Russia and Europe just signed a pair of deals that will bolster Russia’s presence in and influence over Europe. One deal is an asset swap with chemicals giant BASF that had earlier been delayed because of political pressure, and the other is an expansion of the NORD STREAM gas pipeline that’s meant to bypass Ukraine. The expanded pipeline will also cement Russia’s position as a leading natural gas supplier to Europe.
The deal drew criticism from U.S. energy envoy Amos Hochstein who said this deal, just like the previously abandoned South Stream project, was more about politics than economics. It would allow Gazprom to cut off natural gas supply to Ukraine, and more importantly it would be “devastating for Ukraine and damaging to European energy security as a whole, but particularly for Eastern and Central Europe.”
There’s a lot of information behind that statement, and it’s worth reviewing my previous coverage of the Ukraine crisis to understand the US position. But first let’s go over the Reuters report on the deal
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Double the size of NORD Stream: Currently most of the natural gas pipelines between Europe and Russia pass through Ukraine, which is one of the instigating causes of the war in Ukraine. Several times over the last 10+ years disputes between Russia and Ukraine caused problems delivering natural gas to Europe from Russia. NORD Stream is a natural gas pipeline running under the Baltic connecting Russia and “Europe” through which Russia supplies natural gas to some European countries. There have been other pipeline proposals to bypass Ukraine, such as South Stream, but none have come into being.
German government warned against interpreting this as warming relationships between Germany and Russia: “These are company decisions that the German government has no influence over and does not try to influence,” Martin Schaefer, a spokesman at the German foreign ministry. These companies are Germany’s E.ON and BASF/Wintershall , Austria’s OMV, ENGIE of France and Royal Dutch Shell.
Gives Gazprom a big stake in Danish oil and gas producer Wintershall Noordzee: This is part of the asset swaps.
Now let’s get to what’s behind Envoy Hochstein’s statement on behalf of the U.S.A.
The key phrase I think is “European Energy Security” since it was at the center of some earlier reporting I’ve done. Specifically, a report by the Congressional Research Service, Europe’s Energy Security:Options and Challenges toNatural Gas Supply Diversification, from December 2013 provides huge clues into the U.S. Government’s plans and intentions for Europe.
Europe’s dependency on Russian natural gas is seen by the U.S. as a big threat to international stability. Europes Energy Security is described by the CRS report as in the “US National Interest”, a code phrase saying the U.S. is willing to go to war over this issue. As a result, Ukraine became a pawn in a geopolitical tug of war between The U.S., the EU, and Russia. One gambit was for Western oil companies to start fracking shale deposits in Ukraine, but while they began work in Ukraine those companies have since pulled out as part of a larger pull-out from other fracking plans in other sections of Eastern Europe.
Europe doesn’t have much fossil fuel resources of its own. Instead it has had to import natural gas and oil from far away. Norway is the closest fossil fuel partner (Norway is not an EU member state), but its fossil fuel resources are beginning to fall off.
The CRS report linked above details all the possible sources for the natural gas resources to keep Europe humming. A big focus on that report is locating natural gas resources outside Russia’s orbit of influence. Why? Because if Russia is supplying natural gas to Europe, it puts Europe at risk of political dominance from Russia. GAZPROM is widely seen as a tool of Russian foreign policy.
An example of the lengths pondered by the CRS report is the natural gas fields in Azerbaijan, Kazakhstan, Turkmenistan, and Uzbekistan. The Trans Adriatic Pipeline project is a proposal which would bring natural gas from those fields to Europe, through Turkey, bypassing Russia, and bypassing Ukraine.
Back in March, Reuters reported that the same U.S. energy envoy, Amos Hochstein, spoke at an energy conference in Budapest urging “southeast European states to build new gas links and focus on smaller projects to curb reliance on supplies from Russia, rather than blockbuster pipeline deals.” While admitting that Russia can be a significant energy supplier to Europe, he urged them to develop other energy sources to boost energy security.
He specifically mentioned the Trans Adriatic Gas Pipeline (TAP) that’s scheduled to begin bringing Azeri natural gas to Europe in 2020, entering through Turkey into Bulgaria, Greece and Romania.
Both Reuters reports quote Hochstein pressing for LNG terminals in various locations such as Greece, Croatia and elsewhere. Those terminals will be able to receive LNG exports from the U.S., thanks to the fracking-induced natural gas production boom.
What has happened, in other words, is Europe just agreed to become even more reliant on Russia. U.S. policy see’s this result as a bad thing. We can expect to see tensions between Russia, EU and US to grow stronger.
I’ll just note in passing some events over the past week or so. NATO just opened command centers in each of the countries bordering Russia or Belarus. Additionally, Ukraine’s military just determined Russia to be the enemy, and is looking towards joining NATO. Additionally, Georgia just set up a NATO training base, drawing criticism from Russia describing the base as a provocation. Additionally, large scale military exercises are occurring in Eastern Europe involving U.S. and NATO forces alongside military units from the local countries.
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