The USA is Not Ever Going to be a Major Gas Supplier to Europe. That’s Never.

Uncle Volodya says, “When I find that stubbornness continually overrides common sense regardless of the logic of my argument, it seems that the only effective solution is to tell them to go ahead and stick their finger in the socket. And what I find is that what my argument failed to solve, electricity does quite nicely..”

“If you do not change direction, you may end up where you are heading.”

– Lao Tzu

“Here’s to the few who forgive what you do, and the fewer who don’t even care”

– Leonard Cohen, from “The Night Comes On”

There must be a term for words which become so inexorably and automatically associated with one another that one of them is immediately assumed without being spoken. Like “dairy ice-cream”. I realize there are non-dairy kinds of ice cream, but generally speaking, ‘dairy’ is assumed when you say ‘ice cream’. And so it is becoming with “the United States of America” and “hyperbole”. Always known to some degree for self-aggrandizement, America’s official conversation with the world now routinely includes not only oft-repeated falsehoods that are intended to be repeated until they become truth, but wildly improbable schemes which seem to have as their purpose a general inoculation of feelgood in the American population, a return to those grand old ‘anything is possible’ days.

Certainly nobody else believes them.

An instructive, and repetitious example is the premise that the United States is going to become the major supplier of economical energy to Europe, supplanting Russia’s pipeline-delivered gas with tanker-loads of ‘freedom gas’ – I wish I was kidding, but I’m not; American leaders seem to think Europeans would eat a brick if you painted ‘freedom’ on it – brought to Europe’s LNG terminals by ship.

I’m sorry to keep bringing it up, and I know we’ve been over this and over this…but. The USA simply will not stop with this silly fable that good old American can-do will overcome all obstacles, regardless the difficulties they present. In fact, it calls to mind a line I read in Phillip Lewis’s wonderful “The Barrowfields” – “A beguiling optimism is often the first step toward folly”. America convinces itself that it can do it, and then afterward you’re not allowed to point out that it did not do it, because that would be rude and a repudiation of its cheeky and inspiring optimism.

How many times now – and you don’t even have to cast your memory that far back – has the United States promised that if the ‘free world’ (whatever that means) will only band together with it in a coalition (which it will lead, naturellement) they will turn this or that nation, presently afflicted with dictatoritis and not enough freedom, into a prosperous western-leaning market democracy? How many times has that actually come about? Has it ever? Iraq and Libya were ruined, spun in the negative-development chamber and spat out decades behind what they were before the Glorious Liberation. The Coalition Road Show gave it an honest try in Syria, where the megalomaniacal plan was to ease up on ISIS until it had managed to wipe out Assad, then pour on the coal in the home stretch, evict the flea-bitten rebels and implant a liberalizing Syrian leader who would occupy himself with gay marriage and other important western issues, while ‘international investors’ took over state energy production. Unfortunately – depending on your viewpoint – Russia spoiled that rosy outlook, and the western media went from confidently and mockingly forecasting Assad’s imminent demise to squawking about damage from Russian airstrikes that had not even taken off yet to grudgingly – and bitterly – allowing that Assad could remain in charge in the country that voted him into that capacity. America, largely on its own, tried it in Venezuela, and while it was predictably successful at causing ruin, it achieved nothing much else, although it’s early days yet and it has obviously not given up. Occasionally, it is distracted by the possibility of causing ruin in Iran, and wavers back and forth on which place it plans to ruin next.

Anyway, never mind that – I only wanted to point out that a sunny assessment of American intention to re-order this or that reality, plus $3.95 will get you a Caffe Mocha Grande at Starbucks.

I would therefore like to redirect your attention to the latest piece of caterwauling about Nord Stream II.

Don’t be thrown by the “Commentary Europe” tag at the top; the Margaret Thatcher Center for Freedom is actually in Washington, deep in the bowels of the Heritage Institute think tank, so it’s more a case of “Commentary About What’s Good for Europe, by Americans”. But you probably caught on as soon as you saw that ‘Center for Freedom’ elaboration. Washington is the epicenter of a country that is crazy about freedom, and likes to throw that buzzword into everything, although it has largely lost its meaning considering all Washington’s recent regime-change projects have lapsed into infighting and ruin just as soon as they were ‘liberated’. Well, freedom is untidy, as Donald Rumsfeld warned us. Don’t say you weren’t warned.

