The Nord Stream 2 gas pipeline is quickly turning into major irritant souring relations between the United States and its European allies. For the first time in the recent history of Euro-Atlantic integration, Germany has made it perfectly clear at the highest level that it could introduce sanctions against Washington and could even persuade its EU and NATO partners to act as a united front against the US. The reason for this is the stubborn desire by the US Congress to slap punitive sanctions on the European participants in the Nord Stream 2 project, including both private companies and government agencies in Germany and other countries.
The US news agency Bloomberg recently reported, citing two German officials that Germany is preparing to strike back if the US introduces additional sanctions against the Nord Stream 2 gas pipeline.
According to the agency, the government of Chancellor Angela Merkel is mulling the possibility of calling for coordinated actions by the European Union if Washington goes through with sanctions against the participants in the Nord Stream 2 project. Referring to a statement by the German Ministry of Economics, Bloomberg also emphasized that new US sanctions would hit German and European companies, banks, and government agencies.
Although seemingly calm on the outside, Angela Merkel has clearly toughened her rhetoric nonetheless. In her July 2 address to parliament, she said that Berlin looks at the Nord Stream 2 project in terms of its economic benefits and considers it necessary to complete it. She added that in spite of the threatened US sanctions, Germany will support the completion of the gas pipeline running under the Baltic Sea. She argued that the new extended sanctions being discussed on Capitol Hill in Washington are extraterritorial, and “are not consistent with my understanding of the law.”
“We still believe that it’s right to get the project done,” Merkel emphasized.
A few hours before the Chancellor’s speech in the Bundestag, Minister of State at the Federal Foreign Office Niels Annen told a meeting of the parliamentary committee on economics and energy that Washington’s new sanctions on Nord Stream 2 are unacceptable: “The fact that the US Congress acts as a regulator in European affairs is absurd. Just imagine, if we adopted a resolution on US energy security in the Bundestag,” Annen stressed. According to him, imposing sanctions is not the way to go because what this particular case is all about is more than just relations between Germany and the US, it is about European sovereignty. Niels Annen also welcomed the committee’s stated desire to explain to the US lawmakers its position on Nord Stream 2.
However, Angela Merkel still views US-German relations in a wider context of European and global security. In an interview published recently in several European media, she admitted the possibility of a new geopolitical reality where the United States would not have a leading role: “We grew up in the certain knowledge that the United States wanted to be a world power. Should the US now wish to withdraw from that role of its own free will, we would have to reflect on that very deeply.”
Objectively speaking, the positions of Germany and its partners (including Austria) regarding the implementation of the Nord Stream 2 project can be strengthened by differences existing on this issue in the United States itself. Congress is currently considering two options for sanctions, with the most recent one being the mildest of the two. Both bills envision additional restrictions on the use of ships, including for preparing the sites the pipeline will run along, and may also prohibit foreign companies from providing insurance risk assessment services to the Nord Stream 2 project. The main disagreement is about US sanctions against foreign organizations that conduct testing and certification of the pipeline. In a nutshell, it comes down to the fact that a gas pipeline cannot be launched without a final certificate of compliance with all required international standards.
According to available information, in view of the upcoming presidential elections and the worsening domestic situation, most US senators are now gravitating towards a milder resolution in order to avoid aggravating contradictions already existing between the United States and Germany, as well as within NATO as a whole, and also in order not to play up to President Donald Trump, who has recently toughened his stance on Berlin. At the same time, in late June, a group of US senators, including Ted Cruise, Jeanne Shaheen, John Barrasso, Ron Johnson and Tom Cotton, proposed including sanctions on the Nord Stream 2 project in the US defense budget for fiscal year 2020-2021. The authors of the initiative believe that it would fast-track the possible introduction of sanctions, because, unlike a regular bill that can be subject to lengthy discussion, the defense budget is invariably approved each fall.
President Trump has recently been pressing for new sanctions against Nord Stream 2, while simultaneously ratcheting up his criticism of Germany. According to his former National Security Adviser John Bolton, whose book of memoirs came out right amid the current aggravation of the political situation in the US, two years ago, Trump openly threatened to withdraw the United States from NATO because Germany and its allies were implementing the Nord Stream 2 project. According to Donald Trump’s logic, since the US pays Europeans for their safety, Europeans, in return, must buy American liquefied natural gas, even at a higher price.
