GWPF Newsletter: 'Victory For Kremlin' As Germany Approves Russian Gas Pipeline

Europe Feels The Heat As Russia Standoff Risks Energy Crisis

In this newsletter:

1) 'Victory For Kremlin' As Germany Approves Russian Gas Pipeline
EUObserver, 28 March 2018 
 
2) German Approval Of Nord Stream 2 Risks Tensions With Eastern Neighbours
AFP, 28 March 2018 

 
3) Europe Feels The Heat As Russia Standoff Risks Energy Crisis
The Daily Telegraph, 24 March 2018 
 
4) Can The U.S. Break Russia’s Gas Monopoly In Europe? 
OilPrice, 27 March 2018 
 
5) U.S. Energy Markets: The Real Russian Meddling the Media Ignores
The American Spectator, 27 March 2018 
 
6) How On Earth Did Russia Hack Our Energy Systems?
Forbes, 28 March 2018

1) 'Victory For Kremlin' As Germany Approves Russian Gas Pipeline
EUObserver, 28 March 2018 
Andrew Rettman

Germany has given the go-ahead for a Russian gas pipeline despite the furore over Russia's chemical attack in the UK.

The Federal Maritime and Hydrographic Agency (BSH) in Berlin said Russia could build the pipeline, called Nord Stream 2, on Tuesday (27 March), one day after Germany and other EU states expelled Russian diplomats over Russia's use of a chemical weapon to try to kill a former spy in England.

"We are pleased that all necessary permits are now in place for the German route section," Jens Lange, the head of the Nord Stream 2 consortium, said.

Permits from Denmark, Finland, and Sweden, whose Baltic Sea zones will host pipe segments, were also "expected to be issued in the coming months" and Nord Stream 2 will be built this year "as planned", the consortium, an offshoot of Russian state firm Gazprom, said.

The BSH analysis showed Nord Stream 2 "will contribute to increasing security of supply and competition in the EU gas market", the Russian company added.

The pipeline is a purely "economic project", German chancellor Angela Merkel and foreign minister Heiko Mass recently reaffirmed.

Those views are diametrically opposed to positions taken by most EU states, EU institutions, and the US.

The pipeline, which will concentrate 80 percent of Russian gas sales to the EU on the German route, will help the Kremlin to blackmail other European states with supply cuts and will make a mockery of international sanctions imposed over Russia's aggression in the UK and in Ukraine, its critics have said.

"Big victory for Kremlin, helps to increase EU energy dependency on Russia and make Ukraine more vulnerable," Bob Seely, an MP from Britain's ruling Conservative Party, said on Tuesday in one of the first reactions to the German permit.

"It [Nord Stream 2] is completely in contradiction with EU energy policy," Lithuanian foreign minister Linas Linkevicius recently told EUobserver.

Linkevicius said the UK attack had changed nothing in terms of Germany's outlook on the gas project.

"It's the same. The SPD is back on board and everybody knows its position on Nord Stream 2," he said, referring to the centre-left SPD party, which recently struck a new coalition deal with Merkel and which backs the pipeline deal.

The fate of Nord Stream 2 remained uncertain despite the BSH permit, Seely, the British MP noted.

Denmark, Finland, and Sweden could deny Russia permission to use their maritime zones, forcing Gazprom to reroute the pipeline at a higher cost.

The US has threatened to impose sanctions on the EU firms - Engie, OMV, Uniper, Shell, and Wintershall - planning to co-finance the pipeline, which could force Russia to find the money elsewhere.

June summit

EU leaders might also put pressure on Germany to halt Nord Stream 2 at a summit in June, British prime minister Theresa May told British MPs earlier on Monday.

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2) German Approval Of Nord Stream 2 Risks Tensions With Eastern Neighbours
AFP, 28 March 2018 

German authorities on Wednesday issued a final approval for a new gas pipeline from Russia, risking higher tensions with eastern neighbours fearful of European energy dependence on Moscow.

The Federal Agency for Maritime Navigation and Hydrography (BSH) issued the approval after investigating the environmental and commercial impact of the Nord Stream 2 pipeline, the authority said in a statement.

