Zelensky teaches Merkel how to love American LNG

Kiev again scares Europe with Nord Stream-2.

Nord Stream 2 is “unacceptable” and “carries threats to all of Europe.” This was announced on August 31 by Ukrainian President Vladimir Zelensky following a meeting in Warsaw with his Polish counterpart Andrzej Duda.

As Zelensky explained, both countries advocate the diversification of energy supply sources, as well as “for energy cooperation in the Poland-USA-Ukraine triangle.” The Ukrainian leader also emphasized that sanctions against Moscow can only be toughened until the conflict in the Donbass is resolved and the “occupation” of Crimea continues.

Earlier it became known that Poland, Ukraine and the United States signed an intergovernmental agreement that envisages cooperation in the field of natural gas supplies – in the “field of reforms of the Ukrainian gas market, Poland’s natural gas import infrastructure, Ukrainian infrastructure for the storage and export of American liquefied natural gas, and gas connectors in the region.” The document was signed by the representative of the Polish government on strategic energy infrastructure Petr Naimsky, US Secretary of Energy Rick Perry and Secretary of the National Security and Defense Council (NSDC) of Ukraine Alexander Danilyuk.


The day before, the Polish Oil and Gas Company (PGNiG) announced that Warsaw intends to sell American gas to Kiev on a long-term basis.


“PGNiG bought LNG in the United States, and then, after regasification, sold natural gas to Energy Resources of Ukraine (“ Ukrainian Energy Company ”),” the company said. At the same time, its head Peter Vozhnyak claims that American LNG will cost Poland 20-30% cheaper than Russian gas.


It is also known that in November 2019, the first tanker from the United States will arrive in Poland with LNG intended for “non-blocking”. After the liquefied gas is regasified, it will be transferred to Ukraine through a point in Germanovice.

According to analysts, in the situation with gas, Polish and Ukrainian interests converged. Poland wants – with the help of the United States and Norway – to become the main gas and oil hub in Europe. For this, Russia needs to be squeezed out of the European gas market under any pretext, including using Ukrainian themes.

Ukraine, however, is actively resisting Nord Stream-2, primarily because of fear of losing revenue from gas transit, since the corresponding contract in Russia expires in early 2020. In addition, Zelensky echoes Washington’s statements about the “insecurity” of the pipeline so that Kiev has a better chance of receiving financial support from the United States.

We note that Nord Stream-2 was built at 75% – more than 1.8 thousand km of pipes were laid. The work is fully completed in the territorial waters of Germany and Finland. In addition to Gazprom, five European companies take part in the construction – Shell, OMV, Uniper, Engie and Wintershall. The first gas deliveries are expected by the end of 2019. The final commissioning of Nord Stream 2 may take place in the second half of 2020, if Denmark insists on laying a gas pipeline along a new route southeast of the island of Bornholm. For Kiev, this means a guaranteed loss of part of the transit.

On the other hand, the US does not intend to give up. As stated by Rick Perry, the topic of sanctions on the “Nord Stream-2” is considered in America at a high level. “We take this option seriously,” the American minister assured.

How much will the transit of Ukraine undermine Nord Stream-2, will the US succeed in squeezing Gazprom out of the European market?

– The United States declares that it is ready to significantly increase LNG imports in the coming years, but in reality there is a lot of uncertainty, – said Sergei Pravosudov, director of the National Energy Institute. – The American oil shale companies themselves are talking about the huge prospects and huge reserves of shale hydrocarbons. But experts in the analysis of these data invariably have many questions.

You need to understand: shale is a solid rock, in the microcracks of which contain oil and gas. It is extremely difficult to estimate the reserves of such hydrocarbons. Another open question is the profitability of production. Yes, the Americans themselves claim that with the development of technology, it’s profitable to develop oil shale at almost $ 30 per barrel. But upon closer inspection, it turns out that there are very few companies with such profitability, and most shale projects are done on credit money.

And often the company receives a production license, sells its shares to external investors, and then it turns out that the company incurs losses. But new investors come and history repeats itself.

In my opinion, the question is how long will investors invest in projects that ultimately turn out to be unprofitable. If investors lose interest in shale, production growth will cease immediately.

– Now the governments of leading countries are adopting energy conservation programs to reduce their dependence on hydrocarbons. In this situation, will the consumption of Russian gas be reduced?

– Now gas consumption in China is growing rapidly. Moreover, since June 1, the Celestial Empire has increased import duties on American LNG – from 10 to 25%. Let me remind you that Chinese duties of 10% against US LNG have been in effect since September 2018. China is the second LNG importer in the world after Japan. In 2018, deliveries to the country of liquefied natural gas grew by 38% year-on-year, and amounted to almost 54 million tons, where the US share was 2.16 million tons (GIIGNL data).

This means that American LNG will go to other markets, and China will buy gas from other sources. For example, in Russia.

There is another problem in India – it is also a big market. Now gas consumption there is small, Indians still widely use coal, but this has already led to an environmental disaster in a number of large cities. Hindus are well aware that a switch to gas is inevitable – so significant volumes of blue fuel will also go to India soon.

As for the European market, a number of points determine the situation in it. The main one is that there is no opportunity to increase own production in Europe. Accordingly, imports will have to increase. Even a quick glance at the map is enough to make sure: gas from Russia, including LNG, is closest to Europe, and this gas is very much. As a result, Russian gas, even liquefied gas, is much more competitive than American gas.

In Europe, of course, there are countries that declare their willingness to overpay by buying American LNG for political reasons. I mean Poland and Lithuania. But in the total volume of European gas consumption, they do not weather.

– And Ukraine – does it?

– Ukraine is now de facto buying Russian gas – however, from European traders. It is clear that no one is driving gas from Russia to Europe, and then back to Ukraine. “Independent” simply withdraws gas from the transit pipe, while Europe presents the case as if it had bought blue fuel from the Russian Federation and redirected it to Ukraine.

American LNG will not fundamentally change this picture. Suffice it to recall that Kiev does not have its own infrastructure for receiving liquefied gas. So Ukrainians will continue to take gas from the transit pipe, while stating that the gas came from Poland and came to America from Poland.

In the next five years, the Kremlin will remain without oil and gas excess profits.

– How will the situation develop further?

– In Europe, they say a lot about the need to completely abandon hydrocarbons and transfer the economy to renewable energy. On the other hand, everyone understands: renewable energy is unstable, and it still needs to be duplicated with gas. It is significant that Denmark and Germany, the leading countries in the field of renewable energy, already have the highest electricity prices. In addition, Europe wants to completely abandon coal in the energy sector, and this will require additional volumes of gas.

This means, I think, one thing: Russian gas will dominate the European market for a long time.

– What will happen to Ukrainian transit?

  • Zelensky somehow needs to defend the negotiating position – this is what he is doing now: he assures us that Ukraine is ready to supply gas from all over the world. But the Ukrainian leader also understands that few people are interested in being “independent” as a market – only Ukrainian transit is interesting. And Europeans need transit to be reliable. So, when it comes to concluding a new contract with Gazprom, Zelensky, I think, will go for the option that will suit Europe – the main creditor of Ukraine.