What happens next will depend on the position of Germany and other European countries wishing to maintain their energy-related cooperation with Russia. Stanislav Mitrakhovich, a senior expert at the Russian National Energy Security Fund and the Financial University, believes that new US sanctions can slow down the project, but without resistance from Europe Washington may go even further.
“If the United States feels that Germany is ready to back off and dance to Washington’s tune, it can still go ahead and introduce tough measures, including against German businesses. If so, the construction might be put on ice simply because the pipes are in Germany.”
Meanwhile, in Germany itself the media has so far refrained from overdramatizing the situation around the completion of the Nord Stream 2 project. Thus, the newspaper Die Welt believes that the project operator has a chance to complete the construction of the pipeline without fearing US sanctions simply by changing the ownership of the Akademik Chersky pipe-laying ship, which has been commissioned to finish the job. The Gazprom Fleet Company could re-register the Akademik Chgersky, which is its only pipe-laying vessel, to the Samara Thermal Energy Property Fund (STIF), which is not subject to possible sanctions. According to the newspaper, the only impediment to the pipeline’s construction could be a ban on most types of work in the Baltic Sea in July-August for reasons of conservation of local fish stocks (protection of cod spawning).
The whole situation warrants a further toughening of rhetoric on both sides of the Atlantic. In a statement, carried by the business newspaper Handelsblatt, two Bundestag deputies – Timon Gremmels (SPD faction’s speaker on gas policy) and Markus Töns (SPD faction’s speaker on trade policy) slammed the US sanctions as “an encroachment on the principle of legality and protection of investments in Europe.” They emphasized that “the threat of tougher extraterritorial sanctions has consolidated the ranks of the German Bundestag. Even the parliamentary factions generally critical of the gas pipeline project see the proposed restrictions as a violation of international law and an attempt to undermine the sovereignty of Europe.”
“We are convinced that the time of diplomatic restraint is now over. To protect European interests, the German government and the European Union should introduce countermeasures and consider the use of retaliatory sanctions, for example, against US shale gas. The real threat of serious retaliatory sanctions is the only way we can possibly resolve the conflict. This is the only language Donald Trump understands,” the MPs stressed.
For Russia, this is creating opportunities for closer trade, economic and political cooperation with Germany and other European countries. Considering the scope of German business involvement in the Nord Stream 2 project and the personal position of Chancellor Angela Merkel, the chances are high that the gas pipeline will be completed and Moscow will be able to benefit from the growing contradictions between the US and Europe.
From our partner International Affairs
The hydrogen revolution: A new development model that starts with the sea, the sun and the wind
“Once again in history, energy is becoming the protagonist of a breaking phase in capitalism: a great transformation is taking place, matched by the digital technological revolution”.
The subtitle of the interesting book (“Energia. La grande trasformazione“, Laterza) by Valeria Termini, an economist at the Rome University “Roma Tre”,summarises – in a simple and brilliant way – the phase that will accompany the development of our planet for at least the next three decades,A phase starting from the awareness that technological progress and economic growth can no longer neglect environmental protection.
This awareness is now no longer confined to the ideological debates on the defence of the ecosystem based exclusively on limits, bans and prohibitions, on purely cosmetic measures such as the useless ‘Sundays on which vehicles with emissions that cause pollution are banned’, and on initiatives aimed at curbing development – considered harmful to mankind – under the banner of slogans that are as simple as they are full of damaging economic implications, such as the quest for ‘happy degrowth’.
With “degrowth” there is no happiness nor wellbeing, let alone social justice.
China has understood this and, with a view to remedying the environmental damage caused by three decades of relentless economic growth, it has not decided to take steps backwards in industrial production, by going back to the wooden plough typical of the period before the unfortunate “Great Leap Forward” of 1958, but – in its 14thFive-Year Plan (2020- 2025)-it has outlined a strategic project under the banner of “sustainable growth”, thus committing itself to continuing to build a dynamic development model in harmony with the needs of environmental protection, following the direction already taken with its 13th Five-Year Plan, which has enabled the Asian giant to reduce carbon dioxide emissions by 12% over the last five years. This achievement could make China the first country in the world to reach the targets set in the 2012 Paris Climate Agreement, which envisage achieving ‘zero CO2 emissions’ by the end of 2030.
Also as a result of the economic shock caused by the Covid-19 pandemic, Europe and the United States have decided to follow the path marked out by China which, although perceived and described as a “strategic adversary” of the West, can be considered a fellow traveller in the strategy defined by the economy of the third millennium for “turning green”.
