Nordstream 2’s Hard Lesson in Reality for Everyone
Posted on July 26, 2021
A slightly long read, this piece provides a frightening analysis of all the politics and geopolitics involved in the pipeline industry -- things are never as simple as the headlines suggest.
It also makes you wonder what really might have gone on behind the scenes with the demise of Northern Gateway and Energy East -- and how much pressure might be building for new pipeline projects in Canada.
The bottom line is demand for oil and gas is not going away. And the powers that be are probably kidding themselves that they can survive without abundant affordable energy.
Nordstream 2’s Hard Lesson in Reality for Everyone
For more than six years everyone who is anyone in a politically sensitive position in Europe and the U.S. has wrung their hands over the Nordstream 2 pipeline. From the moment it was announced the howls of pain could be heard all around the world.
Those screams were the screams of people who had grown fat and rich on the status quo realizing their gravy train was over.
Now the project is all but complete and the saga coming to an end we have a weak deal between all the major parties to keep some of that gravy train running. German Chancellor Angela Merkel and Joe Biden finally buried the hatchet over Nordstream 2.
But the reality was that Nordstream 2 was always going to get completed. I’ve never wavered in my assessment of this.
The reasons were myriad.
The Germans need the gas.
The Germans wanted another political cudgel to use over the recalcitrant Poland and the Baltics.
The Germans need the gas.
Former German Chancellor Gerhard Schroeder is a board member of the Nordstream 2 consortium who put the deal together.
Oh, and the Germans need the gas.
It wasn’t a tough set of equations to solve here. The major players are Russia, Ukraine, Germany, the U.S. Whose needs are fulfilled by Nordstream 2? Germany’s. Who controls the EU? The Davos Crowd through Germany. Who needs relatively cheap energy to keep popular revolts from overthrowing major governments? Davos.
In the end economics and the reality of positive incentives always force a resolution on people determined to hold back the tide through regulation and arm-twisting creating perverse incentives. Believe me, there’s a broader lesson for all concerned here than just Nordstream 2.
As to the pipeline itself, the main sticking point for many people in the U.S. was a combination of leftover Cold War policy of denying Russia any new pipelines into Europe and personal enrichment because of Ukrainian gas transit.
But the events of the past decade and the existence of Nordstream 1 saw the dynamic in that relationship shift dramatically.
The U.S clearly does not control the reins over European energy policy and hasn’t for a long time.
The Davos Crowd controls U.S. policy over Europe and damn near everything else at this point, especially with Biden sporifying in the White House and Obama pulling all the strings behind the scene.
That anti-pipeline policy was powerful when the U.S. called the shots in its relationship with Europe. Trump tried to reassert U.S. dominance over Europe and beginning to be successful. But Merkel and others simply waited for his term to end, hoping their incessant meddling in his presidency would weaken him.
Because of the times and Trump’s excellent media instincts and unwillingness to be publicly shamed, he only grew stronger. So they had to depose in the most nakedly brutal way imaginable. However, his opposition to Nordstream 2 forced a lot of people to expose themselves over their corruption in Ukraine. Davos called in nearly every marker they had to bury Hunter Biden’s corruption.
At the same time Hunter was nothing more than a distraction to keep people from looking deeper at Mitt Romney, Speaker Nancy Pelosi and Poppy Eyed Adam Schiff, all of whom have interests in Ukraine continuing to transit gas through the old leaky Soviet pipelines.
The reason Nordstream 2 got finished is because Davos finally acceded to reality that it lost in Ukraine.
In the past, when Davos had its sights set on Ukraine to take it away from Russia through a terrible offer of EU membership in 2013, new pipelines into Europe were actively blocked, e.g. Southstream. U.S. Cold War policy and their goals converged.
In the case of SouthStream, the U.S. was made out to be the bad guy putting the final pressure on Bulgaria to stop the project. The truth was the EU kept changing the rules on Gazprom in order to lock them into a long-term relationship which the EU would consistently hold the regulatory whip hand over and use to dictate prices once they had their monopsony in place.
At least that was the plan.
When that plan failed and Putin cancelled Southstream, disallowed Ukraine’s admittance into the EU — which former President Viktor Yanukovich was never serious about — and blocked the full takeover of the country by backing the independence of both the Donbass and Crimea, Nordstream 2 was put on offer.
This was a desperation move. Plain and simple.
Now Gazprom had all the leverage in new Ukraine gas transit talks. Putin froze the conflict in Ukraine. The current gas transit deal is all in Gazprom’s favor. It will be again in 2024 when it ends then.
This reality forced Davos to back Germany over the pipeline otherwise Germany would no longer be able to run its economy and leverage that to lord over the rest of Europe. Davos’ control over Europe rests on Germany’s economic and political strength within in the bloc. Period. Without that the EU splinters rapidly.
