Trump slams Ger­many over Nord Stream 2

Kyiv Post - - Front Page - BY MATTHEW KUPFER, BERMET TALANT KUPFER@KYIVPOST.COM, BERMET@KYIVPOST.COM

The meet­ing was over a break­fast of eggs, toast, and fruit salad. But for U. S. Pres­i­dent Don­ald J. Trump the real meal was the Ger­man gov­ern­ment and NATO Sec­re­tary Gen­eral Jens Stoltenberg.

Dur­ing the July 11 break­fast in Brus­sels with Stoltenberg and their re­spec­tive aides, Trump un­leashed blis­ter­ing crit­i­cism of the Ger­man gov­ern­ment for sup­port­ing Rus­sia’s Nord Stream 2 pipe­line project.

The sec­re­tary gen­eral nod­ded awk­wardly.

Trump called Ger­many “a cap­tive of Rus­sia” that pays “bil­lions and bil­lions of dol­lars a year” to Moscow. Mean­while, NATO is forced to pro­tect these coun­tries from Rus­sia, and the United States foots a dis­pro­por­tion­ate part of the bill, he al­leged.

“Ul­ti­mately, Ger­many will have al­most 70 per­cent of their coun­try con­trolled by Rus­sia with nat­u­ral gas,” Trump said. “So you tell me: is that ap­pro­pri­ate?

Trump’s com­ments at the launch of this year’s NATO sum­mit were the lat­est salvo in his crit­i­cism of the United States’ Euro­pean al­lies. But his fo­cus on Nord Stream was an un­ex­pected twist that will win fa­vor in Ukraine. Kyiv is try­ing to stop the pipe­line, which by­passes the coun­try and could po­ten­tially de­prive the Ukrainian gov­ern­ment of up to $2 bil­lion in tran­sit rev­enues an­nu­ally.

Prob­lems in the pipe­line

Fact check­ers have de­bated the ac­cu­racy of Trump’s im­pre­cise claims about Ger­many’s de­pen­dence on Rus­sian gas. But many en­ergy an­a­lysts agree that the pipe­line is dan­ger­ous.

Ariel Co­hen, the di­rec­tor of the Cen­ter for En­ergy, Nat­u­ral Re­sources and Geopol­i­tics at the In­sti­tute for Anal­y­sis of Global Se­cu­rity, is one. Cur­rently, Ger­many is im­port­ing over 50 per­cent of its nat­u­ral gas from Rus­sia, he says. Af­ter Nord Stream 2, that num­ber will grow to 70 per­cent, a fig­ure he feels is un­sus­tain­able and dan­ger­ous for Ger­man en­ergy se­cu­rity.

Such de­pen­dence means that if Rus­sia cuts en­ergy sup­plies even by half, “large parts of Ger­man in­dus­try could grind to a halt and hun­dreds of thou­sands of Ger­man house­holds may be freez­ing in the mid­dle of a harsh win­ter,” Co­hen told the Kyiv Post. “It hap­pened else­where in Europe in 2009 as well as af­ter that.”

Ger­many is ac­cel­er­at­ing the shut­down of its nu­clear power in­dus­try and its coal-fu­eled ther­mal plants. If Ber­lin does not di­ver­sify its en­ergy sup­plies for gen­er­at­ing elec­tric- ity, it will re­main de­pen­dent on Rus­sia’s Gazprom state gas com­pany for decades, Co­hen says. “This will se­verely limit their free­dom of ma­neu­ver vis-à-vis Moscow.”

Sup­port­ers of the Nord Stream 2 project dis­agree. Mem­ber of the

Ger­man par­lia­ment Bernd West­phal wrote in his May op-ed for the IPG Jour­nal that the EU needs Rus­sian gas due to grow­ing con­sump­tion and de­clin­ing do­mes­tic pro­duc­tion.

“The Euro­pean gas mix will con­tinue to be di­verse,” he ar­gued. “EU states will con­tinue to re­ceive gas from Nor­way. Over 30 ter­mi­nals for liq­ue­fied nat­u­ral gas around Europe also se­cure sup­plies.”

