One month ago, after the shocking collapse of the Gulf nation status quo with the announcement of the diplomatic, naval and financial blockade of Qatar by the Saudi alliance, we said that while it is unclear how this latest political fiasco plays out, one thing was certain: with Saudi Arabia and Qatar suddenly adversaries, any likelihood of a Qatari natural gas pipeline crossing Syria - the fundamental cause behind the Syria proxy war in the first place - was gone.
But one key question remained: why would Europe vacate all hopes of an alternative provider of cheap, copious LNG and concede the role of quasi-monopolist supplier of this critical for Europe resource to Gazprom, and thus Russia whose leverage over the continent would only grow as a result.
We now have the answer: none other than Donald Trump has been hoping to "steal" Russia's European natgas relationships and clients, in hopes of making the US become the dominant supplier of LNG to Europe. According to Reuters, Trump "will use fast-growing supplies of U.S. natural gas as a political tool when he meets in Warsaw on Thursday with leaders of a dozen countries that are captive to Russia for their energy needs."
The love-but-mostly-hate relationship between Russia and Europe is familiar to regular readers: in recent years, Moscow has cut off gas shipments during pricing disputes with neighboring countries in winter months, or when the conflict with Ukraine resulted in a halt of transit shipments via the energy hub.
This is where Trump's plan kicks in: exports from the United States would help reduce their dependence on Russia. Trump will tell the group of European nations that Washington wants to help allies by making it as easy as possible for U.S. companies to ship more liquefied natural gas (LNG) to central and eastern Europe, the White House said. Trump will attend the "Three Seas" summit - so named because several of its members surround the Adriatic, Baltic and Black Seas - before the Group of 20 leading economies meet in Germany, where he is slated to meet Russian President Vladimir Putin for the first time.
Among the aims of the Three Seas project is to expand regional energy infrastructure, including LNG import terminals and gas pipelines: in other words to replace Gazprom as the dominant supplier of European nat gas with US suppliers. Members of the initiative include Poland, Austria, Hungary and Russia's neighbors Latvia and Estonia. According to James Jones, a former NATO Supreme Allied Commander, Trump's presence will give the project a lift.
While it goes without saying, Jones adds that "Increased U.S. gas exports to the region would help weaken the impact of Russia using energy as a weapon or bargaining chip."
"I think the United States can show itself as a benevolent country by exporting energy and by helping countries that don’t have adequate supplies become more self-sufficient and less dependent and less threatened," he said. It will also, if successful, infuriate Putin and the Russian energy establishment.
Meanwhile, Trump's Russia policy is still taking shape, a process made awkward by investigations into intelligence findings that Russia tried to meddle in the 2016 U.S. presidential race. Russia denies the allegations and Trump says his team did not collude with Moscow. One thing that Trump has made clear during his campaign is that he wants to pursue ways to de-escalate tensions with Russia, however it is the deep state that prevents any such overture with yet another barrage of "Russian conspiracy" news hitting the WaPo, CNN or NYT.
And while Trump may not even realize the long-term implications of the "Three Seas" project, all those around him understand all too well: with Putin having made a Qatar gas pipeline though Syria impossible, it is up to the US to step in and replace Gazprom as Europe's nat gas provide.
Which is also why many Republican lawmakers, many of whom want to see him take a hard line on Russia because of its interference in the election and in crises in Ukraine and Syria, support using gas exports for political leverage. "It undermines the strategies of Putin and other strong men who are trying to use the light switch as an element of strategic offense," said Senator Cory Gardner, a Republican from Colorado who is on the Senate Foreign Relations Committee.
The Kremlin relies on oil and gas revenue to finance the state budget, so taking market share would hurt Moscow.
"In many ways, the LNG exports by the U.S. is the most threatening U.S. policy to Russia," said Michal Baranowski, director of the Warsaw office of think-tank the German Marshall Fund. He is absolutely correct, and yet the question becomes: if Putin was ready to deploy thousands of soldiers and dozens of warplanes in Syria to defend Russia's gas export market, what woud - or could - he do, if the US itself is hoping to replace Russia as Europe's dominant source of energy.
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To be sure, taking over Russia's nat gas trade ties with European nations would be a slam dunk for the US, which is expected to become the world's third-largest exporter of LNG in 2020, just four years after starting up its first export terminal. U.S. exporters have sold most of that gas in long-term contracts, but there are still some volumes on offer, and more export projects on the drawing board.
And if there is one thing US LNG exporters want more than anything, it is a virtually unlimited export market. Such as Europe.
Cheniere Energy which opened the first U.S. LNG export terminal in 2016, delivered its first cargo to Poland in June. Five more terminals are expected to be online by 2020. Tellurian has proposed a project with a price tag of as much as $16 billion that it hopes to complete by 2022, in time to compete for long-term contracts to supply Poland that expire the same year and are held by Russian gas giant Gazprom. "We would like to be a supplier that competes for that market," Tellurian Chief Executive Meg Gentle told Reuters.
There are other problems as well: a global glut in supply may, however, limit U.S. LNG export growth, regardless of Trump's support. The glut has depressed prices and made it difficult for LNG exporters to turn a profit, said Adam Sieminski, an energy analyst with the Center for Strategic and International Studies. Russia has the advantage in Europe due to its proximity and pipeline connections, however it is only a matter of time before technological advances make US LNG production price competitive: just ask OPEC.
"Europe is going to be the great competitive arena between Russian gas and LNG," said Daniel Yergin, the Pulitzer Prize-winning oil historian and vice-chairman with IHS Markit analysis firm.
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For now, Europeans will be watching to see whether Trump clarifies his administration's position on a new notorious pipeline to pump Russian gas to Germany, known as Nord Stream 2.
As we reported several weeks ago, the U.S. Senate passed a package of sanctions on Russia, including provisions to penalize Western firms involved in the pipeline. This prompted a furious response from close European allies such as Germany, France and Austria. However, should Trump assure Europe that American nat gas is competitive with Russia's, we expect European leaders would quickly change their mind,
Once again, it should come as no surprise that the U.S. State Department has already lobbied against the Nord Stream 2 pipeline as a potential supply chokepoint that would make Europe more vulnerable to disruptions. What it really means is that if left unchecked, Nord Stream 2 would make Europe even more reliant on Moscow's good will.
Meanwhile, as Reuters reports, the threat of sanctions adds to tensions between Washington and Berlin. Germany's government supports the pipeline, and Trump's position on it is a concern for European diplomats.
While it is soon to say if Trump will be successful in stealing Russia's European LNG business, the mere attempt will be seen by the Kremlin as an unmistakable aggression against it by the Trump admin, or those who are pulling the strings behind the scenes on the Three Seas project. And the fact that this takes place on the same day when China's patience with Trump finally ended, and Xi warned that Trump's actions since their Mar-A-Logo meeting have resulted in "negative factors" for the US-China relationship, will certainly have drastic consequences for the global balance of power and status quo, as Russia and China are drawn even closer politically to prevent the US from replacing Russia's energy dominance, leaving Moscow with a fraction of its leverage over central Europe.
But the most interesting deliverable next will be what Putin's reaction will be: should GazProm and various other Russian nat gas lose access to the European market, the consequence to the Kremlin would be far more dire than even the breakout of a small, regional, hard water. Finally, if Putin finds that no diplomatic recourse is left to preserve Russian supremacy, will the former KGB spy find a way to esalate?