Anyway, Daniel Kochis and Russia’s desperation. You probably got the feeling yourself, even without being told, that Russia was ‘desperate’ by the glacial pace at which progress toward finishing Nord Stream II is proceeding; at how the AKADEMIK CHERSKIY sailed halfway around the world, continuously changing its destination, before meandering into the Baltic, and then lying idle for weeks at the German port of Mukran. Perhaps at how Putin desperately announced that Nord Stream II would be completed and operational this year…or maybe next. You can just tell they’re tearing their hair out in Kremlintown.

What’s actually happening is that the Danes are once more rendering yeoman service to Washington, and doing what they do best – stalling, like they did on the original permit to use a route through Danish waters. Stalled long enough that America got a sanctions bill through which ordered Swiss offshore-pipelaying company Allseas to cease operations on the Nord Stream II line, or face the wrath of The Freedom Machine. Then the pipeline could not be completed before the deadline which exempted it from European gas law, which was specially rewritten to apply to the Nord Stream II pipeline and no other, which is a whole other problem, although not insurmountable.

The Russian offshore pipelayer AKADEMIK CHERSKIY will have to work in concert with the pipelaying barge FORTUNA. The ship has a Dynamic Positioning System (DPS) which automatically adjusts rudders and propulsion to ensure the ship remains in a static position with a high degree of accuracy. The barge does not, and typically uses a 12-anchor system to maintain a static position. The Danes don’t like that, because of the possibility of disturbing unexploded ordnance on the bottom of what was a hotly-contested sea during the Second World War. It seems irrelevant that the path of the pipeline is right alongside the existing Nord Stream I line. The Russians wanted to moor the barge to the ship, and use the ship’s DPS to hold both units in position, but the Danes don’t like that idea very much. Or Washington doesn’t, which amounts to the same thing. The timeline is such that if the Danes can stall for a few more weeks, the eastern Baltic will be closed to construction for all of July and August for the annual codfish spawning. Then Russia would be looking at autumn at the earliest, when the weather begins to become a concern for offshore construction.

I would think that if Russia were actually desperate, they would have taken steps by now to fit a DPS system in the barge as well; it’s only a couple of million bucks, set against the costs of delaying the completion of the pipeline for months, perhaps until next spring. But apparently Russia exhibits desperation differently than other people – perhaps they’ve lost their wits entirely in their desperation, and have not thought of this simple strategy.

Meanwhile, Washington is hugging itself with glee, because there’s nothing sweeter than that moment you snatch something away from some poor fool when it’s almost within reach; if you’re going to hit someone’s elbow so that their ice cream falls off the cone onto the sidewalk, don’t do it while they’re still paying for it. No; wait until their tongue is stretching out for that first lick…Oopsie.

Anyway, that’s us caught up to now, and Mr. Kochis’s insistence that Washington must keep the pressure on, success is almost within America’s grasp. I hate to be a spoiler – sorry, was that your ice cream, Daniel? – but that’s not so at all.

Russia has a five-year transit contract with Ukraine that endures until 2024. Current pipeline configurations are sufficient to ensure Gazprom can meet European demand until Nord Stream II is completed and operational, and if it can’t, well…whose fault is that? Russia’s? Hardly. It is the United States who has stepped in the way at every turn, because…because it is so concerned about the security of Europe’s gas supplies that it figures it would be better for the Europeans to go short, and for prices to go up, than for them to get too much cheap gas from Russia. I think that’s probably clear to Europeans, as well, they are not as stupid as they sometimes pretend.

But what I would like to take a closer look at is Daniel’s rationale for stopping the construction of Nord Stream II. Apart from perhaps he is a closet environmentalist, ha, ha. Seriously, though, he claims in the same paragraph that the Nord Stream II pipeline is both ‘economically unnecessary’…and would ‘greatly increase Europe’s dependence on Russian gas’.

Huh?