This is why Tump was such a real problem. Once he was removed and order restored from their perspective they made one last attempt to test Russia’s resolve in Ukraine. They got a firm, if not stern, Russian “Nyet,’ and then sent Biden over to Geneva to sue for peace after he made it kinda look like he wasn’t rolling over.
And that peace was a face-saving way out of the mess in Ukraine; the face-saving ‘deal’ that allows the U.S. to look like it forced Germany to recompense Ukraine for potential future revenue losses which was agreed to by a lame duck Merkel and Biden this week.
The deal is a joke. The boys at The Duran covered it beautifully last night. It’s nothing more than a slush fund to ensure a couple of billion dollars continues moving through the right people’s hands while it has the political veneer of ‘green’ energy investment in Ukraine to appease the locals.
It’s a typically cynical deal by Merkel as she throws Ukraine further under the bus, tries to threaten Russia with something Germany will never do — not buy gas from them — and ensure that the American politicians with the most to lose are insulated from further scrutiny.
The reality is, as Gazprom deputy chairman Alexander Medvedev said back in 2018, all the wrangling over Nordstream 2 is silly. Germany and Europe are going to need Nordstream 3. There’s plenty of gas demand in Europe to go around.
And in case anyone hasn’t been watching, natural gas prices are signaling that we’re in for a lot more than just a tranistory rise in energy prices.
Natural gas is looking to close July at more than $4.00 / mcf for the first time since the cold weather spike during the nasty 2018 winter which saw even the obnoxiously belligerent British buy tankers of Russian gas to keep people from freezing.
Natural gas prices haven’t been sustainably above $4.00 / mcf since 2014. And this price spike is happening during the summer, not the winter when gas demand is highest. This is yet another reason why Germany simply could not afford to lose Nordstream 2.
They’ll not only need Nordstream 2 and likely 3 but also those LNG terminals that Merkel promised Trump as a sop to get him to back off on the pipeline. Trump, for all of his faults, understood Merkel well enough to know she wasn’t offering anything she wasn’t already prepared to do alreaady.
Trump’s pressure on the project was existential for Europe given Merkel’s (and Davos’) disastrous decision to shutter all nuclear power in Germany. The EU going forward is a massive energy importer. The offshore gas fields of the Netherlands and Norway are drying up faster than anyone wanted to admit until recently.
And at the heart of Davos’ Great Reset is the imposition of their new more enlightened communism than that of the brutal Slavs and the sub-human Chinese. It is this Euro-centric arrogance and, frankly, racism that drives them.
The fact is most of Europe is going to have to face the reality that their great social welfare systems which so many younger Americans have been propagandized into thinking are sustainable are actually on life support. They’ve always been on a ventilator.
And that ventilator has been cheap, locally produced oil and gas, which is ending.
Why do you think Davos is so hostile to oil and gas? It has absolutely zero to do with Climate Change and saving humanity from itself. They hate what they no longer have. The hard lesson for a lot of Millennials and frankly stupid Greens who can’t think beyond first order effects is the same one the Soviet Union had to face.
Communism doesn’t work even if you subsidize the bejeesus out of it through energy exports and hand out ‘free stuff’ from the profits to everyone to mask the costs. In short, incentives matter. Perverse incentives just hollow out the productive class, in Marxist terms, the bourgeoisie, and ensure the collapse of the economy through the inability to rationally calculate costs. Some guy named Mises worked this out in 1922, here we are a century later having to explain the basics of human action over and over again.
And Davos can’t run their new technocratic dystopia if they don’t have control over the input price of energy in their home turf, Europe. The Soviet Union lasted as long as it did because of Russia’s vast oil and gas reserves. Europe is trying to implement a more perfect Soviet Union while simultaneously sending real energy costs skyrocketing.
This is truly a case of people thinking they are so clever they sell themselves the dumbest ideas imaginable.
Nordstream 2 will likely see Gazprom undercut the global price for gas, helping to offset the EU’s disastrous regulatory scheme which creates a structural disadvantage for German companies. Moreover, since they are trapped at negative nominal yields and are desperate to maintain the façade of a strong euro to keep sovereign debt yields low, there is no hope or help from what should be the natural ebb and flow of exchange rates.
So, rock meet hard place. Something had to give and in this case the U.S. gave up on Nordstream 2 and Davos is going to find out really soon that no matter how many palms you grease, how much Kompromat you generate on important people, perverse incentives are the root cause of all human organizational failure.
That’s likely the hardest lesson of all here. Davos blew up the world economy by vandalizing the middle classes of the first (and second) world, in the process mangling the capital investment cycle into energy which is now coming back to haunt them as prices rise alongside public unrest.
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