pipeline. It’s a sad and pathetic state of affairs that so
much time, manpower and capital was wasted to stop a pipeline that is necessary
for Germany’s future.
It also highlights the hypocrisy of US policy since there isn’t
a peep out of the US on Turkstream, which will stitch NATO ally Turkey to
Russia via 15.75 cm of natural gas every year. Eventually it will replace the
lost South Stream pipeline as the other trains are built and contracted for.
All of the countries in eastern Europe are hungry for a piece of
Turkstream’s future. Serbia Hungary, Bulgaria, Italy and Greece are all
potential customers.
And all of these countries that currently get their gas from
Ukraine are at risk if nothing gets resolved between it and Russia. This is why
the meeting between Putin and Ukrainian President Zelensky is so important. It
has the opportunity to begin reversing the damage done to the basic fabric of
Ukraine and Europe by agreeing to a path to ending the war in the Donbass and
coming to an agreement on gas transit.
There are more than $12 billion in lawsuits outstanding that
Naftogaz has pending against Gazprom. With Nordstream 2 a fait accompli that is
all the leverage Zelensky has at that meeting.
This game is a microcosm of the way the US foreign policy
establishment uses Europe as the battleground in the war against Russia. And
given the way the political winds are shifting, Europeans are getting very
tired of it.
This is why gas storage facilities in Europe are full, there is
real fear that Gazprom will walk away from the talks with Ukraine and will wait
out the completion of Nordstream 2. Gazprom offered an extension of the current
contract on the condition that Ukraine drop the lawsuits.
Naftogaz said no. We’ll see if Zelensky is smart enough to say
yes.