“The Nord Stream II (NSII) natural gas pipeline would connect Germany with Russia. It is neither economically necessary nor geopolitically prudent. However, it would greatly increase European dependence on Russian gas, magnify Russia’s ability to use its European energy dominance as a political trump card, and specifically undermine U.S. allies in Eastern and Central Europe.”

This is a classic example of trying to bombard the reader with diverse arguments, and inadvertently contradicting one’s own case. If the Nord Stream II pipeline is economically unnecessary, how could it greatly increase European dependence on Russia gas? If Europe is awash in gas, does it have to take more? Why? How could Russia’s ability to use its European energy dominance as a political trump card be magnified with a pipeline that is economically unnecessary? Are Europeans stupid, or something? How would an economically unnecessary pipeline give Putin tremendous leverage to pressure European leaders to acquiesce to his geostrategic aims? Wouldn’t they just say, “Go fuck yourself, Putin; we have more gas already than we know what to do with”?

How would an economically unnecessary pipeline greatly undermine collective defense in Europe? Try using your head, why not – I promise it won’t hurt.

Washington’s aim is to preserve such Russian gas transit as must take place through Ukraine, because Ukraine has evolved into a reliable, if unscrupulous ally who will introduce complications into that transit so that Russia appears to be an unreliable supplier. Particularly when compared with its would-be competitor, the United States, which would just love to bring huge volumes of freedom gas to Europe. But wait a minute; who’s actually applying energy leverage here? Isn’t it the country that is trying to remove a competitor so that it can introduce its own supply? At a higher price, or else it can’t make money? And isn’t that the same country which is threatening to sanction any European companies which aid and abet the construction or operation of the Russian pipeline? How, then, does that square with Protecting Europe’s Energy Security?

“Russia currently supplies around 40% of Europe’s natural gas, utilizing the existing Nord Stream I pipelines and overland pipelines via Belarus and Ukraine. Completing Nord Stream II would allow Russia to decrease gas flows via its overland pipelines in favor of the Baltic Sea routes of Nord Stream I and II—and Gazprom has clear plans to do exactly that.

This would make Europe far more vulnerable to Russian energy blackmail. Analyst Mikhail Korchemkin notes that a completed NSII would allow Putin “to quickly cut off over 80 percent of the supply of Russian gas to the European Union on short notice.” This would give Putin tremendous leverage to pressure European leaders to acquiesce to his geostrategic aims; Germany’s growth as the continent’s key natural gas transit hub could also buy Russia some political space for maneuver in a critical U.S. ally.”

Uhhh…help me out, here, would you? Where does the gas originate that currently comes to Europe via overland pipelines transiting Belarus and Ukraine? Mmm, yeah, Russia – that’s what I thought. And who’s the leader of Russia, again? Uh huh; Putin, that’s right. So, theoretically, couldn’t Putin shut off all of Europe’s supply of Russian gas…right now? Couldn’t he have kind of done that at any point during the 17 years he was President of the Russian Federation? ‘Cause, you see, I’m having a little trouble figuring out what it is about having a seabed pipeline that would make him more likely to do it now.

Also, I’m not sure it was a good idea to point out so insensitively that the American plans for European energy security do not include Germany being the continent’s key natural-gas hub. Because I’m not really sure how much of a loyal U.S. ally Germany really is now. The most recent Ambassador of the United States to Germany, Richard Grennell, was celebrated with notably more enthusiasm upon his departure than upon his arrival; prior to his departure, several serving German political figures had expressed their displeasure with his performance in the starkest terms. Wolfgang Kubicki, the deputy chairman of the opposition Free Democrats (FDP), suggested Foreign Minister Heiko Maas should recommend his expulsion, angrily characterizing Grennell’s diplomatic style as that of “a high commissioner of an occupying power”. Carsten Schneider, caucus manager of the Social Democrats (SPD), called him a ‘complete diplomatic failure’ – that’s not going to look good on a Resume. He went on to accuse Grennell of “damag[ing] trans-Atlantic relations with his repeated clumsy provocations.”

