BRANDON J. WEICHERT | THE WEICHERT REPORT
The recent round of Russo-American competition has taken some bizarre turns. Notably, Russia, which has become the mothership of natural gas exports into Europe (notably, places like Germany, France, Ukraine, etc.) has become subject to sanctions in the aftermath of their wholly illegal–though not necessarily unprovoked–invasion of Ukraine in 2014. Delusional thinking appears to abound on all sides of the conflict.
Delusions of Grandeur
For the Russians, despite the fact that their country is teetering at the abyss, Moscow has convinced itself that it can somehow reconstitute itself as the head of a Third Holy Roman Empire (that never was) with the would-be Tsar, Vladimir Putin, at the titular head of the new empire.
(What’s more likely, by the way, is that Russia putters along with or without American-backed sanctions imposed on them and, just when Putin appears to be turning around, he leaves office due to old age, and the country totally collapses. But, dream on, Tsar Putin, dream on…)
Equally hilarious is that the Europeans (particularly the French and Germans), having long-forsaken their rights as sovereign nation-states at the altar of “free trade” and globalism, think that they in any way can influence the outcome of the new round of Russo-American competition–without themselves becoming proxies for either side of the unwanted conflict.
Then, there’s the establishment mentality in Washington, D.C. Not only have America’s foreign policy elite chosen to isolate nuclear-armed Russia with economic sanctions, but they have bought into the absurd notion that the United States can overcome the inherent advantages that Russia has in exporting fossil fuels–notably natural gas supplies–into neighboring Europe.
Ripping Off Our Allies While Angering a Nuclear-Armed Power
When it comes to the sanctions directed against Russia’s energy markets, clearly American foreign policy leaders have forgotten that the Russian Federation shares a convenient land border with the world’s largest consumer of fossil fuels–Russia’s greatest export–China. So, as Europe has begrudgingly acquiesced to the United States’ demands for isolating Russia and reduced its reliance on Russian energy, neighboring China has gladly moved in to pick up the proverbial slack.
Meanwhile, President Donald J. Trump has taken to touting the fossil fuel production revolution underway in the United States. He is right to do that. From a domestic production standpoint, the United States sits atop some of the most lucrative untapped sources of natural gas, oil shale, etc. Its production will undoubtedly assist in the ongoing revitalization of the American economy, but it will also help to make the United States energy independent.
Yet, Washington, in all of its infinite wisdom, has decided to go one further and insist that American natural gas–harvested in North America and transported over the Atlantic Ocean–can supplant Russia in Europe. This is simply not economical for the Europeans. The entire point of a country’s national energy strategy is to keep energy costs on its citizens as low as possible.
No matter how uncomfortable doing business with the Russians may be, Russia’s proximity and dominance of pipelines into Europe ensure that Russian-produced energy will almost always trump American-produced energy.
As Tim Daiss at OilPrice.com notes:
“Using a Henry Hub gas price of $2.85/MMBtu as a base, Gazprom recently estimated that adding processing and transportation costs, the price of U.S.-sourced LNG in Europe would reach $6/MMBtu or higher – a steep markup.
Henry Hub gas prices are currently trading at $2.657/MMBtu. Over the last 52-week period U.S. gas has traded between $2.602/MMBtu and $3.82/MMBtu. Russian gas sells for around $5/MMBtu in European markets and could even trade at lower prices in the future as Gazprom removes the commodity’s oil price indexation.”
At the same time that the United States has been pressing their European allies to do more in regards to supporting the NATO alliance, for instance, the United States is making it impossible for the Europeans to continue on economically. American-backed sanctions and the isolation policy toward Russia is needlessly raising the costs on European states.
We’re Going to Resist Russia…and the Europeans Will Pay For It!
Things are so tenuous right now, that countries like Germany–the de facto leader of the European Union–is simply ignoring Washington’s demands; Chancellor Angela Merkel is hypocritically chastising the Trump Administration’s open-handed approach to Moscow even as she allows for German industry to embrace Russian energy supplies (not that they have much of a choice, given how much cheaper Russian-Produced energy is compared to American-produced energy).
You might be wondering why the Europeans are balking at the prospect (at least, the Western Europeans) of having to restrict their access to purportedly hostile Russian energy sources whilst accepting more expensive, friendlier American energy?
The simple fact is that, no matter what the United States does, the fact that its natural gas sources have to be placed onto tankers and shipped across the ocean increases the costs of that energy on the consumer. Whenever natural gas is placed on container ships for oceanic transport, the gas is liquefied. While this process is really cool from a scientific standpoint, the process causes costs to spike.
The United States has taken to rehabilitating old World War II-era pipelines under the imprimatur of NATO, in order to increase the efficacy of energy delivery to countries deeper inside the Eurozone (as American energy will arrive in coastal European ports and without a viable pipeline network would be useless to the Europeans).
All of this increases cost that the Europeans will be made to pay for.
There’s another issue at stake: European stability. The European Union’s shared economy is turgid, to say the least. It has never fully recovered from the shocks of the Great Recession of 2008. This is to say nothing of the staggering, long-term socio-political crises afflicting the countries of the EU that show no sign of abatement.
By insisting that Europe significantly decrease its reliance on cheap Russian natural gas in favor of expensive American energy sources, Washington is exacerbating the political, economic, and social instability already afflicting Europe today.
Analysts argue that, over the long-run, once the infrastructure has been fully developed, pricing will stabilize. Presently, Russia supplies Europe with 41 percent of its energy needs. The United States will not be able to counter that fact any time soon. Just to show you the absurdity of the situation, the very same American and NATO forces that are supposed to defend Europe from a supposed Russian invasion rely on energy from Russia!
The United States should absolutely develop its indigenous energy sources and sell them on the world market. And, if the Europeans want to purchase some of it, they can. But, the implicit assumption on the part of Washington with its foreign policy toward Russia is that the Europeans–not just the Eastern Europeans who are directly threatened by Russian revanchism–will have to purchase their energy sources from the United States or else.
This is absurd. And totally unfair to our European friends. Fact is, however much of a pain in the proverbial backside the Russians may be for American foreign policy–and they are a terrible nuisance–American problems with Russia in no way warrant the ongoing mania that Washington has exhibited toward them.
A new policy path is needed that encourages economic development, mutual cooperation, and general amity between the two largest nuclear weapons states in the world today.