NS2: ‘A Horrible Thing’

Why does US President Trump want to stop a gas pipeline between Russia and Germany?

Western Europe doesn’t have significant natural gas reserves, so must import what they need. Russia is nearby and has vast reserves of natural gas. Germany is ready to buy gas and Russia is willing to sell, so they are building Nord Stream 2 (NS2) a gas pipeline between Russia and Germany.

US President Donald Trump (among others) is vehemently against the pipeline, and attacked it several times on his recent voyage across Europe. He asks what is the point of NATO if Germany buys gas from Russia:

“I think it is very sad when Germany makes a massive oil and gas deal with Russia … It should never have been allowed to happen … Germany is totally controlled by Russia because they will be getting 60 to 70% of their energy from Russia and a new pipeline … You tell me if that’s appropriate because I think it’s not.

— US President Donald J. Trump.

Trump had previously threatened sanctions against any supplier to the construction of Nord Stream 2.

Why are Russia and Germany putting their pipeline under the Baltic Sea? Wouldn’t it be easier to take a more direct route? Over land, perhaps? Previously, most of the gas Russian sold to Europe went through Ukraine. However, Ukraine become politically unstable in 2014, when a series of violent events led to the overthrow of the government.

This instability threatened Europe’s gas supplies, so Germany and Russia started work on a pipeline under the Baltic Sea instead. By going around Ukraine, Nord Stream 2 makes political turmoil in Ukraine irrelevant to Europe’s energy security. This also means Ukraine loses billions of dollars in gas transit fees for allowing Russian gas to move through their territory,

Why does Donald Trump care? Maybe dealmaker Trump is pushing his European friends to buy gas from thus US, rather than Russia. In 2014 – around the time of the overthrow of the Ukrainian government – Condoleezza Rice shared a similar view, encouraging Angela Merkel to buy US gas:

There are impracticalities here: the United States is further from Europe, with an ocean between. US gas would have to be shipped to Europe (on actual ships). Pipelines over land are generally more economical for transporting large volumes of natural gas. Also, US natural gas would have to be converted to liquefied natural gas (LNG) for shipping. This requires LNG terminals and other infrastructure that Europe does not have.

Condoleezza adds: ”If Putin is not stopped now, we could find ourselves in a real conflict with Russia”. There are many groups and individuals who oppose NS2 for security, moral, and economic reasons. The issue might to boil down to a judgement call: is it worth paying extra for US LNG, to avoid a dangerous dependence on Russia? This post not about making a judgement on the rightness or wrongness of the pipeline. I am interested in Trump’s objections and what we can learn from them.

By openly attacking the prospect of Germany buying Russian gas, Trump is exposing an economic and political struggle between US and European authorities that has been quietly going on for decades. It is not just about energy, but a complicated mess of geopolitics and economics, and is rarely reported preoperly, if at all. The events in Ukraine were a flashpoint for a battle that is increasingly out in the open:

Trump made an interesting comment during NATO’s bilateral breakfast in Brussels:

I think trade is wonderful. I think energy is a whole different story. I think energy is a much different story than normal trade.

What did he mean? According to Luke Gromen, of macroeconomic research firm FFTT:

IMO there is a reason we are trying to dictate energy policy to the world, and it isn’t because we actually care about the energy itself. We care about the currency it is priced in, & more specifically, what happens to US deficits if its priced in anything but US dollars

This connects to the subject of this blog and what I will be writing about: the precarious status of the US dollar as world reserve currency.

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