The secret Trump plan to wean Europe off of Russian gas in favor of US LNG supplies

Note: This post was first published on Patreon on 11 Jul 2018

US President Donald Trump was busy in Europe making obviously false and inflammatory statements as he met with NATO allies in Brussels today. At first blush, I thought his aim was to provoke for provocation’s sake. But upon closer examination, I saw that Trump is trying to win US oil companies business at the expense of the Russians. Let me explain below.

Trump on the 4% defense spending

Before I get into the natural gas issue, let me comment on Trump’s NATO defense spending remarks. Trump has suggested that NATO spend 4% of GDP on defense when most NATO countries aren’t even spending 2%. Even the US is below the 4% threshold.

So Trump’s comments are absurd on their face. There is no way you are going to get NATO nations collectively to spend 4% of GDP on defense. Why even make the request? I think this is Trump’s way of pushing the Europeans toward his real goal of 2% spending now — via bluff and bluster — rather than the agreed upon 2024 timetable.

I do not like Trump’s lack of diplomacy and his seeming willingness to burn bridges. I believe this will hurt soft power for the US in the long run. But we will just have to wait and see whether his tactics are successful in getting Europe to 2% well before the 2025 deadline.

Trump’s natural gas lies about Germany and Russia

I see the situation with natural gas in the same light. Here’s what Trump said today:

“I have to say, I think it’s very sad when Germany makes a massive oil and gas deal with Russia where we’re supposed to be guarding against Russia. We’re supposed to protect you against Russia, but they’re paying billions of dollars to Russia and I think that’s very inappropriate.”

This is a clear wind-up. Not only is Trump referring to the Germans’ not pulling their weight on defense spending and depending on the US, he is also saying the Germans are dependent financially on the Russians. I see these comments by Trump as very anti-German and downright false (See the end of this NYTimes article for example). But this is Trump pushing people’s buttons too.

Obviously there is personal animosity between Trump and German Chancellor Merkel. So he can’t help but take a dig at Germany whenever he can. But he is doing this for a good reason.

Liquified natural gas to the rescue

Take a look at this passage from a March Bloomberg article on liquified natural gas (LNG) and the Nord Stream 2 pipeline:

Angela Merkel’s government is seeking to build a liquefied natural gas industry in Germany basically from scratch to reduce the nation’s dependence on supplies arriving by pipeline from Russia and Norway.

With gas reservoirs depleting from the U.K. to the Netherlands, Germany is becoming increasingly reliant on Russia for its energy needs at a time when political tensions are mounting with Vladimir Putin’s government in Moscow.

That’s prompting Merkel to think again about LNG as an option, building terminals on the North Sea and Baltic Sea that could import the fuel and bypass facilities in the neighboring Netherlands, Poland and Belgium.

That’s not nearly enough LNG though. So Bloomberg notes:

Merkel also is allowing German companies to promote the Nord Stream 2 pipeline, an expansion of an existing route for gas to flow from Russia to Europe under the Baltic Sea.

But it ends with this important takeaway:

Germany made no effort to hide its preference for relying on imported pipeline gas from Russia and Norway, brushing away pressure from the U.S. and Japan to endorse a global drive to develop LNG.

The U.S. is set to become the world’s biggest exporter of the fuel, overtaking Qatar.

Trump is trying to muscle Nord Stream 2 out

So the logic goes like this:

  1. Gas reservoirs in western Europe are being depleted.
  2. For Germany, Western Europe’s largest economy, this is particularly problematic.
  3. Ever since Fukushima, nuclear is on the outs in Germany. So that makes the situation worse.
  4. So Germany is looking for ways to secure more energy.
  5. One place to get natural gas is Russia, but that comes at a cost politically.
  6. Another is liquified natural gas, where a major exporter is the US, Germany’s natural ally.
  7. For whatever reason (maybe Gerhard Schroeder even though he is an SPD politician), Germany under Angela Merkel has turned to Russia and Nord Stream 2 more than to the US.

Trump sees this and sees an avenue for attacking Merkel, who he dislikes anyway.

And here’s the backstory politically – via Reuters in December when Rex Tillerson was still Secretary of State:

A Russian pipeline project that would boost Moscow’s ability to manipulate European energy markets can be slowed by Denmark but ultimately Germany would be needed to stop it, U.S. State Department officials said on Tuesday.

Russian natural gas company Gazprom and its European partners are seeking to build Nord Stream 2, a project to move gas to Germany under the Baltic Sea, bypassing existing land routes through Ukraine and Poland.

U.S. diplomats are talking to their German counterparts about the project, but it is unclear whether Germany’s government, still forming after elections in September, can be convinced to stop it. Germany and neighboring Austria have companies financing the pipeline, which would carry 55 billion cubic meters of gas per year.

“We have to use this political opening before the gelatin mold has really set with that government,” Wess Mitchell, assistant secretary for the State Department’s bureau of European and Eurasian Affairs, said about Germany’s government.

Denmark, which has been caught in a geopolitical conflict over the pipeline, passed a law in late November allowing it to ban Nord Stream 2 from going through its waters on foreign policy grounds.

“This is a potentially significant political and legal stumbling block that could really slow progress on the pipeline,” Mitchell told a U.S. Senate panel. “But to be clear I think the country that could do the most to stop this project is Germany,” he said.

The Trump administration, like the Obama administration before it, is concerned that Nord Stream 2, which would concentrate 75 percent of Russian gas shipments to Europe, could help Moscow use energy as a weapon. Russia cut gas shipments in winter months in 2006, 2009 and 2014 during pricing disputes with neighboring countries including Ukraine.

Nord Stream 2 is a “political rather than a commercial undertaking” that could slash pipeline transit payments Russia makes to Ukraine by about $2 billion a year, Mitchell said.

Secretary of State Rex Tillerson encouraged Denmark to consider domestic laws to stop the pipeline. But the Nord Stream consortium is looking at another route through international waters just north of Denmark that would mean the project could proceed despite any ban.

Washington hopes to diversify Europe’s gas supply with shipments of U.S. liquefied natural gas, or LNG, a business that has emerged recently with advent of the fracking boom. Currently 90 percent of U.S. LNG goes to markets in Asia. But the exports are expected to soar in coming years as U.S. facilities open, which could mean more will be available for Europe.

When European countries install infrastructure to import U.S. LNG, it can be “transformative,” said John McCarrick, the deputy assistant secretary, at the State Department’s energy bureau. After Lithuania opened an LNG terminal, it negotiated a 20 percent cut in the price it pays for Russian gas, he said.

Washington also supports other gas pipeline projects including the Southern Gas Corridor to bring gas to southern and central Europe from Azerbaijan and the Caspian Sea.

Yes, Trump is reckless, but he is calculating

So chalk this one up to Trump the loudmouth making enemies of America’s allies. But Trump isn’t motivated by pure personal animosity. I believe he is trying to muscle out Vladimir Putin and his Nord Stream 2 pipeline so that US oil and gas companies can benefit.

Rex Tillerson would be proud.

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