Significant changes in the natural gas supply chain are expected. In particular, the Nord Stream 1 pipeline, which connects Russia to Germany, was initiated by former German Chancellor Schröder. This pipeline has significantly influenced the European energy market, and its role may be reassessed depending on future situations. Such changes should be noted as they can have critical impacts on natural gas supply and demand.
After initiating the Nord Stream 1 project, Chancellor Schröder took a position on the board of Russia's state-owned company Gazprom after stepping down from office. He currently also serves as the chairman of another state oil company, Rosneft. Rosneft is the company constructing the Nord Stream 2 pipeline, which supplies natural gas from Russia to Germany, and because of this project's association, former Chancellor Schröder faces criticism.
Meanwhile, Chancellor Merkel of Germany declared a policy for the phase-out of nuclear energy after the Fukushima nuclear accident, leading to the commencement of the construction of Nord Stream 2 with Russia. She decided to close all 17 nuclear power plants in Germany and made efforts to supplement the resulting energy shortfall with Russian natural gas. This energy policy not only transformed Germany's energy structure but also strengthened economic ties with Russia.
This situation illustrates how former Chancellor Schröder's past actions and Chancellor Merkel's policies are interconnected. It is clear that energy cooperation with Russia has significantly influenced Germany's energy policy.
The Nord Stream pipeline is a submarine natural gas pipeline between Germany and Russia, bypassing neighboring countries such as Ukraine and passing through the Baltic Sea. Through this pipeline, Germany receives 75% of its total natural gas demand while aiming to sell any surplus gas to other countries for additional profit.
However, during the execution of the first phase of Nord Stream, U.S. President Trump took a strong stance against this project. In December 2019, he criticized Germany for riding on America's security while simultaneously depending on Russian energy, signing the 2020 National Defense Authorization Act that imposed sanctions on companies associated with Nord Stream 2. This measure was justified by the potential that Germany could become dependent on Russian energy, but it also included intentions to maintain the market share of U.S. natural gas.
The U.S. anticipated that Europe would become a major customer once LNG export infrastructure was completed, and as Germany expressed intentions to import more natural gas from Russia and sell the surplus in the European market, opposition to such moves solidified. Then, the war in Ukraine broke out, significantly reducing natural gas supplies from Russia. This led to a complex situation as Germany's energy strategy intertwined with U.S. foreign policy.
These factors extend beyond mere energy supply issues, deeply impacting diplomatic relations and security among nations. Such circumstances are leading to significant changes in strategic decisions worldwide and could become crucial variables in future international affairs.
Europe is recently shifting its direction to diversify the natural gas supply chain to other suppliers such as the United States and Qatar. While there is a possibility of receiving natural gas from Russia again after the war ends, it is expected that Europe will not rely entirely on Russia as it did in the past. This awareness comes as the EU recognizes the risks associated with increasing dependency on Russian natural gas amid a strengthening of military power.
Although Russian natural gas is price-attractive, Europe is making efforts to import additional natural gas from the United States and Qatar. This is also a strategy to secure price and stability through competition among different suppliers. Germany hastily signed a 10-year supply contract with Qatar, but there are limitations on Qatar's ability to provide sufficient volumes. Since 80% of Qatar's total natural gas volumes are already bound by long-term contracts, the amount they can supply to the EU is limited.
Given this situation, Europe faces an increasing need to enhance stability through gas supply diversification and secure long-term energy security. Diversifying the supply chain will play an essential role in improving responsiveness to external threats and maintaining price competitiveness.
Germany has historically imported 71 billion cubic meters of natural gas from Russia. Currently, the additional amount of natural gas that Qatar can supply to the European Union is limited to 20 billion cubic meters, even after completion of the projects. For this reason, additional gas supplies from the United States and Israel are urgently needed.
Meanwhile, Nord Stream 2 is receiving renewed attention. The Nord Stream 1 and 2 pipelines, which start from Russia and pass through the deep waters of the Baltic Sea, have not been operational since they were blown up in September 2022. This has significantly affected Europe’s energy supply chain, and there is an urgent need to secure new supply sources.