As for the Ukrainian tran­sit route, he said that Kyiv has not main­tained and mod­ern­ized its ail­ing pipe­lines for decades and has failed to ful­fill com­mit­ment to un­bun­dle its state gas pro­duc­tion com­pany from its dis­tri­bu­tion net­work.

How­ever, West­phal ac­knowl­edged Ukraine’s frus­tra­tion with the new pipe­line due to the loom­ing loss of rev­enues and sug­gested that “a min­i­mum amount of gas for tran­sit should be ne­go­ti­ated be­tween Gazprom and Naftogaz.”

Rus­sia is the largest sup­plier of nat­u­ral gas to the Euro­pean Union, pro­vid­ing some 30 per­cent of its net gas im­ports, a lit­tle more than Nor­way, in 2017, ac­cord­ing to the EU's sta­tis­ti­cal ser­vice branch Euro­stat. Ger­many, Gazprom’s largest for­eign con­sumer, has taken the brunt of the crit­i­cism over Nord Stream 2. But other EU buy­ers of Rus­sian gas — the Nether­lands, Italy, the United King­dom, Aus­tria, and France — will also ben­e­fit from the pipe­line.

Aus­tria, for ex­am­ple, is Gazprom’s fastest grow­ing cus­tomer in Europe. In 2017, the com­pany re­ported record ex­ports to Aus­tria — over 9 bil­lion cu­bic me­ters, a 50 per­cent in­crease from 2016.

Cur­rently, Nord Stream 2’s con­struc­tion is go­ing for­ward at full speed, and it is un­likely to stop. The Gazprom sub­sidiary build­ing the pipe­line has re­ported that it has re­ceived per­mits from four out of five coun­tries — Finland, Ger­many, Swe­den, and Rus­sia.

“There is an is­sue with the per­mit from Den­mark, but we have a plan to solve it,” Gazprom CEO Alexei Miller said at a press con­fer­ence in Moscow on June 29.

The 1,200-kilo­me­ter pipe­line is slated for com­ple­tion at the end of 2019 and will dou­ble the ca­pac­ity of the ex­ist­ing Nord Stream pipe­line to 110 bil­lion cu­bic me­ters of gas per year, de­liv­ered from gas fields in Siberia to Greif­swald in Ger­many. From there, it will be sold to other coun­tries.

Rus­sia is si­mul­ta­ne­ously pre­par­ing to launch an­other pipe­line, Turk Stream, which will bring Rus­sian gas to Tur­key, its sec­ond largest con­sumer, across the Black Sea. The to­tal ca­pac­ity of the two-line pipe­line is 31.5 bil­lion cu­bic me­ters of gas a year, and one of the lines will take gas on­ward to south­ern Europe: Bul­garia, Ser­bia, and Hun­gary. The first line has re­port­edly been com­pleted.

Naftogaz vs. Gazprom

Ukraine state oil and gas pro­ducer Naftogaz is look­ing for ways to keep Rus­sian gas tran­sit. The com­pany has an­nounced the start of the un­bundling process to sep­a­rate pro­duc­tion and dis­tri­bu­tion.

In Fe­bru­ary, Naftogaz won a land­mark case against Rus­sia, when a Stock­holm ar­bi­tra­tion court ruled that Gazprom must pay its Ukrainian coun­ter­part $2.6 bil­lion for fail­ing to de­liver agreed gas vol­umes to Ukraine for tran­sit to Europe.

Last week, Naftogaz slapped Gazprom with a new law­suit in Stock­holm de­mand­ing a re­view of tran­sit fees to match the Euro­pean prices and claim­ing $11.5 bil­lion in dam­ages over un­fair terms in a 2009 gas tran­sit agree­ment.

Ac­cord­ing to the orig­i­nal con­tract with Gazprom, the fee for tran­sit ser­vices was fixed for 10 years, start­ing with a 20 per­cent dis­count in 2009.

