The U.S. continues to have trouble stifling Russia’s gas business in Europe. Gazprom picked up nearly 20 mcm of gas business on August 1st, decreasing the amount that flows into Ukraine.

If the U.S. Congress thinks it is going to ratchet up the Ukrainian civil war with more weapons sales to pressure Russia to stop backing separatists in the Donbass it nees to looks closely at the energy market there.

From RT:

On August 1, Russian energy major Gazprom won an auction to use OPAL’s free capacity. The next day, the pipeline saw an increase in gas transit from 56 million cubic meters (mcm) to 71.5 mcm per day, Vedomosti daily reports, quoting OPAL Gastransport data.

…In December, the Polish government and the company PGNiG appealed the European Commission decision in court, saying the inclusion of Gazprom in OPAL creates a threat of a disruption or termination of gas supplies to the EU. As a result, the EC decision was rescinded. However, last week, the EU Court lifted restrictions on Gazprom’s access to OPAL’s facilities. [emphasis mine]

Note that the EU courts are no longer going along with Poland on these issues.  The U.S. has lost its ability to influence EU gas markets.  This is one of the reasons why President Trump is so angry with Germany.

It’s not just that they are “bad on trade, very bad.”  It’s that Germany refuses to go along with Trump’s protectionism to expand U.S. gas markets in Europe while using that to pressure Russia into a bad deal to get sanctions relief.

Now that sanctions relief is completely off the table thanks to Trump’s weakness as a leader the EU is responding by opening up Gazprom’s opportunities to expand gas sales while also drawing down its exposure to Ukraine.

In fact, by allowing Gazprom to bid on the OPAL pipeline’s capacity, it is a direct statement by the EU, and German Chancellor Angela Merkel, that it supports Russia in the current geopolitical environment.

Merkel is looking for a reason to lift sanctions on Russia.  She is not likely to expand them per the U.S. Congress’ latest act of legislative over-reach.  All she needs at this point is a solution for Russia’s position in Ukraine that allows her to save face over the Minsk II agreement.

The problem, of course, is that Minsk II is unenforceable and impractical.  So, the Poroshenko government will be starved of its gas transit fees by Gazprom over the next 18 months.

If things deteriorate further Putin will have the ability, as an issue of Russian national security, to cut off gas transit to Ukraine to a point where it would starve the Kiev government.

For Trump, at this point, he needs to stand up to Congress on Ukraine, refuse any more funding and exit from the situation there completely.  But, I don’t think he does that.

As I pointed out previously, Trump is a mercantilist and seeks to erect trade barriers around the world in order to improve the U.S.’s balance of trade.  But, at the same time he wants a weak dollar, which is not possible.

Expect this trend to continue.  Gazprom will get access to more gas transit infrastructure thanks to Germany and bypass Ukraine which subtly shifts the cash flows around.  Embedded in that article is that Gazprom is supplying nearly 20 cm more on the OPAL pipeline and only 6 mcm less through Ukraine.  That’s a net gain.

It’s both an economic and geopolitical win. Such is the power of the existing Nordstream pipeline, no less the expansion.

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