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, a senior fellow at the Atlantic Council, 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 electricity, 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.”
