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.
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