[NGW Magazine] Editorial: Trump on the Offensive
The idea that the US can export LNG to Europe at the expense of Russian pipeline exports appears to be too alluring for senior US officials to drop, fallacious though the notion of such a proxy war with gas is.
Gas is just too essential a part of everyday industrial and domestic life in Europe for that idea to gain traction. Heavy reliance on Russia, but with intelligent safeguards, a well-regulated market, and back-up arrangements with other gas suppliers, or suppliers of other fuels, are what is needed, and on a case-by-case rather than prescriptive basis for all states.
Not all European countries get on with the Donald Trump administration or appreciate its apparent enthusiasm for meddling in its business, such as Nord Stream 2 – a matter they regard as one for the European Union to settle internally.
And for the US to seek to use gas as a stick to beat the Kremlin with is a bit rich from a country that has itself accused Russia of using gas as a weapon to bring former satellite states to heel.
Those days are anyway over, as more and more ways are being devised to limit Gazprom’s ability to influence its customers, with spot, hub trading and reverse-flow capacity destroying the old border-point delivery system with its ban on re-exports – key features of long-term contracts.
The EU anti-trust probe is expected to see Gazprom’s proposals accepted, which will weaken its position in Europe without the European Commission risking humiliation in the event that Gazprom refuses to pay any financial penalties, such as Poland is calling for. Gazprom’s own need for revenues means it is unlikely to turn its back on reliable customers in a fit of pique.
True, Gazprom may be exporting ever-growing amounts of gas to an ever more dependent market, but its profits from those sales do not reflect the percentage increases. Indeed, its annual results on an IFRS basis, released April 27, show its profits fell by almost one-quarter last year to $12.2bn.
As for the US government, it cannot control where the LNG goes, as it is all sold free on board by private companies under long-term contracts that it would interfere with at its peril. South America and Asia appear willing to pay more than Europe and the record traffic seen going through the Panama Canal earlier in April – three LNG tankers in one day – shows that Europe is not prepared to outbid other importers – even though Europe’s LNG imports grew last year (p25-26).
Trump also causes concern to potential investors in Iran, and consumers the world over, by announcing the possibility of withdrawal from the “worst deal ever” agreement with Tehran, negotiated under his predecessor Barack Obama and European states. This was one of the topics of the French president’s visit to the White House in late April, a meeting that presented plenty of visual fun but – as was to be expected from such a negotiator as Trump – Emmanuel Macron came away from the three-day trip with few concrete results. His trip was followed by a much shorter one by his German counterpart Angela Merkel: Germany has two companies investing in Nord Stream 2, France has one.
One investor in Iran is the French producer Total, whose senior executive David Mendelson, in charge of new ventures and asset management, told a conference in London late April that Total respects all sanctions, EU or US in origin, “to the letter”; but it was a matter for a company's risk appetite to decide whether sanctions would be applied. Total went ahead with the Novatek-led Yamal LNG plant, but was not able to pursue another project to produce shale gas in Russia, as it could not bring in the equipment without violating sanctions.
Oil prices have already risen partly as a result of the uncertainty over Iran, about which Trump has been very coy; although Saudi Arabia and Israel are, for several reasons, hoping that oil exports will fall again. Lower crude production would make it easier for Opec and Russia to continue their pact on cutting output. Israel has openly clashed with Iran in Syria, fearing its ambition to establish a hostile position there across the border.
The new US secretary of state, former spymaster Mike Pompeo, was, at time of press, about to visit the two states April 28-29.
Where Trump will probably claim success, justifiably or not, is the other side of the world, where the two heads of the two Koreas held an historic meeting April 27. Nothing might come of it, but it does prove that such a thing is possible. China’s hopes for the peninsula are unclear: it may prefer things as they are. So it is hard to imagine this happening, given the timing, but for Trump's all-too-personal engagement.
When a state has as little to lose as North Korea, one way of winning it round is to make promises of billions of dollars of spending in infrastructure – China's speciality – and relatively cheap supplies of energy. Of the countries able to deliver the energy, Russia and US are well placed, and Russia already has some kind of agreement to supply pipeline gas to LNG-dependent South Korea. But as it involves crossing North Korea, this scheme has been on hold ever since. Maybe its time has come; maybe too this meeting, if it goes well for the US, will mean a new opportunity for its producers.
NGW