Of the total four pipelines, three have been completely destroyed, while the remaining one is reported to be usable with some minor repairs. The Nord Stream 1 and 2 pipelines are critical gas supply routes for Russia, with Russia transporting 60-70% of its natural gas exports to the European Union via Ukraine. One of Ukraine's income sources has been the fees for passage through these pipelines, but with the completion of the Nord Stream, an alternative route is created.
Ukrainian President Zelensky has decided not to renew the natural gas contract with Russia, which expires on December 31, 2024. This change is expected to have a significant impact on the Ukrainian economy. As the alternative potential of the gas supply chain increases, Ukraine may face new economic challenges, which will act as critical factors affecting energy security and diplomatic relations.
If gas supplies through Ukraine are interrupted, Russia's export routes to the European Union will face greater difficulties. Consequently, the significance of Nord Stream, which does not pass through Ukraine, is increasing. Nord Stream 2 is owned by a subsidiary of Russia's state-owned enterprise Gazprom, which is currently undergoing bankruptcy proceedings in Switzerland.
Of the four pipelines, only the Nord Stream 2 pipeline remains intact. This pipeline is expected to receive a definitive bankruptcy ruling in May of this year. If the bankruptcy is confirmed, Nord Stream 2 is likely to be put up for auction. U.S. businessman Steven Lynch has plans to acquire Nord Stream 2 when it goes to auction. He is known to be a wealthy individual who made significant contributions to Trump's election campaign.
The situation regarding Russia’s energy export structure is becoming increasingly complex day by day, drawing attention to the strategic responses from various countries.
It has been revealed that Lynch requested approval from the U.S. Treasury Department for a purchase related to Nord Stream 2 last December. Nord Stream 2 is an asset connected to Russia, and the U.S. government prohibits the purchase of such assets. Therefore, Lynch has requested the Treasury Department to lift these sanctions.
He previously obtained approval from the U.S. Treasury to acquire the Swiss subsidiary of Russia's Sberbank in 2022, which shows his existing investment record in various Russian assets. In 2007, he purchased Yukos, a large Russian oil and gas company, through an auction and then sold it to Deutsche Bank for a significant profit. Such experiences highlight his investment strategy and capabilities.
In conclusion, Lynch has been actively engaged in purchasing activities related to Russian assets, and this request appears to be associated with his past investment experiences.
Lynch estimates the value of Nord Stream 2 at about $11 billion and is creating an atmosphere to acquire it cheaply through an auction. Even if he successfully acquires Nord Stream 2 in this auction, it would merely be the ownership of the pipeline. If Russia does not supply gas or Germany does not accept it, the pipeline would hold little significance.
From Russia's perspective, Nord Stream 2 represents a route through which it can sell natural gas to Europe without paying transit fees to Ukraine, so its value is undeniable. For this reason, it seems that Russia feels no particular need to oppose this project.
Germany maintains a stance against the reopening of Nord Stream but there is a substantial possibility that their position could change if the war ends and energy prices become an issue. Currently, the ratio of natural gas supply within the EU is reported to be about 3:4:2:1. In such a complex energy supply network, the positions and actions of various countries are continuously subject to change.
A significant amount of the natural gas required by Europe is supplied by Russia, with the United States, Qatar, and Israel being the next major suppliers. Notably, these three countries, aside from Russia, are increasingly dependent on the European market despite not being connected by natural gas pipelines. Future predictions suggest that approximately 70% of the natural gas supplied to the EU will be in the form of liquefied natural gas (LNG).
The Trump administration is hastily advancing natural gas exports, and this trend is expanding to various countries including South Korea, Taiwan, and Japan. Furthermore, efforts are being made to increase natural gas usage in Southeast Asia, Latin America, and Africa.
Simultaneously, new projects aimed at utilizing natural gas are actively being pursued in countries that have not previously used it. Currently, over 40 projects are underway, and these projects typically require about three years to complete. Therefore, it is expected that by around 2025, these projects will begin to conclude one by one, and natural gas supplies will commence.
Recently, the number of countries using natural gas has rapidly increased. In particular, both the United States and Qatar are showing movements to increase production and attract new customers. Qatar has a structure that is practically akin to an island nation, and the United States is also situated in regions where it is challenging to supply via pipelines. For this reason, liquefied natural gas (LNG) is likely to become a major export item for both countries.
