Europe wants to banish Russian gas, but the US may have other plans

Business Standard

2 days ago

A large Republican donor wants to buy a Russian pipeline to Germany. The White House has entertained the idea of working with the Kremlin to supply Russian gas to Europe
NYT
By Anton Troianovski, Jeanna Smialek and Melissa Eddy
In May, an American investor tried to sell top German economic officials on an audacious plan to buy a Russian undersea pipeline. Despite years of international friction over the pipeline, he proposed to eventually activate it and deliver natural gas to Germany.
The investor, Stephen P. Lynch, had already made the pitch to the Trump administration, which he was betting would want U.S. control over a pivotal piece of energy infrastructure. Now the Germans wanted to hear for themselves about Lynch's proposal to lead a takeover of the much-criticized pipeline on the floor of the Baltic Sea, called Nord Stream 2.
The German officials were skeptical in their May 6 meeting in Berlin, Lynch recalls, asking him how he intended to persuade them to allow Russian gas to flow through the pipeline, which was partially sabotaged in 2022. That was not his job, Lynch says he answered, predicting that the Germans would persuade themselves eventually of the benefits of buying cheap Russian gas again.
Amid the frantic geopolitical jockeying of recent months, touched off by Trump's re-engaging with President Vladimir V. Putin of Russia, the future of Europe's energy supply has emerged as a source of tension and vulnerability as the continent seeks to chart an independent course.
Leaders in Berlin and Brussels have maneuvered in recent weeks to foreclose any possibility of new Russian gas imports, seeking a decisive break with the decades before Moscow's 2022 invasion of Ukraine, when Europe's reliance on cheap Russian energy gave the Kremlin a powerful point of leverage. When President Trump meets with Germany's new chancellor, Friedrich Merz, at the White House on Thursday, Merz will reiterate his opposition to using Nord Stream 2 if the issue comes up, Merz's spokesman said this week.
As Russia mobilized for war, President Joseph R. Biden Jr. vowed that, if Moscow invaded, 'there will be no longer a Nord Stream 2,' and he imposed sanctions on the state-controlled company that owned it, while Germany refused to allow the newly completed pipeline to begin operation. After the invasion, European businesses and governments sharply reduced their dependence on Russian gas, trying to punish Moscow economically even though the effort came at considerable cost to themselves.
European officials now appear concerned that companies and politicians could be tempted anew by cheap Russian energy, especially if the fighting ends in Ukraine and Moscow deepens its rapprochement with Washington.
Merz declared last week that Germany would do 'everything we can' to ensure that Nord Stream 2 'cannot be put back into operation.' The European Union said last month it was considering sanctions to 'dissuade any interest, and notably interest from investors, in pursuing any activity on Nord Stream.'
'For Europe, it looks like Trump is still trying to make a separate peace with Putin,' said Sergey Vakulenko, an energy analyst at the Carnegie Russia Eurasia Center. 'Europe is doing all it can to show that they won't go along with it.'
The German Economy Ministry, where Lynch held his May 6 briefing at what he said was the ministry's request, declined to comment for this article. The German news outlet Die Zeit reported earlier that Lynch had met with ministry officials.
The new European push to choke off future use of Nord Stream 2 comes as American and Russian officials suggest that their two countries could team up, rather than compete, in selling fossil fuels to Europe. The activities of well-connected investors like Lynch who see ways to profit from a warmer relationship between Washington and Moscow have added to the urgency.
Lynch argues that Europe will inevitably accept that it would benefit from the ability to increase Russian gas flows. Having Nord Stream 2 owned by an American entity would increase Western oversight over Russian gas sales, he contends, and it would allow Europe to avoid doing business directly with Russian entities and people under Western sanctions.
'When they decide that they need gas from Russia — which they will — we'll be there,' Lynch said in an interview in London last week. 'Eventually the European leadership will change their posture.'
Lynch, who spent two decades living in Moscow and is now based in Miami, describes his specialty as the 'de-Russification' of Russian assets.
In 2022, the Treasury Department granted him approval to buy the Swiss subsidiary of the sanctioned Russian state bank Sberbank. He faced criticism for playing into the Kremlin's hands in 2007 when buying up remnants of a Russian oil company whose main owner, Mikhail B. Khodorkovsky, had run afoul of Putin.
He unsuccessfully lobbied the Biden administration last year for a license that would have allowed him to negotiate for Nord Stream 2
