Last week’s explosions and natural gas leak at the sister pipelines of Nord Stream I and Nord Stream II, connecting Russia to Germany via the Baltic Sea, may remain a mystery like the “magic bullets” that killed John F. Kennedy.
The Russians say it was not sabotage on their end. It was the Americans. The Pentagon denies it. NATO says it was the Russians that ruined it, calling it an attack on European infrastructure.
Ukraine quickly moved to apply for NATO membership, thinking if NATO believes it was the Russians who blew up a gas pipeline to Europe, they might see cause in allying themselves with Ukraine and breaking their own rules – no country can join NATO that is facing a border dispute.
Who pulled the trigger on Nord Stream is for another time. We are unlikely ever to know the truth, barring a lawsuit with provable, undersea forensics of the “crime” – if there was one. Gazprom’s partners, Wintershall, Uniper, E.On, Engie, are silent. None of their corporate websites have published statements on the issue.
The last time Nord Stream AG, the ownership consortium made up of Gazprom, Wintershall, Gasunie, Engie and E.On, said anything about the incident was September 29. They said they noticed a pressure drop and that they would “start assessing the damage to the pipeline as soon as it receives necessary official permits.” Nord Stream II is defunct.
Based on the company’s communications at this time – a time when the war between Russia and Ukraine, and by default, Russia and Europe, is escalating — no official word has been made on this investigation by the Nord Stream consortium. Some might call their silence callous.
In the worst-case scenario, could more energy infrastructure be leveled? Articles suggesting it is a possibility will be everywhere in the days ahead, unless cooler heads prevail.
But while we don’t know if Russia destroyed Gazprom’s pipeline, a pipeline it shared almost evenly with its consortium partners, we do know that Europe is in big trouble as the cold weather months approach. How they handle this will affect world markets.
European governments have been filling strategic oil and gas reserves, but that is not how a country should organize its energy supply. Energy prices are too high. Europe is heading for deindustrialization.
Brussels, We Have a Problem
Stephen Bryen, a former Deputy Assistant Secretary of Defense in the Reagan administration, wrote Monday on the Jewish Policy Center’s website that there was no “corroborating or credible evidence” that the Americans blew up the pipeline, nor the Russians. Moreover, he noted that the region is a hotbed of unexploded WWII ordinance. The area is a naval firing range for numerous countries as well. Accidents happen, he said. It’s not impossible.
As a result, there will be no gas coming into Europe from Russia out of Nord Stream I. The shipments were already down to a trickle. The other two pipes are Turkish Stream and a few through Ukraine, but Russia will likely shut those off soon and Europe will be left with more expensive liquefied natural gas.
Secretary of State Tony Blinken is happy about it. He said recently that the U.S. has been selling LNG to Europe and that has “helped compensate for any loss of oil and gas due to Russia’s aggression against Ukraine and we have established a task force to work directly with Europe to decrease demand and get through the winter…and find a way to speed up their transition to renewables.”
So all of this is in line with Europe’s stated goals to go beyond fossil fuels. This is what their leaders want. If they make it through the winter, and if their manufacturing base doesn’t collapse on high electricity bills (barring record subsidies from the state, which should not be discounted here), then the EU can chalk it up as a win – they’ve finally gone green and powered an economy with – LNG and coal, apparently.
This week’s latest announcement that Russia won’t be selling gas to Italy is another tightening screw. The U.S., the Emirates and Qatar will have to double their efforts to get LNG shipped to port terminals that, in most places, do not exist or have the capacity to welcome them all.
“Prepare for life without Russian gas,” David Goldwyn, who ran the State Department’s energy program during the Obama administration, told Politico on September 28. “It’s a threat of a complete cut-off.”
For Russia & Europe, a Question of Measure Twice, Cut Once
Russian president Vladimir Putin said in his now famous September 30 speech to the nation that he would use nuclear weapons if Russia was attacked. Now that Russia has annexed part of Ukraine, and it became a part of the Russian state in the eyes of the Kremlin, would Russian military leaders consider a battle for those territories to return under Ukrainian control an attack on its soil? Putin said they would use “all weapons at their disposal” to defend “Russian lands”. This means nukes. One would hope this is emotive bluster and does not mean lobbing a tactical nuke west of the Dnipro River.
The Nord Stream fiasco has Ukraine doubling down on the war. They’ve blamed the Russians for the blowup under the Baltic Sea.
A statement by former Polish Foreign and Defense Minister, Radoslaw Sikorski, however, serves as a good example of how not everyone in the EU thinks it was the Russians. Most people in the markets have seen his Tweet of what looked like the eye of a hurricane in the Baltic Sea, above where the Nord Stream incidents occurred, and a simple message: “Thank you, USA.”