The European Union’s ‘Green Deal’ has become an integral part of the ‘Recovery Plan’ designed to help EU Member States to emerge from the production crisis caused by the pandemic.
A substantial share of resources (47 billion euros in the case of Italy) is in fact allocated destined for the “great transformation” of the new development models, under the banner of research and exploitation of energy resources which, unlike traditional “non-renewable sources”, promote economic and industrial growth with the use of new tools capable of operating in conditions of balance with the ecosystem.
The most important of these tools is undoubtedly Hydrogen.
Hydrogen, as an energy source, has been the dream of generations of scientists because, besides being the originator of the ‘table of elements’, it is the most abundant substance on the planet, if not in the entire universe.
Its great limitation is that in order to be ‘separated’ from the oxygen with which it forms water, procedures requiring high electricity consumption are needed. The said energy has traditionally been supplied by fossil – and hence polluting- fuels.
In fact, in order to produce ‘clean’ hydrogen from water, it must be separated from oxygen by electrolysis, a mechanism that requires a large amount of energy.
The fact of using large quantities of electricity produced with traditional -and hence polluting – systems leads to the paradox that, in order to produce ‘clean’ energy from hydrogen, we keep on polluting the environment with ‘dirty’ emissions from non-renewable sources.
This paradox can be overcome with a small new industrial revolution, i.d. producing energy from the sea, the sun and the wind to power the electrolysis process that produces hydrogen.
The revolutionary strategy based on the use of ‘green’ energy to produce adequate quantities of hydrogen at an acceptable cost can be considered the key to a paradigm shift in production that can bring the world out of the pandemic crisis with positive impacts on the environment and on climate.
In the summer of last year, the European Union had already outlined an investment project worth 470 billion euros, called the “Hydrogen Energy Strategy”, aimed at equipping the EU Member States with devices for hydrogen electrolysis from renewable and clean sources, capable of ensuring the production of one million tonnes of “green” hydrogen (i.e. clean because extracted from water) by the end of 2024.
This is an absolutely sustainable target, considering that the International Energy Agency (IEA) estimates that the “total installed wind, marine and solar capacity is set to overtake natural gas by the end 2023 and coal by the end of 2024”.
A study dated February 17, 2021, carried out by the Hydrogen Council and McKinsey & Company, entitled ‘Hydrogen Insights’, shows that many new hydrogen projects are appearing on the market all over the world, at such a pace that ‘the industry cannot keep up with it’.
According to the study, 345 billion dollars will be invested globally in hydrogen research and production by the end of 2030, to which the billion euros allocated by the European Union in the ‘Hydrogen Strategy’ shall be added.
To understand how the momentum and drive for hydrogen seems to be unstoppable, we can note that the Hydrogen Council, which only four years ago had 18 members, has now grown to 109 members, research centres and companies backed by70 billion dollar of public funding provided by enthusiastic governments.
According to the Executive Director of the Hydrogen Council, Daryl Wilson, “hydrogen energy research already accounts for 20% of the success in our pathway to decarbonisation”.
According to the study mentioned above, all European countries are “betting on hydrogen and are planning to allocate billions of euros under the Next Generation EU Recovery Plan for investment in this sector”:
Spain has already earmarked 1.5 billion euros for national hydrogen production over the next two years, while Portugal plans to invest 186 billion euros of the Recovery Plan in projects related to hydrogen energy production.
Italy will have 47 billion euros available for “ecological transition”, an ambitious goal of which the government has understood the importance by deciding to set up a department with a dedicated portfolio.
Italy is well prepared and equipped on a scientific and productive level to face the challenge of ‘producing clean energy using clean energy’.
Not only are we at the forefront in the production of devices for extracting energy from sea waves – such as the Inertial Sea Waves Energy Converter (ISWEC), created thanks to research by the Turin Polytechnic, which occupies only 150 square metres of sea water and produces large quantities of clean energy, and alone reduces CO2 emissions by 68 tonnes a year, or the so-called Pinguino (Penguin), a device placed at a depth of 50 metres which produces energy without damaging the marine ecosystem – but we also have the inventiveness, culture and courage to accompany the strategy for “turning green”.
The International World Group of Rome and Eldor Corporation Spa, located in the Latium Region, have recently signed an agreement to promote projects for energy generation and the production of hydrogen from sea waves and other renewable energy sources, as part of cooperation between Europe and China under the Road and Belt Initiative.
The project will see Italian companies, starting with Eldor, working in close collaboration with the Chinese “National Ocean Technology Centre”, based in Shenzhen, to set up an international research and development centre in the field of ‘green’ hydrogen production using clean energy.
