I was still a child when a plumber came to the apartment of my parents to change the pipes and fittings of our gas stove in the kitchen. A revolution was on its way. Instead of town gas, distilled from coal and distributed by pipes to all households in Vienna for heating and cooking, we would be supplied with natural gas now, necessitating these small technical changes. I vividly remember my disappointment thereafter, as the new gas would be almost odourless, lacking the distinct flavour of coal gas.
Within a couple of years the municipal gas factories and 19th century storage ‘gasometers’ became monuments to an industrial past. In 1967, at the height of the Cold War, Europe had found agreement with the ever-threatening Soviet Union, exchanging Western technology, pipes, compressors and engineering for natural gas from Siberia, which would enter Europe for the first time through a newly built hub and underground storage in the tiny Austrian village of Baumgarten, east of Vienna and close to the barbed wire and deadly watchtowers of the Iron Curtain.
The use of natural gas as a source of energy for households, electricity generation and industrial fuel had started a few years earlier, with the utilisation of Dutch natural gas from the Groningen field. Now linked by an umbilical cord to the Communist evil empire, we could enjoy cleaner air and cheaper energy while Soviet Russia would gain desperately needed hard currency.
Within a few decades a web of pipelines would criss-cross Europe, linking it not only to Russia and Holland but also to British and Norwegian gas from the North Sea, now not seen merely as a nuisance to be flared but as a valuable source of energy alongside oil, nuclear power and coal.
Energy dependency on Russia was not a serious concern. Mutually beneficial trade was seen as a stabiliser in menacing political times, defusing the threat of nuclear warheads aimed at each other by the Soviets and their Warsaw Pact colonies on one side and the Western-European NATO alliance on the other. The prevailing wisdom was that Europe was perhaps dependent on Russian gas, in the case of Austria quite overwhelmingly so, but the Soviets depended on hard currency. A trade war would be equally damaging to both sides, hence strategically irrational.
In the decades since a lot has changed. Not only was Russia diminished to a regional, economically stagnating power. Its former Eastern European colonies as well as the ex-Soviet republics of Estonia, Lithuania and Latvia have since joined the EU as well as the NATO defence alliance. The business of gas has changed too and lost much of its mutual dependence. Instead of bilateral, long-term agreements, gas in Europe is now mostly traded on spot markets, flowing backwards and forwards physically and through swap arrangements, increasingly supplemented by super-cooled, liquefied gas (LNG) from the US, Qatar and other international sources.
More gas in the European gas market means more energy security, not less, and lower prices
Russia cannot stop its former colonies, or any other European country for that matter, from buying gas from all over the world. European anti-competition rules make sure that even Russian-originated gas can now be bought and exchanged from other countries and intermediaries. The Ukraine, for decades a transit-linchpin for Russian gas, gets almost half of its supplies from Europe these days, for which it has to pay market prices, though. This, of course, costs dearer than strategically motivated loss leaders or payment arrears which were historically treated as a debt of honour.
In 2020s’ Europe, gas has become fungible goods. This makes the battle about the completion of the latest pipeline enlargement from Russia to Europe so puzzling. Nord Stream 2, a 1,222km, 1,220mm diameter, concrete-mantled steel pipe built along a pre-existing pipeline (NS1) and intended to double its capacity, is shortly nearing its completion yet it is at the epicentre of a vicious political debate.
The Trump administration, on its last day of duty, issued a final set of embargo measures aimed to cripple the €10 billion project for good. The pipeline “puts too much control into Russian hands,” stated Gordon Sondland, Trump’s infamous ambassador to the EU for a couple of years. The US’ critical stance against the pipeline project cannot be blamed on Trumpian licentiousness alone. It enjoys bipartisan US support. The pipeline, like all previous ones, the thinking goes, would make Germany too dependent on Russian gas and economically punish the Ukraine. And it would prevent US shale gas producers from staying competitive in Europe.
It “would encourage Russian military adventurism,” rages Republican Senator Ted Cruz, while former Polish defence minister Sikorski compared the pipeline to the Molotov-Ribbentrop Pact between Hitler and Stalin. Germany, geographically at the receiving end of the pipeline extension, tried for a long time to shrug off such political outrage from the other side of the Atlantic, emphasising the purely commercial character of the undertaking. But it finds itself increasingly in the crosshairs not only of Polish opposition, but also attacked by political opposition at home, criticised by the EU Parliament and now lately even berated by France’s President Emmanuel Macron.
A sensible judgement about NS2 would demand the unbundling of economic motives, short-term political expediency and wished for strategic outcomes:
The US wants to be a volume supplier of LNG, wishes to recruit Europe for its embargo policy against Russia and needs tools to draw the Ukraine from Russia’s orbit, without taking financial or political responsibility.
Poland wants to keep its coal without looking unreasonable, and cash in on transit fees for gas while never missing an opportunity to club Russia.
Germany, in the middle of its ‘Energiewende’ – exiting nuclear power by 2022 and wishing to wean itself off from dirty coal – still needs gas as a relatively clean power to balance the intermittency problem of solar and wind.
The German Green party hates gas even more than coal in the stubborn belief that the sun will always shine and wind will blow without ceasing, hoping for more powerful battery systems to be invented any time soon.
France’s Macron wants to free Russian opposition-martyr Alexei Navalny from prison and to fire-baptise Russia with the blessings of free elections.
Southeast Asia ‒ China in particular ‒ wants more Russian LNG and pipelines going their way to help them to diversify from US and Middle-Eastern sources.
US and OPEC producers are keen to boycott Russian supplies to the EU, because Russian gas, supplied by pipeline, is threateningly competitive.
My short list of partisan interests in this almost finished pipeline does not even include the project investors Uniper, Wintershall, OMV, Engie and Shell, who will suffer huge losses, other possible transit countries, or Gasprom’s fierce domestic competitor Novatek, already producing 40 per cent of Russia’s gas and heavily invested in LNG. Yet it should be clear that more gas in the European gas market means more energy security, not less, and lower prices for consumers.
I do not think that it should be them who pay for any of the above goals, however desirable they seem to some of us. The vanquished Soviet Union was a far more formidable adversary than Putin’s Russia. Yet rationality and clarity carried the day.
The purpose of this column is to broaden readers’ general financial knowledge and it should not be interpreted as presenting investment advice, or advice on the buying and selling of financial products.
andreas.weitzer@timesofmalta.com
Andreas Weitzer, Independent journalist based in Malta