Some 85 kilometres of the 1,225-kilometre pipeline from the Narva Bay on Russia's border with Estonia to Lubmin in northeastern Germany will run through German territory.

Along with a previously issued approval from the mining authority based in Chancellor Angela Merkel's coastal Stralsund constituency, the permit lifts the final hurdle to construction on the German side.

Approvals are still needed from Russian, Finnish, Danish and Swedish authorities.

Nord Stream 2 AG, the company behind the pipeline and a subsidiary of Russian state-controlled energy firm Gazprom, said it was "pleased" with the result and hoped to secure the outstanding permits "in the coming months".

The pipeline project remains controversial in Germany as well as European Union neighbours like Poland and Baltic states Estonia, Latvia and Lithuania, who fear it could be used as a tool to boost Russian influence over the bloc.

Moscow notoriously used gas prices to pressurise Ukraine during a mounting conflict with its former satellite which saw Russia annex the Crimean peninsula in 2014 — prompting EU sanctions in response.

Meanwhile, a rare cross-party alliance of high-ranking German politicians from Merkel's Christian Democratic Union, the environmentalist Greens and pro-business Free Democrats in February warned against allowing Nord Stream 2 to go ahead.

It would "split the EU politically and call into question our solidarity with Poland, our Baltic neighbours, Slovakia and Ukraine, but also Sweden and Denmark," they wrote in a letter to the Frankfurter Allgemeine Zeitung newspaper.

And the European Commission said last year it sees "no need" for Nord Stream 2 as it pursues energy security and diversity of gas supply across the 28-member bloc.

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3) Europe Feels The Heat As Russia Standoff Risks Energy Crisis
The Daily Telegraph, 24 March 2018 

Jillian Ambrose

Behind the glass-paned curve, desks stand bare. They used to house traders, employed by one of the most powerful energy companies in the world, negotiating the deals that resulted in cargoes of liquefied natural gas arriving in Britain. But now the chairs are empty.

It wasn’t long ago that Russia’s Gazprom had one of the biggest energy trading teams in the City. But soon the gas giant will announce plans to pull out of the West as relations with the British Government sour. The rumoured move to St Petersburg may have been decided before the alleged Kremlin kill-order to poison a double agent in Salisbury, but it is now a gesture loaded with menace.

Freezing Siberian storms and even frostier relations with the Kremlin have left Europe pondering its co-dependent relationship with Russia in which both are bound by an economic addiction to fossil fuels.

Russia supplies a third of Europe’s gas, and the flexing of energy market muscle is a consistent tactic in the country’s geopolitical playbook.

Britain may say it is out of reach of Russia’s energy grip, but it sounds increasingly hollow after a winter marked by multiple gas price shocks. Whether the UK imports gas directly from Russia or not, its close links to European markets mean our gas bills could take a hit regardless.

It is a threat the Government readily admitted to in 2016 but is now eager to play down. Former energy secretary Amber Rudd issued a clear-eyed warning ahead of the EU referendum, saying that “countries such as Putin’s Russia use their gas as a tool of foreign policy; threatening to cut off supplies or drastically increase prices”.

Despite this threat, a combination of global energy market dynamics and politics has created an economic dissonance in Europe that could leave the continent vulnerable to Russia’s last-resort tactics.

Jack Sharples, from the European University of St Petersburg, says that while it is unlikely that Europe could be as badly hurt as Russia’s more dependent neighbours, such as Ukraine and Belarus, there is still a looming threat.

“The threat to European energy security is not the turning off of gas taps, but I think the greater threat is excessively high prices in uncompetitive markets,” he says.

Still, it is theoretically possible that Russia might choose to hike its gas export duties in response to a dramatic worsening of relations.

“That would be the nuclear option for Russia,” says Sharples. “If they decided to punish Europe by using energy supplies as a weapon then I think Europeans would quickly find the political will to look elsewhere. It would be painful. It would be horrendous. And it would take time. But once that shift is made it would be very difficult to put the genie back in the bottle from a Russian perspective.”

Nevertheless, a severing of ties with Europe may be more likely now than it has ever been. Europe may be Russia’s biggest energy customer, but the country’s future growth will come from the East.