He renewed his push after Trump's inauguration and filed a new license application with the Treasury Department in February, according to a person close to Lynch who requested anonymity to speak about the ongoing process. Lynch has donated more than $700,000 to Trump's 2024 campaign and other Republican causes since last year, Federal Election Commission filings show. Lynch added that he'd argued to U.S. officials that Nord Stream 2 'can be a geopolitical tool to align Russia with the West.'
'Absolutely no gas would flow until there is peace' in Ukraine, Lynch said.
The $11 billion pipeline, which is owned by the Russian energy giant Gazprom and was financed by a who's who of European energy companies, has been going through debt restructuring proceedings in a Swiss court. Lynch says that if granted a license to negotiate for it, he would line up other investors to join him and would expect to buy it at a steep discount. Any funds earmarked for Russia would be held in escrow until the Ukraine war ends, he says.
In Washington, some Republicans, led by Senator Lindsey Graham of South Carolina, continue to work on ratcheting up sanctions against Russia's energy sector. Yet some Trump administration officials appear to be interested in energy deals with Russia. It's not clear how they view Lynch's proposal.
When American officials in April outlined a potential peace framework for Ukraine, the proposal included possibly resuming U.S. energy cooperation with Russia, according to two people with knowledge of the meeting who spoke on condition of anonymity to discuss the closed-door talks.
Putin began hinting at the idea in January, when he said after Trump's inauguration that Moscow and Washington could work together to keep energy prices not 'too high' and not 'too low.' In March, the Russian president said that if 'the United States and Russia agree on cooperating in the energy field, then a gas pipeline to Europe can be ensured.'
The head of Russia's sovereign wealth fund, Kirill Dmitriev, has discussed the idea of U.S. companies working with Russia to increase Russian gas sales to Europe with the White House envoy Steve Witkoff, according to former officials in Moscow and Washington who spoke on condition of anonymity to discuss sensitive diplomacy.
Undersea blasts in 2022 damaged both strands of the Nord Stream 1 gas pipeline from Russia to Germany, and one of the two strands of Nord Stream 2. Germany would have to certify the safety of the pipelines before they could be used.
The European Commission declined to comment when asked whether new sanctions, now under development, against the Nord Stream pipelines would prevent companies and nations from buying fuel sent through them if they were American-owned.
European officials and analysts have been confused by the Trump administration's ambiguous position on Russian gas for Europe, in part because it would undercut more expensive liquefied natural gas shipped from the United States.
But analysts say it could appeal to Trump if reduced European demand for American gas is seen as keeping U.S. energy prices in check.
Vakulenko, the Carnegie scholar, has described a Nord Stream 2 deal as a 'viable prospect,' given the geopolitical advantages for Washington and because 'German industry would benefit significantly from Russian gas.' But he warned in an interview that it would be a 'bad' deal for Europe and for Ukraine, because from their perspective, 'it's making a deal behind their back.'
Germany was Europe's biggest buyer of Russian gas before the Ukraine invasion, but it has since reduced its direct imports of Russian pipeline gas to zero. While Merz has taken a hard line against Nord Stream, some voices in his center-right party — not to mention in Germany's Russia-friendly far left and far right — are urging a different tack.
'Production costs are too high,' Michael Kretschmer, the center-right governor of the eastern German state of Saxony, said in an interview published May 25 on the news outlet Zeit Online. He urged the government to reconsider its opposition to Nord Stream.
Before the war, Germany imported more than half its gas from Russia. Kretschmer said that Germany could support its economy while avoiding dependence on Russia by buying a smaller amount.
More broadly, the European Union has been working for years to wean itself off Russian oil and gas, in part by ramping up the imports of liquefied gas from the United States. According to E.U. figures, Russian pipeline gas dropped to 11 percent of E.U. imports in 2024, from 40 percent as recently as 2021.
In May, the European Union published a road map for further cutting its reliance on Russian fuels by stopping new Russian gas contracts and winding down existing ones, with a goal of completely ending Russian gas imports by 2027.
U.S. energy companies are watching the developments closely. Will Jordan, chief legal and policy officer at EQT Corporation, an American natural gas producer, said the future of Russian gas pipelines to Europe was among the 'unclear factors' impeding the United States-Europe gas trade relationship. But he predicted that appetite for non-Russian gas sources would remain in Europe, given how Russia's war in Ukraine had laid bare the risks of energy dependence.
'We saw what can happen when a country weaponizes energy,' he said.