Nor was German anger at American high-handedness reserved for its ambassador. Chairman of the Bundestag Committee on Economic Affairs and Energy Klaus Ernst charged “The US is trying to accomplish its economic interests through illegal extraterritorial sanctions, which it directs at their partners and allies. I assume this as an assault on Europe’s sovereignty. These actions are seriously damaging the transatlantic relationship.” Deutsche Welle complained last year, “In the past two years, the US has taken on its closest allies and companies that it doesn’t like. As we have seen recently with the trade conflict between China and the US, America is willing to hurt itself to make a point and try to get a leg up. It has often been accused of putting its business interests at the forefront instead of the moral arguments it claims, especially when it comes to huge financial fines on banks and companies accused of breaking US sanctions.

Once again this fight is about business, influence peddling and shows of strength. It could even be about Nord Stream AG, the company behind the pipeline whose biggest shareholder is Russia’s Gazprom. Whatever it is, the US has shown the lengths it is willing to go to in order to make a point no matter the broader consequences.”

Those last five words should have set off a blinking red warning light in the corner of American Foreign Policy’s eye. In the event of continued American meddling, ‘the broader consequences’ could be a major European realignment. The schoolyard bully approach is beyond not working. It is plainly not just the way Germany feels about it, either. Josep Borrell, the EU’s high representative for foreign affairs and security policy, was quite blunt; “The EU does not recognise the extraterritorial application of U.S. sanctions, which it considers to be contrary to international law.” Keep on pushing, America – as Daniel Kochis insists is just what the doctor ordered – and your mouth is going to get your face in trouble. The law is most decidedly on Europe’s side, and a customarily breezy American refusal to recognize the jurisdiction of the court is not going to cut it when caving to Washington is going to mean much higher gas prices for European customers. And it would – guaranteed – for at least two reasons; (1) the Americans cannot sell shipborne gas for as low a price as pipeline gas, or they can’t make a profit, and (2) the LNG-tanker logistics chain could not even hope to supply gas in the volumes a pipeline can, so there will be shortages of gas that already costs a lot more when there is enough of it.

America’s plan for flogging its LNG to Europe relies on regasification terminals, which will turn its liquefied gas transported by tankers back into gas for onward transmission to Europe. Of a planned 108 LNG regasification terminals in Europe, 26 – by far the largest share – are slated for Germany. You remember – those beer-drinking schnitzel-eaters you just infuriated.

Russia is entering the LNG game, too. Novatek has a large export terminal operational on the Yamal peninsula. Novatek plans to open another large export terminal, Arctic LNG2, and a small/medium terminal at Vysotsk. Gazprom plans large export terminals at Ust-Luga (Baltic LNG, right next door to Germany) and on the Barents Sea (Shtokman-Teriberka). Russia has an icebreaking LNG Carrier, the CHRISTOPHE DE MARGERIE, already in service, with another 14 projected to follow.

Let’s go back for a little more Daniel. Mr. Kochis advises us that allowing Russia to complete its seabed pipeline would enable it to shut off gas transit through Ukraine, which it would and which Russia does indeed intend to do. Their assessed reasons, though, are a little different. Mr. Kochis wails that this would “benefit Russia by staunching the flow of money which eastern European nations, like Ukraine, collect via transit fees—money which Kyiv utilizes to defend itself from Russia’s continued illegal occupation of Crimea and the ongoing war in Ukraine’s Donbas.” You see he made some extra points with Ukraine right there, by spelling ‘Kiev’ the way they like to see it. But I’m not sure what his point is there – is he implying that if Russia has to pay transit fees to ‘Kyiv’…it can’t afford to continue its ‘illegal occupation of Crimea and the ongoing war in Ukraine’s Donbas’? I would have to say that’s a pretty unrealistic appraisal of the state of affairs. The current transit contract means the transited amount next year will drop from around 60 BcM to around 40 BcM – does that mean Russia will annex more of Ukraine with the savings? You never know; after all, Petro Poroshenko openly declared Russia was the enemy, and his successor, Zelensky, has done nothing to mend relations. Why would Moscow want to send about 30% of the energy it exports to Europe through enemy territory – and pay the enemy to do it? Are Russians stupid? Are Ukrainians? Why do they rely on their main enemy to keep their economy from tanking? Is there something about war they don’t understand? And what kind of tactician is Kochis? He advocates the continuation of that lunatic situation.