A process that is part of a global strategy which, with the contribution of Italy, its productive forces and its institutions, can help our country, Europe and the rest of the world to recover from a pandemic crisis that, once resolved, together with digital revolution, can trigger a new industrial revolution based no longer on coal or oil, but on hydrogen, which can be turned from the most widespread element in the universe into the growth engine of a new civilisation.
Jordan, Israel, and Palestine in Quest of Solving the Energy Conundrum
Gas discoveries in the Eastern Mediterranean can help deliver dividends of peace to Jordan, Israel, and Egypt. New energy supply options can strengthen Jordan’s energy security and emergence as a leading transit hub of natural gas from the Eastern Mediterranean. In fact, the transformation of the port of Aqaba into a second regional energy hub would enable Jordan to re-export Israeli and Egyptian gas to Arab and Asian markets.
The possibility of the kingdom to turn into a regional energy distribution centre can bevalid through the direction of Israeli and Egyptian natural gas to Egyptian liquefaction plants and onwards to Jordan, where it could be piped via the Arab Gas Pipeline to Syria, Lebanon, and countries to the East. The creation of an energy hub in Jordan will not only help diversify the region’s energy suppliers and routes. Equal important, it is conducive to Jordan’s energy diversification efforts whose main pillars lie in the import of gas from Israel and Egypt; construction of a dual oil and gas pipeline from Iraq; and a shift towards renewables. In a systematic effort to reduce dependence on oil imports, the kingdom swiftly proceeds with exploration of its domestic fields like the Risha gas field that makes up almost 5% of the national gas consumption. Notably, the state-owned National Petroleum Company discovered in late 2020 promising new quantities in the Risha gas field that lies along Jordan’s eastern border with Iraq.
In addition, gas discoveries in the Eastern Mediterranean can be leveraged to create interdependencies between Israel, Jordan, and Palestine with the use of gas and solar for the generation of energy, which, in turn, can power desalination plants to generate shared drinking water. Eco-Peace Middle East, an organization that brings together environmentalists from Jordan, Israel and Palestine pursues the Water-Energy Nexus Project that examines the technical and economic feasibility of turning Israeli, Palestinian, and potentially Lebanese gas in the short-term, and Jordan’s solar energy in the long-term into desalinated water providing viable solutions to water scarcity in the region. Concurrently, Jordan supplies electricity to the Palestinians as means to enhancing grid connectivity with neighbours and promoting regional stability.
In neighbouring Israel, gas largely replaced diesel and coal-fired electricity generation feeding about 85% of Israeli domestic energy demand. It is estimated that by 2025 all new power plants in Israel will use renewable energy resources for electricity generation. Still, gas will be used to produce methane, ethanol and hydrogen, the fuel of the future that supports transition to clean energy. The coronavirus pandemic inflicted challenges and opportunities upon the gas market in Israel. A prime opportunity is the entry of American energy major Chevron into the Israeli gas sector with the acquisition of American Noble Energy with a deal valued $13 billion that includes Noble’s$8 billion in debt.
The participation of Chevron in Israeli gas fields strengthens its investment portfolio in the Eastern Mediterranean and fortifies the position of Israel as a reliable gas producer in the Arab world. This is reinforced by the fact that the American energy major participates in the exploration of energy assets in Iraqi Kurdistan, the UAE, and the neutral zone between Saudi Arabia and Kuwait. Israel’s normalization agreement with the UAE makes Chevron’s acquisition of Noble Energy less controversial and advances Israel’s geostrategic interests and energy export outreach to markets in Asia via Gulf countries.
The reduction by 50% in Egyptian purchase of gas from Israel is a major challenge caused by the pandemic. Notably, a clause in the Israel-Egypt gas contract allows up to 50% decrease of Egyptian purchase of gas from Israel if Brent Crude prices fall below $50 per barrel. At another level, it seems that Israel should make use of Egypt’s excess liquefaction capacity in the Damietta and Idku plants rather than build an Israeli liquefaction plant at Eilat so that liquefied Israeli gas is shipped through the Arab Gas Pipeline to third markets.