Assuming more European politicians think this way, it signals the EU power structure pumping the brakes on U.S.-NATO’s race to go after Russia militarily. They would not be convinced, therefore, that this was Russia’s doing.
EU are probably aware that president Biden, like Trump before him, did not want Nord Stream II to go on. State Department official Victoria Nuland, a long-time Russia hawk involved in Ukraine, said the same. Fox prime-time show host Tucker Carlson did a segment last week on U.S. interests in the damage – suggesting the motives were stronger in Washington to see Nord Stream ruined than in Russia.
U.S. vs Europe: With Friends Like These…
Washington’s disdain for Nord Stream is old news. Angela Merkel was the one who fought to keep it going. Wintershall and Uniper, both German, had hundreds of millions on the line. They were not worried about Nord Stream II being an alternative route to Europe instead of Ukraine. In other words, everyone in Europe, left wing, center right, to super nationalist far right politicians are well aware of Washington’s disdain for Nord Stream, which was against the interests of EU member states.
Former vice chancellor of Austria, Heinz-Christian Schtrache, of Freedom Party, wrote the following sarcastic statement on his Facebook page about the demise of Nord Stream:
“There are experts who want to explain to us that Russia has blown up its own pipeline. Although they just had to turn off the tap,” he wrote.
Which is true, but turning off a tap is as easy as turning it back on. Blowing up the tap…that’s a different story. If Russia and Europe are divorcing, like Russia and Ukraine, then this would be like leaving the house for good and ripping out the piping while you’re at it.
Europe has to get its energy act together.
For months, investors have been watching Europe shoot itself in the foot. Was its leadership worried about the shortfall in Russian-sourced fossil fuels, or did they see it as an opportunity to sell the post-fossil fuels economy they longed for? They can’t possibly believe it will work, of course. They are powering up with coal and importing Russian crude before it goes into a total ban. They are signing longer-term deals for LNG with the U.S., but also with Algeria, Azerbaijan (in a militarized border dispute with Armenia), Qatar, the UAE, and anyone else who has LNG to spare.
But for Europe, its current energy strategy is crippling its manufacturers. Steel mills have shut down. No steel, no cars (including electric ones). No steel, no tooling for German’s famous industrial power centers.
All of this has political consequences. Italy just elected a populist right-wing EU-skeptic. Lucky for Ukraine, she is pro-NATO and anti-Russia.
But if Giorgia Meloni tells her people that all of the things she has promised – largely issues related to the culture war – will have to be put on hold “until Ukraine is free”, it should be no surprise if Rome erupts in protests in 2023. Will the Social Democratic Party of Germany (SPD) and the Greens crumble next? Will there be a surge for the pro-Russian right-wing Alternativa fur Deutschland and the far-left Linke parties?
A measured approach is the only way. We are now seeing that in spots.
“I originally thought that the SPD and Greens would split apart because the Greens would refuse to bend on fossil fuels. They’re bending because beggars can’t be choosers,” says Vladimir Signorelli, head of Bretton Woods Research, an investment research firm in Long Valley, NJ. “They’ve blinked. They’re not going to shut off nuclear. Nuclear power gets a stay of execution. If not, you would have had a political collapse next year.”
Russian energy will be cut out of Europe. They’ll probably sell oil through go-betweens like China, Saudi Arabia, UAE, or Turkey. And Europe will likely be spared an energy disaster by the legacy nuclear in the meantime.
Rumors of an extended war will remain a negative signal to the market. “Ukraine is an overall negative for Europe. Wars are inflationary,” Signorelli says. “There is nothing positive coming out of European news right now. I’m not seeing it.”
It’s too bad for Europe that oil doesn’t grow on trees.
OPEC said it will reduce production. Tight supplies, thanks to supply chain shifts due to Europe’s Russia ban and Russia’s pending Ukraine transit shutdown, will propel oil prices higher. This is another inflation headwind for Europe.
Natural gas prices are falling, though. That might allow Europe to keep energy prices down to power a region-wide economy that will perform worse than most emerging markets this year. Germany’s economy is now forecast to fall by 0.4% in 2023.
It will be worse if Germany fails to get out of this energy crisis, a crisis that is fueling inflation, leading to higher interest rates, and putting the brakes on an economy at a time when prices for the necessities of life and commerce — food and fuel — are out of control.
Source: https://www.forbes.com/sites/kenrapoza/2022/10/05/nord-stream-whodunnit-may-never-be-known-what-is-known-europe-energy-in-deep-crisis-mode/