U.S. looks to Germany to stop Baltic undersea Russian gas pipeline

WASHINGTON (Reuters) - A Russian pipeline project that would boost Moscow’s ability to manipulate European energy markets can be slowed by Denmark but ultimately Germany would be needed to stop it, U.S. State Department officials said on Tuesday.

Russian natural gas company Gazprom and its European partners are seeking to build Nord Stream 2, a project to move gas to Germany under the Baltic Sea, bypassing existing land routes through Ukraine and Poland.

U.S. diplomats are talking to their German counterparts about the project, but it is unclear whether Germany’s government, still forming after elections in September, can be convinced to stop it. Germany and neighboring Austria have companies financing the pipeline, which would carry 55 billion cubic meters of gas per year.

“We have to use this political opening before the gelatin mold has really set with that government,” Wess Mitchell, assistant secretary for the State Department’s bureau of European and Eurasian Affairs, said about Germany’s government.

Denmark, which has been caught in a geopolitical conflict over the pipeline, passed a law in late November allowing it to ban Nord Stream 2 from going through its waters on foreign policy grounds.

“This is a potentially significant political and legal stumbling block that could really slow progress on the pipeline,” Mitchell told a U.S. Senate panel. “But to be clear I think the country that could do the most to stop this project is Germany,” he said.

The Trump administration, like the Obama administration before it, is concerned that Nord Stream 2, which would concentrate 75 percent of Russian gas shipments to Europe, could help Moscow use energy as a weapon. Russia cut gas shipments in winter months in 2006, 2009 and 2014 during pricing disputes with neighboring countries including Ukraine.

Nord Stream 2 is a “political rather than a commercial undertaking” that could slash pipeline transit payments Russia makes to Ukraine by about $2 billion a year, Mitchell said.

Secretary of State Rex Tillerson encouraged Denmark to consider domestic laws to stop the pipeline. But the Nord Stream consortium is looking at another route through international waters just north of Denmark that would mean the project could proceed despite any ban.

Washington hopes to diversify Europe’s gas supply with shipments of U.S. liquefied natural gas, or LNG, a business that has emerged recently with advent of the fracking boom. Currently 90 percent of U.S. LNG goes to markets in Asia. But the exports are expected to soar in coming years as U.S. facilities open, which could mean more will be available for Europe.

When European countries install infrastructure to import U.S. LNG, it can be “transformative,” said John McCarrick, the deputy assistant secretary, at the State Department’s energy bureau. After Lithuania opened an LNG terminal, it negotiated a 20 percent cut in the price it pays for Russian gas, he said.

Washington also supports other gas pipeline projects including the Southern Gas Corridor to bring gas to southern and central Europe from Azerbaijan and the Caspian Sea.

Reporting by Timothy Gardner; Editing byn Steve Orlofsky