America's energy capital became a battleground over a Russian pipeline to Germany this week

  • Some of the tensest moments at a major energy conference in Houston were over a Russian-German natural gas pipeline.
  • The debates this week show that Germans and their counterparts in the U.S. and Poland cannot even agree on why the line is being built.
  • Berlin sees Nord Stream 2 as a purely economic project, while its opponents see it as a tool of Russian influence over Europe.
Finished pipes are loaded on a truck  for use in the Nord Stream 2, October 19, 2017 in Sassnitz, Germany.
Carsten Koall | Getty Images
Finished pipes are loaded on a truck  for use in the Nord Stream 2, October 19, 2017 in Sassnitz, Germany.

This week Houston became the latest battleground in the international dispute over a pipeline project located more than 5,000 miles away from the Lone Star State.

The dispute over the project in question — the Nord Stream 2 pipeline between Russia and Germany — is not new. But the debates in Houston show how intractable the issue has become, with the two sides sitting elbow to elbow and unable to even agree on why the project is being built.

From Germany's perspective, Nord Stream 2 is a purely commercial endeavor that will double the volume of Russian gas flowing to its north shore on the Black Sea. To the United States and some European countries, it's a political tool to extend Russian influence over Europe.

"This is not purely a private project for the development of energy ... and so what are the motives for doing that? If it's a government-driven exercise, you have to look at ... geopolitics and the particular governments involved." -Dan Brouillette, U.S. Deputy Energy Secretary

The debate has taken on urgency following clashes between Russia and Ukraine in the Kerch Strait, a move in the European Union to delay Nord Stream 2 through legislation and persistent threats by the U.S to sanction companies involved in the project.

"It's clear. This is Germany giving the Russians money while others are defending them," Secretary of State Mike Pompeo told CNBC at CERAWeek, apparently evoking the administration's complaints that Berlin is not contributing enough to NATO.

The panels on Nord Stream 2 at CERAWeek were generally more diplomatic, but the stakeholders nevertheless appeared exasperated with the stand-off, with tempers threatening to boil over at points.

"This focus on Nord Stream — I find it totally out of proportion," Emily Haber, Germany Ambassador to the U.S., said at the apex of a tense exchange with American and Polish counterparts on Thursday.

Haber acknowledged that Nord Stream 2 has become political since Russia invaded eastern Ukraine and annexed Crimea in 2014. But she insisted it was an economic project first and foremost.

"It was not pursued by the state. It was pursued by companies, and it had economic advantages because that's what companies like," she said.

U.S. Deputy Energy Secretary Dan Brouillette pushed back on that claim. The Russian partner Gazprom is state-controlled and initiated the project on behalf of Moscow, he said.

"This is not purely a private project for the development of energy," he said. "And so what are the motives for doing that? If it's a government driven exercise, you have to look at... geopolitics and the particular governments involved."

Russia's motives for building Nord Stream 2 and another pipeline called Turkstream are clear, according to Amos Hochstein, a former special envoy for international energy under President Barack Obama who now sits on the supervisory board for Ukrainian gas company Naftogaz. Moscow wants to circumvent the Ukrainian pipeline system, depriving its regional rival of valuable transit fees and making it easier for the Kremlin to pressure its neighbors.

"If you have a piece of infrastructure that works, you rarely see somebody saying, 'Hey, it works. Let's go and finance billions of dollars worth of a different piece of infrastructure to accomplish a very similar goal, which is to get a molecule of gas from Russia into Europe,'" Hochstein said during a separate panel on Wednesday.

"So that is what's on the table at the moment, a non-commercial project that serves a political goal."

That viewpoint ignores major changes in Russian gas supply, said Thilo Wieland, an executive who oversees Russian exploration and production at Wintershall, a German oil and gas company co-financing Nord Stream 2.

Russia's main source of gas is moving north as the country taps the Yamal Peninsula, he said. Piping these new supply sources through Nord Stream 2 is quicker, more efficient and gives Europe another transportation option, he claimed.

"You need infrastructure if you want to have a functioning market. You need to have abundant supply, and I think the European Union has done a lot in the past to really create a liberalized market which is defined by non-discriminatory access for everybody," Wieland said on Wednesday.

Germany sees the issue through the same lens, Haber said. Berlin believes energy security hinges on having transportation options and does not necessarily depend on where the gas comes from.

But even on this basic definition of energy security, the officials could not agree.

"If we have a lot of infrastructure, but we know that the gas is coming from the same place, in fact it does not change anything. We are still dependent on one supply," Tomasz Dabrowski, deputy energy minister for Poland said at the Thursday panel.

The lack of consensus and tension at the Thursday panel prompted IHS Markit senior vice president and seasoned statesman Carlos Pascual to briefly switch roles from moderator to diplomat.

Pascual, a former U.S. ambassador to Mexico and Ukraine, urged the officials to consider the possibility that Nord Stream is at its heart both a commercial and political project. He also noted that Ukraine will face pressure from liquefied natural gas imports into Europe, flows from the Caspian Sea and perhaps supplies from Mediterranean fields currently being explored.

He urged the officials not to lose sight of the broader issue: What is the joint European-U.S. policy towards Russia for addressing its behavior in Ukraine?

"Sometimes if we end up getting caught in individual pieces of that discussion without putting them in the broader context, it can end up becoming sometimes a little bit more difficult," he said.

CERAWEEK BY IHS MARKET: VIDEO

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