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Simon Watkins

Simon Watkins

Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for…

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Putin’s Energy Gamble Backfires As Germany Secures Long-Term Gas Supplies

  • German reliance on Russian gas has made the Kremlin believe it could get away with invading Ukraine.
  • LNG supply from both the U.S. and Qatar to Germany took a flight since the beginning of the invasion.
  • The U.S. has been instrumental in convincing third-party LNG suppliers to redirect supply to Europe.

Germany’s reliance on cheap and plentiful supplies of Russian gas was one of three key factors that led President Vladimir Putin to believe that Russia could invade Ukraine and get away with it. A second factor was the Russian president’s belief that the NATO security alliance would use the same ‘Macbeth Response’ (‘full of sound and fury, signifying nothing’) to Russia’s invasion of Ukraine as it did to Russia’s invasion of Georgia in 2008 and to Russia’s invasion of Crimea in 2014. A third factor was that Putin thought that Russia would be in control of Ukraine within three days of the invasion of 24 February 2022 due to its cutting-edge military capabilities and the broadly welcoming embrace of Ukraine’s inhabitants. As it became clear that he had grossly miscalculated factors two and three, Putin still held on to the belief that Germany’s resolve, and in turn Europe’s and NATO’s, to not allow Russia to get away with its Ukraine adventure might crumble – he still partly does, according to sources in the European Union’s (EU) energy security apparatus exclusively spoken to by OilPrice.com. However, given a slew of new gas supply deals into Germany secured for the long-term, Putin’s hope looks increasingly ill-founded.

There was every reason for Putin to be optimistic that Germany would do little to deter Russia from occupying Ukraine even as late as the day before the invasion. In broad terms, Germany’s economic might, which made it the de facto leader of the European Union of 27 member states, had been established on two foundation stones. The first was the replacement on 1 January 1999 of the mighty deutschmark with the feeble euro, which immediately made Germany’s exports much more competitive and led to the export-fuelled economic growth explosion of the following years. The second was the import of as much cheap gas from Russia as Germany needed to power the manufacturing boom that fuelled this export explosion. By the beginning of 2022, Germany was reliant on Russian gas for around 30-40 percent of its own commercial and domestic gas needs, depending on the time of year, and for about 30 percent of its total oil imports as well. This dependence had been planned by Germany to increase, with the completion in September 2021 of the Nord Stream 2 gas pipeline running from Russia to Germany.

Related: U.S. Oil Drilling Activity Retreats For Second Week In A Row

Additionally encouraging for Putin was that Germany, along with Putin’s other perceived weak link in Europe – France - had also been instrumental in formulating the ‘Minsk 2’ agreement in February 2015. This agreement, among other contiguous policies aimed at appeasing Putin, enshrined the idea of autonomy for the Russian separatist-held regions of Donetsk and Luhansk within the Ukraine constitution. Germany had also been the most vociferous opponent to the U.S. in its reimposition of sanctions on Iran after Washington’s unilateral withdrawal from the Joint Comprehensive Plan of Action (colloquially, ‘the nuclear deal’) in May 2018. Germany’s then-Foreign Minister, Sigmar Gabriel, had warned: ‘We also have to tell the Americans that their behaviour on the Iran issue will drive us Europeans into a common position with Russia and China against the USA.’ Shortly after that, Germany was a key mover in the EU’s introduction of a special purpose vehicle – the ‘Instrument in Support of Trade Exchanges’ – that would act as a clearing house for payments made between Iran and EU companies.

If Russia had been able to effect such a victory within a week in Ukraine, or had even managed just to secure the capital, Kiev, within that timeframe, then it is highly likely that events would have run the same course as they had in Russia’s effective invasion of Crimea in 2014. However, within the first week of the invasion, it had become clear that not only was there no support by Ukrainians for the Russian presence in their country but also that the Russian military of 2022 was not of the calibre that had been expected. It appeared to many that the endemic corruption that had grown into the fabric of the new Russia since the dissolution of the USSR in 1991 had also made rotten its fighting machine. In essence, the Russian forces that had been designated to take Kiev quickly had broken down along the key road that would have led them into the capital, stranded by poor quality machinery, dismal logistical planning, and a paralysed command structure. It was obvious to Europe that if Russia had invaded one of the NATO countries – with their air capabilities - then this entire invasion convoy, stretching for over 40 miles, would have been destroyed within two or three hours. It was also obvious to the West that if Ukraine could hold the Russians off with the limited resources it had, then this might be an excellent opportunity to engage Putin in a proxy conflict, albeit delicately done, given Russia’s usable nuclear threat. 

