Chilled Gas Is Breaking Russia’s Chokehold on Europe

For years, Russia has built oil and gas pipelines, the contents of which flows through the Ukraine, Poland, Germany and much of the rest of Europe. Russia has held these countries hostage and also fostered their reliance on coal which contributed to pollution and global warming. The Russian Federation didn’t hesitate to use price extortion. Now Poland has built a facility to accommodate gargantuan liquid natural gas tankers from the US, Norway, Qatar and other countries. This fuel, according to The New York Times, “will help light and heat millions of Polish homes, while gradually cutting the country’s dependence on coal and other Russian hydrocarbons.”

The Times says, “This fuel represents an important geopolitical strategy. Poland is determined to significantly diminish its reliance on Russian energy within the next few years, part of a broader effort in Europe to diversify the region’s energy supply.” Relations with Russia have been unsettled as Putin and his henchmen keep pushing the envelope economically, militarily and politically. Russia wants to bring Poland, a former Russian satellite, to heel now that it is part of NATO.

The Times further says, “the country has found a ready replacement in the United States, which has an abundance of natural gas from the shale boom. There is also an incentive for the US and Europe to break Russia’s chokehold on Europe. Once it is turned into a liquid, natural gas can be shipped around the world. American companies now have contracts with Poland that can span decades and promise to supply the country with the equivalent of about half of its current gas imports.”

In 2009, the Russian energy giant Gazprom shut down a crucial pipeline to the Ukraine for three weeks. (It was mid-winter). The Polish people soon got the message. When you can, get out from under that vulnerability. There was also a politically tinged pricing dispute. Much of the gas that Russia exports to Europe flows through the Ukraine. Anyone want to guess why the “little green men” (Russian soldiers out of uniform) have been and are at war against the people of the Ukraine and Crimea?

This 2009 shutdown spurred Poland to build the terminal which cost an estimated 1 billion euros, some financed by the European Union. The facility is named for Lech Kaczynski, the Polish president who died in a plane crash in Russia in 2010, a loss that hardened anti-Russian sentiment in Poland and has most observers skeptical about the cause of the crash. The strategy of the Poles is to reduce reliance on Eastern suppliers and especially Gazprom. For the Poles, the sentiment is if I pay to Americans and Norwegians, I pay to my NATO allies. The plant can quickly pump out enough natural gas to meet any interruptions in supply to Poland.

The Times says, “the port is already reshaping Poland’s relationship with Russia. Gazprom receives about 60 percent of its revenue from its sales to European customers.”

Gazprom has a monopoly on all oil and gas produced in Russia. Gas deliveries from Qatar began in 2015, which have been supplemented from producers like Norway and the US.

“The liquid natural gas shipments rose by almost 60% last year. The expected shipments to this country of 38 million Poles could generate billions of dollars of revenue for the American suppliers. One attractiveness of Liquified Natural Gas (LNG) is its flexibility.

If all sources prove successful, Poland will have more than enough gas to replace its flow from Gazprom. Two of the American contracts allow Poland to accept cargos from the companies and resell the gas to other markets. Gazprom has been portrayed as both predatory and unreliable. Gazprom’s pipelines snake from Russia into Europe’s industrial heartland. Gazprom's intention has been "to capture this vital part of the European market and monopolize it in a way they please," according to The Times.

LNG has shaken up pipeline politics, creating competition for longtime suppliers like Gazprom which is owned by Putin and his thugs. Global LNG imports grew by more than 9% last year, a much faster rate than for oil and gas. Over 50% of Russia’s revenue comes from oil and gas and today’s low prices are bleeding the Russian economy at the same time Putin is pouring money into new weapons. Rubles are also flowing into global real estate to launder it.

Against that backdrop, there is a kind of cold war playing out among energy suppliers like Russia and Algeria and exporters from the United States. Washington scored a victory this month when Germany, the single biggest consumer of Russian LNG, agreed to build its first LNG terminal. It is obvious to Germany that reliance on Russia is a strategic liability.

Germany has relied on Russian pipelines in the past and Europe’s largest economy is certain to need Russian fuel in the future. Price, too, is an issue and Russia can produce gas cheaply. Nevertheless, they don't want dependence on mother Russia. For Poland, the politics has triumphed the price. The government plans to expand this facility. Poland also wants to build a pipeline from Norway. Security of supply is a big issue as is the ability to limit Russia’s ability to extort Europe on its energy needs.

According to the Wall Street Journal, “Putin will continue Russia’s efforts to aggravate social, political and racial tensions in the US and among its allies. The former KGB colonel will assure Russia’s continued use of political arrests, subversion, assassination, fake news, espionage and the weaponization of lies. Rather than focusing and analyzing intelligence, they developed expertise in propaganda, agitation, subversion repression, deception and murder. None of those tactics is new to The Kremlin.”

The Russian Federation is spending big time on new weaponry.

On the other hand, when your economy is smaller than that of California and is largely dependent on energy and treachery, you use the tools you know and understand which thus far have been effective. Cutting their energy leverage can remove a critical tool from Russia's tool box.

What do you think?

Ira Friedman