Some Thoughts on the Recent American Sabotage of Both NordStream Pipelines

As most of you have likely heard, both NordStream (NS) pipelines have been sabotaged by underwater explosions in the past few days. While NS1 was inactive at that that time because of a cat-and-mouse game between Russia and Germany surrounding issues related to repair and sanctions, NS2 was never turned on due to American pressure on Germany. But as you will soon see, them being inactive at the time of sabotage has no real effect on the very significant down-stream consequences of this dumb move. But before we talk about the many bad consequences of this dumb move- let us talk about who likely did it and who did not. Of all the parties involved in this pipeline drama, Russia has the least motive to blow up NS1 and NS2. Not only did they partially pay for building them, but they were supposed to eventually replace the older above ground pipelines between Russia and Germany which transited through unfriendly countries such as Poland and Ukraine.

It is also no secret that successive American governments have wanted to stop Russia selling natural gas to western Europe- especially Germany, so that they could sell their own highly-expensive liquified LNG to them. This is also why Germany, for the longest time, kept buying natural gas from Russia. See.. a large part of their ability to price manufactured products competitively in global market comes down to the cost advantage of using very inexpensive and plentiful Russian natural gas. As some of you might also know, the rise of the environmental movement in Germany has made it abandon other cheap sources of power such as nuclear and coal. It does not help that their over-500 billion Euro investment in “green” energy (mostly wind and solar) is not able to provide power when necessary- especially during the winter and peak hours. Long story short, Germany and many other western European countries are heavily dependent on inexpensive natural gas from Russia.

Some of you might say.. but why not replace natural gas from Russia with liquified LNG from other parts of the world, especially USA. For starters, LNG is much harder to handle and transport than piped natural gas. Even though both natural gas and LNG are mostly methane, cryogenic liquefaction of LNG requires a significant amount of energy at point of liquefaction and special facilities at offloading point for converting it back to a gas. Then there is issue of transport, which is accomplished with massive and vulnerable LNG tankers, which are are relatively few in number and difficult to build. Nowadays, almost all large LNG carriers are built in South Korea or China and their ability to build new ones is saturated, as they are still working through orders made almost 5 years ago. Each ship takes a year or two to build and these are highly specialized vessels unlike crude oil tankers.

Due to these reasons, the biggest LNG importers tend to be countries without access to piped natural gas such as parts of coastal China, Japan, South Korea, Taiwan etc. This is important to understand that LNG, unlike crude oil, is a far less flexible market and most exporters and importers work on long-term contracts. It might also surprise you to know that Qatar, Australia and Malaysia (not USA) are the largest exporters of LNG. Then there is the whole issue of finding enough excess and conveniently located natural gas to liquify in LNG. As things stand right now, the “green” energy and ESG policies being pushed in USA and rest of West make it very risky to invest in drilling for more natural gas, let alone build new liquefaction facilities, pipeline infrastructure and pay for construction of new LNG carriers. And even if every bureaucratic hurdle was overcome or ignored, it would take about 150 new LNG carriers of the largest capacity to replace the energy supplied by Russian natural gas to Europe before 2022.

Unless people in western Europe are willing to simultaneously spend a lot of money, work on multiple massive infrastructure projects, shutdown a lot of their industries and freeze their collective asses for the next decade or so- it is not going to work. Did I mention the one country with largest potential for new supplies of LNG is Iran. You might also be aware that western Europe has a rapidly aging and adverse demographic profile. It is as if west European leaders spent a lot of time and effort to find the best way of shooting themselves in the proverbial foot. But.. but.. some of you might say. Won’t this also hurt Russia and “Putin”. The simple answer is not much, if at all. Since 2014, Russia has given up on western Europe as an area of growth for natural gas exports. That is why they have been building large gas pipelines to China, one of which has been already commissioned with a much larger one in advanced stages of planning. They can also make cold and gas-starved European countries buy their stuff through other existing overland pipelines at a much higher cost.

Now that I provided you with a background primer for the situation, let me give you my predictions about the less obvious but important longer term and downstream effects of the dumb decision by USA to sabotage the NS1 and NS2 pipelines.

1] This dumb decision is going to ruin cohesiveness among members of both EU and NATO. As it turns out, not all members of the EU receive Russian natural gas from the northern pipelines, more than a few such as Hungary, Turkey etc also receive it from more southerly pipelines. It does not take a genius to figure out that a situation where Germans lose their jobs, have to shut down factories and freeze in their homes- while their neighbors in countries such as Hungary do just fine will cause a lot of heartburn and political unrest in affected countries. Some land-locked countries such as Austria, Switzerland, Slovakia might be in a worse worse. France, for all its nuclear reactors, uses natural gas (from Russia or elsewhere) during peak hours and for some energy intensive industries. Even coastal countries with decent LNG facilitates such as Netherlands are in a world of hurt as the contents of every LNG carrier becomes incredibly expensive.

2] The inability of USA to provide enough LNG to bridge the gap between supply and demand for the next decade, is going to cause a lot of anger towards that country in Europe. Deindustrialization and transfer of factories from Europe to countries with cheaper and reliable energy such as China is going to start soon and will be largely complete by the time enough extra LNG, carriers and the handling infrastructure is available to fully replace Russian natural gas. That translates into tens of millions of lost jobs throughout that region, but especially in Germany. It is not an exaggeration to say that the political consequences of this dumbfuckery in Germany over next few years will be profound and long-lasting. The same will occur in Italy and to a lesser extent, France. Imagine an EU where the three largest economies are deindustrialized and in steep economic decline. As I have said before, it seems that the entire current leadership of western European (political and bureaucratic) are a bunch of clowns.

3] This unprecedented act of sabotage by USA creates a precedent for other countries, such as Russia, to perform similar acts. Do you think that future LNG tankers bound for Europe won’t have “accidents” along the way? What about port facilities handling American LNG? How certain are you that similar “accidents” won’t befall undersea gas pipelines between Norway and other European countries such as Poland? Russia clearly has the ability and motivation to make them happen-especially now after giving up any hope of rapprochement with the West. Do you think a lot of NATO weapons captured by Russia during the ongoing war in Ukraine won’t soon start appearing with groups fighting USA in Africa and the Middle-East? My point is that this idea of sabotaging the NordStream pipeline was especially dumb and thoughtless, even by the standards of what passes for strategy in USA. Not only does it has little to no effect on Russia, but it is will screw over many of their supposed allies in western Europe.

I might write another part about the potential effects of this dumb move on countries outside western Europe, depending on reader feedback and comments.

What do you think? Comments?