The U.S. knew at that point that it was essential to organise new gas supplies into Europe as a whole and into Germany in particular as soon as possible, otherwise this moment of realisation in Europe of Russia’s frailty would be lost a catalysing moment of geopolitical change across the continent. Immediately, moves were made to move more U.S. liquefied natural gas (LNG) to Europe but, in tandem with this, the U.S. brought pressure to bear on other leading global suppliers of LNG (which can be supplied much quicker and easier than pipelined gas) to make supplies available to Germany. A very early example of this was Qatar, which in May 2022 signed a declaration of intent on energy cooperation with Germany aimed at becoming its key supplier of LNG. These plans would run in parallel with, but were likely to be finished significantly sooner than, the plans for Qatar to also make available to Germany sizeable supplies of LNG from the Golden Pass terminal on the Gulf Coast of Texas. The U.S.’s ExxonMobil holds a 30 percent stake in the Golden Pass project, with QatarEnergy holding the rest. The U.S. was also behind the two sales and purchase agreements signed in December 2022 between QatarEnergy and the U.S.’s ConocoPhillips to export LNG to Germany for at least 15 years from 2026. 

Since those early deals, new deals with new suppliers for Germany have begun to appear, again in which the U.S.’s hand is present, if one looks closely enough. News emerged towards the end of 2022 that Germany and Oman were in advanced talks to sign a long-term deal for LNG lasting at least 10 years, with the initial amounts touted as being in the 0.5-1 million tonnes per annum level. Last week saw the Abu Dhabi National Oil Co. (ADNOC) deliver 137,000 cubic metres of LNG – its first to Germany – for the Elbehafen floating storage regasification unit (FSRU) LNG terminal in Brunsbüttel. This is likely to be one of many further deliveries, according to ADNOC Gas acting chief executive officer, Ahmed Alebri, who said: “ADNOC Gas stands ready to provide further shipments of this key transition fuel to our partner, RWE and German industry.” The U.S. made it very clear after discovering in December 2021 that China had been building a secret military facility in the UAE’s Khalifa Port area that it looked forward to a new phase in its relationship with the UAE, a senior legal source who works closely with the U.S. Presidential Administration exclusively told OilPrice.com at the time. Brunsbüttel is the third FSRU to begin operations in Germany after the startup of the Wilhelmshaven facility in December and the Lubmin unit in early January. Germany’s economy ministry expects Germany to have 37 billion cubic mtpa of LNG import capacity available by 2024. 

By Simon Watkins for Oilprice.com

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Leave a comment
  • George Doolittle on February 27 2023 said:
    Both Russia invasion of Georgia and Russia ahem *"mere Donbas War"* ahem had terrible consequences for Russia that were both prompt and severe.

    How the current situation cannot be seen as beyond belief worse *BEGGARS* belief... like *BEGGAR* Trump now no less...or more.
  • Kris Poole on February 28 2023 said:
    "Putin’s Energy Gamble Backfires As Germany Secures Long-Term Gas Supplies"

    Mr. Watkins, before you declare the winning side in your argument please let us know, what is the price did Germany pay to secure these gas supplies?
    Is it 3 or 4 times the price of Russian gas? Is that, what you call the win for Germany and their industry? Really? You look like a serious guy, but this time you lost me with your biased article.
    Again, what is the price for this gas?
  • Hugh Williams on February 28 2023 said:
    An amazing article by Simon Watkins. It appears that he does not know that the US did a regime change in the Ukraine in 2014 which drove out the elected leader and the US agent Victoria Nuland chose the new leader who supported the Drive the Russian Dogs Out program which was killing Russian speaking Ukrainians. This including burning some alive in Odessa. The new government also invited NATO. The whole plan was to get Russia into a war.m But a peace deal was then signed by the Ukrainians and they never kept it, but since then the French and German former leaders admitted that the deal was merely to gain time to reenforce the Ukrainian military. Russia invaded to prevent a massive attack on the Russian speaking areas by the Ukrainian radical forces. This article should be deleted from your publication.
  • Mamdouh Salameh on February 28 2023 said:
    Anyone interested in global geopolitics should note the following realities:

    1- Although the Ukraine conflict hasn’t initially gone Russia’s way, Russia will eventually prevail. The alternative is a nuclear war.