When it comes to the West Bank and Gaza, energy challenges remain high. Palestine has the lowest GDP in the region, but it experiences rapid economic growth, leading to an annual average 3% increase of electricity demand. Around 90% of the total electricity consumption in the Palestinian territories is provided by Israel and the remaining 10% is provided by Jordan and Egypt as well as rooftop solar panels primarily in the West Bank. Palestinian cities can be described as energy islands with limited integration into the national grid due to lack of high-voltage transmission lines that would connect north and south West Bank. Because of this reality, the Palestinian Authority should engage the private sector in energy infrastructure projects like construction of high-voltage transmission and distribution lines that will connect north and south of the West Bank. The private sector can partly finance infrastructure costs in a Public Private Partnership scheme and guarantee smooth project execution.
Fiscal challenges however outweigh infrastructure challenges with most representative the inability of the Palestinian Authority to collect electricity bill payments from customers. The situation forced the Palestinian Authority to introduce subsidies and outstanding payments are owed by Palestinian distribution companies to the Israeli Electricity Corporation which is the largest supplier of electricity. As consequence 6% of the Palestinian budget is dedicated to paying electricity debts and when this does not happen, the amount is deducted from the taxes Israel collects for the Palestinian Authority.
The best option for Palestine to meet electricity demand is the construction of a solar power plant with 300 MW capacity in Area C of the West Bank and another solar power plant with 200 MW capacity across the Gaza-Israel border. In addition, the development of the Gaza marine gas field would funnel gas in the West Bank and Gaza and convert the Gaza power plant to burn gas instead of heavy fuel. The recent signing of a Memorandum of Understanding between the Palestinian Investment Fund, the Egyptian Natural Gas Holding Company (EGAS) and Consolidated Contractors Company (CCC) for the development of the Gaza marine field, the construction of all necessary infrastructure, and the transportation of Palestinian gas to Egypt is a major development. Coordination with Israel can unlock the development of the Palestinian field and pave the way for the resolution of the energy crisis in Gaza and also supply gas to a new power plant in Jenin.
Overall, the creation of an integrating energy economy between Israel, Jordan, Egypt, and Palestine can anchor lasting and mutually beneficial economic interdependencies and deliver dividends of peace. All it takes is efficient leadership that recognizes the high potentials.
The EV Effect: Markets are Betting on the Energy Transition
The International Renewable Energy Agency (IRENA) has calculated that USD 2 trillion in annual investment will be required to achieve the goals of the Paris Agreement in the coming three years.
Electromobility has a major role to play in this regard – IRENA’s transformation pathway estimates that 350 million electric vehicles (EVs) will be needed by 2030, kickstarting developments in the industry and influencing share values as manufacturers, suppliers and investors move to capitalise on the energy transition.
Today, around eight million EVs account for a mere 1% of all vehicles on the world’s roads, but 3.1 million were sold in 2020, representing a 4% market share. While the penetration of EVs in the heavy duty (3.5+ tons) vehicles category is much lower, electric trucks are expected to become more mainstream as manufacturers begin to offer new models to meet increasing demand.
The pace of development in the industry has increased the value of stocks in companies such as Tesla, Nio and BYD, who were among the highest performers in the sector in 2020. Tesla produced half a million cars last year, was valued at USD 670 billion, and produced a price-to-earnings ratio that vastly outstripped the industry average, despite Volkswagen and Renault both selling significantly more electric vehicles (EV) than Tesla in Europe in the last months of 2020.
Nevertheless, it is unlikely this gap will remain as volumes continue to grow, and with EV growth will come increased demand for batteries. The recent success of EV sales has largely been driven by the falling cost of battery packs – which reached 137 USD/kWh in 2020. The sale of more than 35 million vehicles per year will require a ten-fold increase in battery manufacturing capacity from today’s levels, leading to increased shares in battery manufacturers like Samsung SDI and CATL in the past year.
This rising demand has also boosted mining stocks, as about 80 kg of copper is required for a single EV battery. As the energy transition gathers pace, the need for copper will extend beyond electric cars to encompass electric grids and other motors. Copper prices have therefore risen by 30% in recent months to USD 7 800 per tonne, pushing up the share prices of miners such as Freeport-McRoran significantly.
Finally, around 35 million public charging stations will be needed by 2030, as well as ten times more private charging stations, which require an investment in the range of USD 1.2 – 2.4 trillion. This has increased the value of charging companies such as Fastnet and Switchback significantly in recent months.
Skyrocketing stock prices – ahead of actual deployment – testify to market confidence in the energy transition; however, investment opportunities remain scarce. Market expectations are that financing will follow as soon as skills and investment barriers fall. Nevertheless, these must be addressed without delay to attract and accelerate the investment required to deliver on the significant promise of the energy transition.
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