Finally, Mr. Kolchis claims the Nord Stream II pipeline project is “opposed by most European nations”. Is it? No. It is opposed vociferously by Poland and the Baltics. The latter reflexively oppose everything Russia does – if Moscow announced the adoption of the marshmallow as the Official State Fruit, the Baltics would scream that marshmallows posed an unacceptable threat to their national security. As for Poland, maybe you haven’t talked to them lately. The Polish contract with Russia for gas transit via the Polish section of the Yamal Pipeline ran out May 17th, and was not renewed, a fact that was loudly cheered by the Poles. They were free of the stinking Russian gas yoke, by God!! Henceforth, transit capacity would be booked by auctions: over 90% of the technical capacity at Kondratka TGPS point and 100% of the technical capacity at Mallnow TGPS point would be at the disposal of the TGPS Operator. Jubilation! Now you’ll see some commerce!!

Which ushered in a period of thumb-twiddling  such as has never before been seen. “Earlier on Tuesday operators of European gas pipelines reported that the transit via the Yamal-Europe pipeline from Russia through Belarus and Poland to Germany had been brought down to zero on Tuesday. According to the results of the latest auction, the Polish section of the pipe was booked only by 3.7% on Tuesday.” Where were all the eager customers looking to move gas?

The Nord Stream II pipeline is also vociferously opposed by Ukraine and the United States of America, for obvious reasons in both cases. The last time I looked, neither nation was part of the EU, and the United States is not even part of Europe.

The Nord Stream II pipeline is going to be completed. American sanctions will not stop it. Russia is not afraid of American sanctions, and the constant threat of sanctions against European companies is hardening Europe against America. The Ukrainian gas transit system has had little to no maintenance over the last 20 years, and it is in rough shape – the Ukrainians have no money to fix it, and anyone who entertained thoughts of giving them money to modernize it would be wise to keep an eye on those funds and where they went. Russia is under no obligation to renew a gas-transit agreement which sends its energy exports over enemy territory, and I feel pretty confident there will be no subsequent long-term contract: Ukraine should do it the European way, through daily auctions, like the Poles do. It would certainly reduce the numbers required in the sales department.

The current American policy of grabbing market share for itself by using extraterritorial sanctions to suspend competitor’s projects is plainly not ‘leveling the playing field’; it is a directive to Europe to limit its purchases to American product and to pay much higher prices than it has become accustomed to pay. If you were looking for a word to encapsulate the process, you might give ‘extortion’ a try. The United States does not have anywhere near enough LNG tankers to ensure a constant resupply of gas to Europe, and could not in its wildest dreams match pipeline volumes. Shortages, even if temporary, mean price hikes. And American shale production is in terminal decline, regardless what carny-barker speculators tell you. Listen to two giants in the industry – Halliburton and Schlumberger.

“U.S. shale oil fracking has already peaked and is in a period of sustained contraction, according to two major providers of services to the industry.

That view from Halliburton Co. and Schlumberger Ltd. signals an eventual deceleration in U.S. oil production, which is currently at record highs. Slower output growth would have global ramifications, given additional American barrels are forecast to account for most of the increase in worldwide supply this year.

Halliburton CEO Jeff Miller said Tuesday that customer spending in North America will keep falling this year. That echoes Schlumberger, which said Friday it’s continuing to shrink its business in the region to match lower demand…Halliburton cut 22% of its frack fleet last year, Miller said. Schlumberger, the largest oil and gas services company, has already reduced its pressure-pumping fleet in half, and said Friday it has no intention of bringing that equipment back into service. It took $12.7 billion in pretax charges for the third quarter and is restructuring its North American land business.”

I’m well aware facts are not going to change American behavior. Exceptionalism runs deep in official America, and today’s American political lineup cut its teeth on can-do. They won’t be told they can’t, and as earlier European references pointed out, America is stubborn to a fault. The United States has gotten out of the habit of analyzing and weighing up the checks and balances, because even when it didn’t win, it tells itself it did, so that its slipstream is full of wins.

It’s sometimes referred to as ‘the omnipotence paradox’. The solution to such contradictions for Zeus was to turn both opponents into static stars. Someday you might see a new star called ‘America’. And you might see it sooner than you think. Figuratively speaking, of course.