Ro­man Nitsovych, pro­gram man­ager at DiXi Group, said that it is dif­fi­cult to pre­dict the out­come of the new lit­i­ga­tion.

“Since the tran­sit con­tract ex­pires in less than 18 months, most ex­pec­ta­tions now turn to the planned tri­lat­eral ne­go­ti­a­tions,” Nitsovych told the Kyiv Post.

It has been con­firmed that the first round of talks be­tween Rus­sia, Ukraine, and the EU on the fu­ture of gas tran­sit will take place on July 17.

But the Ukrainian com­pany is ready to make a com­pro­mise, ac­cord­ing to Naftogaz Di­rec­tor for Busi­ness Devel­op­ment Yuriy Vitrenko, who has also over­seen le­gal strat­egy in the se­ries of law­suits.

“The sum of claims will be re­duced if Gazprom re­serves gas vol­umes for tran­sit (through Ukraine) af­ter 2019,” Vitrenko wrote on his Face­book page on July 6.

Mean­while, Gazprom re­fuses not only to ful­fill its obli­ga­tions to re­pay Naftogaz the $2.6 bil­lion, but is not will­ing to con­tinue any busi­ness with Ukraine. Gazprom filed a coun­ter­claim to the court to ter­mi­nate con­tracts.

“The rul­ing of the Stock­holm court has to be changed or can­celed by the Court of Ap­peal. In this way, the bal­ance of in­ter­ests of both par­ties will be re­stored,” Miller said on June 29.

“Also Ukraine has to pro­vide us with a fea­si­bil­ity re­port of tran­sit through its ter­ri­tory. These are the two re­quire­ments so that we can con­tinue ne­go­ti­a­tions.”

In a bid to en­force the Stock­holm rul­ing, Naftogaz turned to var­i­ous Euro­pean coun­tries with a re­quest to freeze Gazprom’s as­sets. In June, Naftogaz re­ported that Dutch and British courts agreed. On July 6, Gazprom an­nounced it re­ceived a per­mis­sion from Rus­sia’s En­ergy Min­istry to dis­close its as­sets in Eng­land and Wales.

Trump card

De­spite his harsh crit­i­cism of Europe's en­tan­gle­ment with Rus­sian gas, Nord Stream is likely less cen­tral to Trump’s view of Europe than his com­ments make it seem.

Trump’s ex­co­ri­a­tion of Ger­many fits into a broader nar­ra­tive the U.S. pres­i­dent has pushed, al­leg­ing that the other NATO al­lies aren’t pulling their fi­nan­cial weight in the al­liance.

Trump has long called on NATO mem­bers to raise their de­fense spend­ing to 2 per­cent of their gross do­mes­tic prod­uct, or GDP. Af­ter the break­fast meet­ing, he sub­se­quently pressed the coun­tries to raise spend­ing to 4 per­cent of GDP.

The next day, on July 12, Trump called on NATO lead­ers at the Brus­sels sum­mit to meet for an un­sched­uled ses­sion. The pur­pose of the ses­sion, ac­cord­ing to mul­ti­ple re­ports, was to dis­cuss de­fense spend­ing com­mit­ments.

At a press con­fer­ence af­ter that meet­ing, Trump sug­gested the goal was to raise spend­ing to 2 per­cent more quickly than pre­vi­ously planned.

But Trump also re­turned to Nord Stream 2.

“I don’t like the pipe­line… But maybe we’ll get along with the peo­ple we’re pro­tect­ing against,” he said, re­fer­ring to Rus­sia and Pres­i­dent Vladimir Putin, whom he is sched­uled to meet in Helsinki, Finland on July 16.

“I think that’s a real pos­si­bil­ity.”

Pipes for the Nord Stream 2 pipe­line are loaded onto a ves­sel in the north­ern Ger­man port of Mukran for trans­ship­ment to a stor­age yard on Oct. 26, 2017. (Axel Sch­midt/Nord Stream 2)

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