In its legacy European markets, Gazprom is fighting for market share as a rising tide of super-tankers carrying liquefied natural gas from across the globe competes to meet Europe’s slowing demand for gas. “By contrast, Asian regional imports are forecast to grow substantially, driven by growing gas demand in China and India,” says Sharples. “Gazprom’s ‘pivot to the East’ represents [its] attempt to grasp this opportunity.”

Gazprom signed a major supply deal with China in 2014 to deliver 38bn cubic metres of natural gas every year for the next 30 years. In time, the deal is set to make China the largest importer of Russian gas in the world, Sharples explains.

Meanwhile, Russia is working to finalise a major gas export deal with Saudi Arabia this summer, which could result in the oil-rich kingdom taking a stake in the Arctic gas project to secure imports. However, Europe is still a market Russia will be wary of alienating, Sharples argues: “They see oil and gas exports to Asia as additional to their existing exports to Europe.”

Nafez Zouk, of Oxford Economics, says Russia’s oil and gas revenues may be too precious for Moscow to take any chances; oil and gas sales make up between a third and half of the Kremlin’s revenues.

In the wake of the oil price crash, oil and gas receipts dropped by almost 40pc and the Russian rouble lost over a third of its value against the dollar.

Some 20m Russian citizens live in poverty, and president Putin has vowed to reduce this number by half over the next six years.

The Kremlin may have weathered the oil market downturn to get the economy on a more stable footing, but without constant streams of oil and gas revenues, it won’t be sustainable, Zouk warns.

Full story
 
4) Can The U.S. Break Russia’s Gas Monopoly In Europe? 
OilPrice, 27 March 2018 
Tim Daiss

In a statement that is sure to provoke Russian backlash, while also sending a strong message to both Moscow and European energy markets, Department of Energy (DOE) Secretary Rick Perry said on Thursday before the Senate Armed Services committee that moving U.S. energy supplies into Eastern Europe is one of the more powerful ways to contain Russian influence.

He also agreed that Russian cyberattacks on the U.S. energy sector were “an act of war.” His comments come just a week after the U.S. Treasury Department revealed that so-called Russian government actors targeted “multiple U.S. critical infrastructure sectors, including the energy, nuclear, commercial facilities, water, aviation, and critical manufacturing sectors” with cyberattacks at least since March 2016.

A report in UPI last week said that a ransomware cyberattack from the Petya or NotPetya bug targeted thousands of government and private corporate servers across the globe in 2017. The attack demanded a ransom paid in Bitcoin to release the encryption imposed by the virus that prevents users from accessing their devices. The U.S. Treasury claims the NotPetya attack was attributed to the Russian military.

“An energy policy where we can deliver energy to Eastern Europe, where we are a partner with people around the globe, where they know that we will supply them energy and there are no strings attached is one of the most powerful messages that we can send to Russia,” Perry added in his remarks on Thursday.

Gas as a geopolitical weapon

The National Defense Authorization Act has said that U.S. efforts should promote energy security in Europe, stating Russia uses energy “as a weapon to coerce, intimidate and influence” countries in the region.

Perry’s comments also come as ties between Washington and Moscow reach post-Cold War lows over numerous issues ranging from Moscow’s meddling in the 2016 U.S. presidential election, its continued involvement in the Ukraine, and Syria, and its purported nerve agent poisoning of what is being referred to as a Russian double agent and his daughter on British soil.

However, Perry’s message may not be as welcome as he would like in Europe. Though EU members, including an increasingly alarmed Germany, appear to be waking up to Russian influence and blatant geopolitical maneuvering, many in the EU are still equally as cautious over American motives to export its liquefied natural gas (LNG) to European markets.

Additionally, challenging Russia’s dominance in European gas markets is no small feat – even for the U.S. which by the end of the decade will have as many as five major LNG exports projects operational, thus becoming the third largest LNG exporter after Qatar and Australia.

Russia’s gas exports to Europe rose 8.1 percent last year to a record level of 193.9 billion cubic metres (bcm), despite rising competition and concerns about the country’s dominance of supply, the London-based Financial Times recently reported.