    2- Russia has already won the energy war against the West decisively. The energy weapon will continue to be Russia’s most effective weapon. Nothing could change this reality now or in the future.

    3- Russia’s pivot towards the Asia-Pacific region and the un-dollarization of its economy have started in 2014 immediately after US sanctions were imposed on it after its annexation of the Crimea. The Ukraine conflict has merely accelerated the shift of Russia’s energy flow from West to east.

    4- The United States has sparked off the Ukraine conflict to achieve a few objectives: (1) weaken Russia; (2) weaken Russia’s strategic alliance with China; (3) slow down the transition of the World Order from a unipolar system led by the United States to a multipolar one being ushered in by Russia and China.

    5- Germany and other European economies were built on cheap and plentiful Russian gas. And while this process has been temporarily disrupted, I believe it would be resumed within the next two years if not via repaired Nord Stream 1 and Nord Stream 2 it could be via the Turk Stream with Turkey becoming the energy hub of the EU.

    6- The rationale for the return of Russian gas flow to Europe is that the EU can’t afford the exploitation of the United States which is charging the EU the most exorbitant prices in the market for its LNG supplies.

    7- The EU is paying an incredibly heavy price for having been conned by the United States to get involved in the Ukraine coflict. The EU has already spent $895 bn (792 euros) on shielding its citizens from the energy crisis. It will also need to spend another hefty sum to repair the damage the energy crisis has inflicted on its economy. And when one also adds the billions of dollars of weapons and financial aid the EU has so far given the Ukraine, the total could range between $1.7-$2.0 trillion, all in a conflict where the EU has no vital strategic interests and where it is a pawn in a conflict forced upon it by the United States. To all this could be added the adverse impact of the US Inflation Reduction Act (IRA) on European jobs in industries like car manufacturing and energy.

    8- The United States has had every reason to sever the EU’s energy dependence on Russia. Circumstantial evidence points the finger on it as being behind the sabotage of both Nord Stream 1 and Nord Stream 2. The culprit must have a motive, vested interest and strategic objective. These three fit the United States like a hand in glove.The motive is that the United States has had a history of opposing Soviet and later Russian oil and gas pipelines to supply Europe with Russian gas and oil supplies since the 1960s.The vested interest is that it stands to benefit handsomely from selling its LNG to the EU at the expense of Russian piped gas. As for the strategic objective, it is well known that the United States has always warned the EU against its energy dependence on Russia and has never hidden its intention of severing the EU’s dependence on Russian oil and gas supplies once and for all.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert
  • Ganesh Krishnan on February 28 2023 said:
    The "we have won" mentality is getting out of hand. Everyone has lost due to this war. Almost everyone except the MIC complex. Germany doesnt have access to either realtime pipeline gas or oil. Now its all via ship which will always have bullwhip effect.

    besides the prices which are 2-10x more expensive, shipping makes it impossible to increase/reduce gas on real time basis. Spot pricing has to made before the ship sails. There is immense competition from asian/african countries.

    For now, germany has outbid all of them. But for how long?

    Germany had ODed on cheap russian gas and had become an economic super power. We knew several times before that blindly following the US into wars in detrimental. Still we do it. Again. And again.

    Unfortunately, this is the last time. There wont be any EU left after this war is over; regardless of who wins.
  • Ganesh Krishnan on February 28 2023 said:
    The "we have won" mentality is getting out of hand. Everyone has lost due to this war. Almost everyone except the MIC complex. Germany doesnt have access to either realtime pipeline gas or oil. Now its all via ship which will always have bullwhip effect.

    besides the prices which are 2-10x more expensive, shipping makes it impossible to increase/reduce gas on real time basis. Spot pricing has to made before the ship sails. There is immense competition from asian/african countries.

    For now, germany has outbid all of them. But for how long?

    Germany had ODed on cheap russian gas and had become an economic super power. We knew several times before that blindly following the US into wars in detrimental. Still we do it. Again. And again.

    Unfortunately, this is the last time. There wont be any EU left after this war is over; regardless of who wins.

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