Leveraging Nord Stream 2
In March, the German Economy Minister Peter Altmaier strongly suggested that two regasification terminals would be built on northern Germany’s coastline in the foreseeable future, to enable LNG imports from the US and elsewhere in the world.
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He stated that three sites in Germany are vying for the terminals and the decision will be made by the end of the year. Through his comments, Altmaier sought to reassure US doubters that Germany is serious about building LNG infrastructure to supplement its burgeoning gas demand.
US President Donald Trump has been outspoken in his distaste towards Germany’s support for, and pursuance of, the Nord Stream 2 pipeline project, which would cater to a large portion of Germany and the EU’s gas needs. He views the pipeline as a danger to EU energy security of supply and an affront to America’s strong policy on Russia. He’d much prefer to be supplying gas – in the form of LNG – to Europe himself, with Russia sidelined.
The trans-Atlantic alliance is fragile in this respect: Trump and his government have threatened sanctions against Nord Stream 2 and against the contractors involved in the project, including Allseas Group and Saipem. US Energy Secretary Rick Perry only recently confirmed that sanctions are still a possibility.
Reports have surfaced in the press that Nord Stream AG, the Gazprom-owned group building Nord Stream 2, may be planning to fence off a 50 km section of the pipeline so that a new company owns and manages this section (the subsea part in Germany) under EU jurisdiction. The remainder of the pipe, travelling under the Baltic Sea, would then be outside EU control. This would echo the ownership structure of other pipeline projects such as OPAL, but would really concern US officials keen to wrestle control of energy supply from Russia.
In the last ten years or so, the EU has collectively striven to defend itself against a monopolistic gas supply situation, making moves to expand its LNG infrastructure, to build and boost gas storage, to factor in pipeline reversal strategies for pipeline projects and to open up a transparent internal gas market. The EU passed gas supply regulations in 2010 that made many of these things mandatory, with the aim of making certain European countries (and Europe as a whole) more resilient towards the gas cut-offs and disruptions from Russia that have hampered the market in the past.
As a result, approximately 50 billion m3 of LNG import capacity is planned or being considered in the EU currently, with EU members building new terminals and expanding current assets. Rising import needs in the EU due to slowing domestic production to some extent justify this investment. Germany, in particular, will need more gas, as it closes coal and nuclear plants in efforts to meet its climate commitments and shift towards cleaner fuels. The EU focus on securing gas supply diversity is sensible in the circumstances, but LNG pricing is not typically competitive when compared to piped natural gas and LNG utilisation is low at present. Even without the proposed new LNG terminals, Germany is already well connected to about 30 European terminals, where import capacity is already underutilised.
It is understandably difficult to entice countries to fund energy infrastructure projects that lack immediate justification, even if they make sense in the long-term. Germany is working on a new domestic law to support the construction of LNG terminals: the new rule would oblige gas network operators to connect LNG terminals to the German gas grid. More widely, the EU has the unique means to effect change by coaxing member countries to put collective security over short-term financial gain, but commercial realities must also be acknowledged.
Former US ambassador Richard Morningstar recently gave a speech at the University of Piraeus (Greece) in which he made the case for including LNG in the energy mix, despite its current lack of price competitiveness. He said “it doesn’t even matter how much [LNG] is sold. The key point from an energy security aspect is simply that the LNG is available, because if it is available…it will keep prices down.” He went on to argue that this availability of supply would prevent monopolistic pricing on gas from Russia. Trump would no doubt agree, but will Germany be able to leverage its willingness to buy LNG from the US into increased US acceptance for the pipeline?