When Washington imposed sanctions on companies, the move drew criticism not just from Russia but from Germany as well. The sanctions, targeting firms building the pipeline that will increase Gazprom’s export capacity for Europe, were seen as interference in Germany’s internal affairs while the legislators who approved them saw them as a tool for deterring Russia’s energy influence in Europe. For some, however, the reason for the sanctions was the U.S.’s own energy plans for Europe.
The Trump administration is following an agenda of energy dominance, and this dominance has to include Europe, which is one of the biggest markets for natural gas and, what’s more relevant to the U.S., liquefied natural gas. However, lessons from history, and that’s a history of Gazprom, would suggest that the energy dominance approach won’t work - not in Europe.
Bloomberg’s Liam Denning recently reviewed a book by an IHS Markit expert on Russian energy, Thane Gustafson, titled The Bridge. The Bridge, according to Denning, contains, among other things, a cautionary tale for U.S. gas ambitions in Europe. The gist of it is that the European gas market is a lot more open and transparent than it used to be, and while this has served to reduce the influence of Gazprom on the continent, it has also served to deter anyone else that might want to try to take Gazprom’s place.
The truth is that today, Europe has developed a continental gas network, and that network features LNG terminals. This means that many European countries are today a lot more flexible in their gas imports than they were 30 years ago, when Russia and Norway dominated the market. There is just one catch: the LNG has to be cheap enough to beat alternative supplies.
Poland is already buying U.S. liquefied natural gas. The country is ready and willing to pay more if it has to, in order to reduce its dependence on Russian gas for a number of historical reasons. Yet last year Bulgaria, too, bought two cargos of U.S. LNG from Cheniere’s Sabine Pass liquefaction plant. According to the head of the state gas operator, the cargos were priced at the level of local benchmark prices.
Even so, Poland and Bulgaria are small potatoes. Germany is the biggest gas market in Europe and it will become even bigger as the country aims to shut down all its remaining nuclear power plants by 2022. This is why Gazprom is building Nord Stream 2 with Angela Merkel’s blessing, after all. And this is why the U.S. is sanctioning it if we leave aside the ideology that every government uses to advance its purely pragmatic agenda.
Germany imported $14.6 billion worth of natural gas in the first half of 2019. That was 14.8 percent higher than a year earlier, but the increase in volume terms was even greater: these came in at 2.66 million terajoules, which was 20 percent higher than the year-earlier period. Historically, most of the imported gas has come from Russia, followed by Norway and the Netherlands. Now that the Netherlands is shutting down its flagship Groningen field ahead of schedule, Germany will need more gas from Russia and Norway. It could import U.S. LNG as per a EU promise to President Trump, as long as the price is right, as the EU Energy Commissioner said last year.
Yet because of the open and transparent nature of Europe’s gas market, Germany is also buying LNG from Russia. Just last month Novatek opened its first LNG fueling station in Germany. It is the first LNG station of the Russian company in Europe and could mark the start of a network.
This is why energy dominance is a challenging goal in Europe’s gas market. The fact that Germany and others are building new LNG terminals does not obligate them to use these terminals for U.S. LNG. Qatar is right around the corner, so to speak, and so are Nigeria and Algeria – both large LNG producers. Competition is intense and it’s out in the open. The victory that EU competition watchdogs achieved in their fight with Gazprom’s long-term contracts paved the way to the current competitive environment that leaves both Gazprom and U.S. LNG producers at the mercy of market forces.