The report added that Russian state-run gas giant Gazprom, the world’s largest natural gas producer, has a monopoly over Russia’s network of pipelines to Europe and supplies nearly 40 percent of Europe’s gas. However, Gazprom has been forced to lower its prices in recent years to protect its market share in the face of moves by EU member states to buy more gas from the U.S., Qatar and other producers.

Additionally, Nordstream 2, Russia’s ambitious but controversial natural gas pipeline project, is set to be completed next year. This route will further secure Russia’s grip on European gas market share, and its accompanying geopolitical influence will be a hard task for the U.S. to dislodge.

Economic factors also come into play. As discussed last week, American LNG is at a cost disadvantage compared to Russian piped gas. Using a Henry Hub gas price of $2.85/MMBtu as a base, Gazprom recently estimated that adding processing and transportation costs, the price of U.S.-sourced LNG in Europe would reach $6/MMBtu or higher – a steep markup.

Henry Hub gas prices are currently trading at $2.657/MMBtu. Over the last 52-week period U.S. gas has traded between $2.602/MMBtu and $3.82/MMBtu. Russian gas sells for around $5/MMBtu in European markets and could even trade at lower prices in the future as Gazprom removes the commodity’s oil price indexation.
 
5) U.S. Energy Markets: The Real Russian Meddling the Media Ignores
The American Spectator, 27 March 2018 
H. Sterling Burnett

Who is actively fighting to ensure government policies shutter U.S. nuclear energy facilities; keep domestic coal, natural gas, and oil in the ground; force up energy prices through taxes and regulations; and endanger national security by installing wind farms near military bases? If you answered, “the Sierra Club and its allies,” you’re correct, though you might be surprised to find that one of the latter is the Russian government.

The U.S. House of Representatives Committee on Science, Space, and Technology recently issued a report detailing attempts by the Russian government to disrupt U.S. energy markets through social media. Russian operatives encouraged protests to block pipeline construction and prevent new oil and gas extraction projects, among other activities.

“The Kremlin manipulated various groups in an attempt to carry out its geopolitical agenda, particularly with respect to domestic energy policy,” the report stated.

Unfortunately, with the exception of The American Spectator’s Kevin Mooney who covered this report in articles on March 5 and March 8, most media outlets have ignored this particular Russian scandal.

The growth in U.S. energy production threatens Russia’s geopolitical influence and economic strength. In the past decade, fracking and improved delivery infrastructure such as expanded pipelines and new natural gas export terminals have rapidly increased U.S. energy production, putting downward pressure on global energy prices. In response, the Russian government carried out a concerted campaign to disrupt U.S. energy markets by fomenting fears of fossil fuels causing catastrophic climate change.

Sifting through thousands of documents from Twitter, Facebook, and Instagram, committee staff identified Russian accounts linked to the Internet Research Agency (IRA), a Saint Petersburg-based company established by the Russian government. IRA used social and traditional media platforms to advance Russian propaganda and viewpoints, the report states.

Between 2015 and 2017, IRA created 4,334 accounts across Twitter and Facebook, producing 9,097 posts or tweets on U.S. energy policy or energy-related events, the analysts estimate. Dozens of posts encouraged Americans to protest pipeline construction, especially targeting the Dakota Access Pipeline.

The Russian government funneled money through surrogates to U.S. environmental organizations to fund attacks on the fossil fuel industry, the report states. “This report reveals that Russian agents created and spread propaganda on U.S. social media platforms in an obvious attempt to influence the U.S. energy market,” said committee Chairman Lamar Smith (R-TX) in a written statement. “Russian agents attempted to manipulate Americans’ opinions about pipelines, fossil fuels, fracking, and climate change.”

This is not the first time experts have noted attempts by the Russian government to disrupt U.S. energy markets, the report states.

“In January 2017, the Office of the Director of National Intelligence released a report that contained ‘clear evidence that the Kremlin is financing and choreographing anti-fracking propaganda in the United States,’” the committee report notes. “The report found that the Russian-sponsored news agency RT (formerly Russia Today) ‘r[an] anti-fracking programing, highlighting environmental issues and the impacts on public health,’ which ‘is likely reflective of the Russian Government’s concern about the impact of fracking and the U.S. natural gas production on the global energy market and the potential challenges to [Russian energy companies’] profitability.’”

