The leader of the free world has again used one of his two favourite words, sanctions (the other of course being tariffs), this time to threaten Germany over the Nord Stream 2 project. The proposed project is a 1,225-kilometer pipeline to ship gas from Russia under the Baltic Sea to Germany and would double the capacity of the existing Nord Stream pipeline, however, the idea has also divided the European Union.
Germany’s problem is that it produces very little energy. It imports 92% of its gas needs and a massive 98% of its oil needs. As such, Germany needs to step up efforts to secure a reliable supply of gas. With Germany weaning itself off of nuclear and coal power generation, natural gas must take up the slack, especially for its manufacturing sector.
However, by concentrating its gas imports from Russia, Germany has raised eyebrows. Not only on the other side of the pond. Many believe it risks becoming too dependent on what they consider to be an adversarial source. This could make Germany more vulnerable to threats of cutting off that supply. Added to this, countries in Eastern Europe, the Baltic Sea and the Nordic also believe the proposed pipeline would increase Russia’s economic grip on Europe. Added to this, Nord Stream 2 is controversial because Russia seems to be by-passing Ukraine for geopolitical reasons. Both Nord Stream projects are offshore via the Baltic Sea and by-pass Ukraine altogether. Currently, about 40% of Europe’s natural gas supply from Russia flows through Ukraine.
Trump told reporters last week ‘We're protecting Germany from Russia and Russia is getting billions and billions of dollars from Germany’ adding the second pipeline ‘really makes Germany a hostage of Russia if things ever happen that were bad’. He has even threatened to move US troops out of Germany and relocate them to Poland.
Of course, the threats have nothing to do with US natural gas producers who are eyeing Europe as a major export market. Indeed last week the Polish Oil and Gas Company (PGNiG) and U.S. company Venture Global LNG signed a deal for 1.5 million metric tons of LNG per year from 2023, bringing the total planned purchase from the Polish company to 3.5 million metric tons per year, worth around USD8bn. At the moment Poland gets most of its gas from Russia, however that contract ends in 2022.