Broader European gas diversification effort needed, forum told

Sept. 26, 2018
European governments will need to broaden efforts to diversify their countries’ natural gas sources if they expect to keep Russia from regaining its previous dominance, speakers agreed during a Jamestown Foundation discussion about Baltic Energy Security. Stronger coalitions will be essential to create longer lasting solutions that benefit regions more than individual nations, they suggested.

European governments will need to broaden efforts to diversify their countries’ natural gas sources if they expect to keep Russia from regaining its previous dominance, speakers agreed during a Jamestown Foundation discussion about Baltic Energy Security. Stronger coalitions will be essential to create longer lasting solutions that benefit regions more than individual nations, they suggested.

“If you have monopoly purchase power, you’re likely to try and protect it. European countries have worked hard in the last 10 years to counteract this,” said Matthew Bryza, former deputy assistant US secretary of state for Europe and Eurasia. “But the fact remains that Russia is going to continue supplying gas to Europe. The goal is to make sure that it plays by the rules.”

Margarita Assenova, who directs the Jamestown Foundation’s Balkans, Caucasus, and Central Asia programs, said, “The circling of Central and Eastern Europe by two pipelines—Nord Stream 2 and Turkish Stream’s western expansion—would prevent those countries from developing strong markets. Opposition is too heavily concentrated on the present. Russian companies already have booked capacity 15 years ahead for two major distribution pipelines.”

The push to diversify the region’s energy supplies goes beyond gas pipelines, noted Piotr Naimski, secretary of state in the chancellery of the prime minister of Poland, and government plenipotentiary for strategic energy infrastructure.

The country’s refineries get their crude oil feedstock from Russia, although that could be replaced by tankers from other producing countries, Naimski said. Poland also is trying to synchronize actions with Lithuania, Latvia, and Estonia, and has agreed to build a subsea oil pipeline to Lithuania, Naimski said.

Baltic Pipe Project

“Russia’s strategy of surrounding Central and Eastern Europe with gas pipelines is almost completed. These countries want to create competitive routing for gas from suppliers other than Russia,” Naimski said. “Poland has led the effort to build the Baltic Pipe Project from Norway via Denmark. The volumes so far have been small, but they still matter because they represent real diversification. By 2021, we’ll be replacing gas supplies from the East with supplies from the North.”

Naimski’s observation in Washington came as US President Donald Trump applauded European nations’ efforts to diversify their sources of energy during his Sept. 25 address to the United Nations in New York (OGJ Online, Sept. 26, 2018). “Reliance on a single foreign supplier can leave a nation vulnerable to extortion and intimidation,” Trump stated.

“If we’re able to replace these supplies with gas from the North Sea, Russia’s dominance will begin to be broken,” Naimski said. Other speakers said that country has presented questionable arguments to justify Nord Stream 2’s construction.

The project would conflict with the European Union’s gas diversification goals, particularly in the 11 countries that rely heavily on Russian supplies, said Colin Cleary, energy diplomacy director for Europe and the Western Hemisphere in the US Department of State’s Bureau of Energy Resources. Nord Stream 2 also would concentrate about two thirds of Russia’s gas exports to Europe in a single pipeline, he said.

“Contracts are one issue that’s driving opposition to it. Nord Stream 2 would support Kremlin oligarchs. Baltic and other Central European countries know Russia will use its gas as a political tool,” Cleary said. Statements that the main reason the US opposes the project is that it wants to promote US exports of LNG to Europe also are not accurate since the US has supported European energy supply diversification for more than 3 decades—long before it began producing enough gas to liquefy and export, he added.

Is Nord Stream 2 needed?

Other speakers questioned whether the pipeline is necessary, particularly since European gas demand growth is not certain and Russian gas giant Gazprom’s existing systems have capacity available. “The utilization rate by Russia of the pipelines it already has to Europe is only about 67%,” said Bryza. “There’s also no projected increase in Europe’s gas demand looking out to 2040.”

When US Sec. of Energy Rick Perry was in Russia recently, he made clear that the US opposes any coercive use of energy supplies and does not support Nord Stream 2, said Andrea Waldman Lockwood, deputy US assistant energy secretary for Africa, Middle East, Europe, and Eurasia.

“The secretary is committed to talking about ways the US can work with other countries on improving energy security,” Lockwood said. “We’re very eager to work with countries in Central and Eastern Europe to increase interconnections that would work with both LNG and pipeline gas.” DOE tries to provide analytic and technical experts to explain what transportation systems and regulatory policies are necessary to attract investors, she said.

“Nord Stream 2 simply is not economic. It always costs less to maintain and expand existing systems than to build new ones,” Lockwood stated.

Vladimir Socor, a Jamestown Foundation senior fellow, said Nord Stream 2 would be highly detrimental to Europe and the EU. “Its future depends on whether Germany and its other partners persist or withdraw their support. It also could be affected by the threat of US sanctions, which might cause Shell and [French gas and electricity multinational] Engie to withdraw as sponsors,” he said.

Next spring’s European Parliament meeting may also provide an opportunity to bring Nord Stream 2 issues into the open, Socor said. “Poland and the Baltic States have a vital interest in seeing the EU grow stronger. It should occur more as a European, than a national, goal,” he added.

Contact Nick Snow at [email protected].