Russia also undermined oil and gas development in Europe. Anders Fogh Rasmussen, then Secretary General of NATO, told reporters in 2014, “Russia, as part of their sophisticated information and disinformation operations, engaged actively with so-called nongovernmental organizations — environmental organizations working against shale gas — to maintain dependence on imported Russian gas.”

Russia has been trying to manipulate U.S. and European energy markets for decades, according to a report released earlier this year by Sen. Ben Cardin (D-MD). The Cardin report referred to many environmental activist groups as “useful idiots,” documenting “the Russian government has invested $95 million in [Non-Governmental Organizations] that seek to persuade EU governments to end shale gas exploration” and “campaign against fracking for natural gas, thereby keeping the EU more dependent on Russian supplies.”

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6) How On Earth Did Russia Hack Our Energy Systems?
Forbes, 28 March 2018
James Conca

Last July, officials from the Federal Bureau of Investigation and the Department of Homeland Security revealed that Russian hackers were behind cyber intrusions into the U.S. energy power grid. The intrusion illustrated the severe threat that hackers pose to our most critical industries - energy, finance, healthcare, manufacturing and transportation.

The DHS and FBI issued a joint statement saying, ‘There is no indication of a threat to public safety, as any potential impact appears to be limited to administrative and business networks.’

But that might not be the end of it. Russia may be laying the groundwork for more damaging hacks, on America as well as other nations, using their new cyber weapons like CrashOverride and BlackEnergy 3.

In 2015, Russia tested this on the Ukrainian capital of Kiev. These tools were specifically developed to disrupt electric power grids and it blacked out 225,000 people in the Ukraine.

One might wonder what is Russia’s end game for this kind of attack. To hurt us financially? To show us how vulnerable we are? In preparation for a more sinister attack?

Is it to punish America for anti-Russian policies? The White House expelled 60 Russians from the United States this week, joining western allies in response to Russia’s poisoning of a former Russian spy in Britain with what was a banned chemical weapon.
Raytheon



Raytheon’s Global Cyber Security Operations Center. Raytheon’s Mark Orlando breaks down the basics of the cyberattacks by Russia on our energy sector.

When DHS and FBI dissected the hackers’ tradecraft, it turned out to be very clever indeed. Mark Orlando, Chief Technology Officer for cyber services at Raytheon, broke down the particulars of why the new world of hacking works so well in America.

One of the attackers' main strategies is to divide targets into two groups - intended targets which are the energy companies themselves, and staging targets like vendors, suppliers, even trade journals and industry websites.

Instead of going straight to the larger and better-protected targets, like a $60 billion Energy Company with a cyber security department, the hackers worked their way into the smaller and less secure companies' networks like those that supply the big ones with smaller equipment. Or the local utilities that are partnered with them. Local regulators may also have good access.

There is even an Electric Utility Industry Sustainable Supply Chain Alliance that many of the large energy companies use.

When the hackers get into those systems, they use that access to gather intelligence and set traps for the larger company.

This targeting of the supply chain partners is brilliant. The manufacturer of natural gas turbines that supply a gas power plant would have great access to the plant’s systems and management, would probably have password access, and would not be questioned very hard.

‘It’s important to raise awareness,’ says Orlando. ‘These details, if taken by themselves, might not seem that impactful. When presented with the entire story, we can see it was part of a larger, sustained campaign, potentially causing a lot of damage.’

This is a long-term strategy that takes patience – just the kind of thing traditional espionage has perfected over the last century.

America seems to be getting the message. A recent survey from Raytheon and Ponemon showed that two-thirds of cyber security executives and chief information security officers in America, Europe and the Middle East believe cyber extortion, such as ransomware and data breaches, will increase in frequency and payout.

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The London-based Global Warming Policy Forum is a world leading think tank on global warming policy issues. The GWPF newsletter is prepared by Director Dr Benny Peiser - for more information, please visit the website at www.thegwpf.com.