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Trump Tells Germany to Drop Russian Pipeline for Trade Deal -- Update

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05/17/2018 | 04:29pm CEST

By Bojan Pancevski

BERLIN--President Donald Trump is pressing Germany to pull the brakes on a major gas deal with Russia as the price for avoiding a trans-Atlantic trade war, according to German, U.S. and European officials.

The officials said Mr. Trump told German Chancellor Angela Merkel in April that Germany should drop support for Nord Stream 2, an offshore pipeline that would bring gas directly from Russia via the Baltic Sea. This would be in exchange for the U.S. starting talks with the European Union on a new trade deal.

The White House pressure reflect the hard ball tactics coming from the White House on trade, moves that have contributed to rising tensions between Europe and the U.S. and raised fears in export-dependent Germany of a tit-for-tat on tariffs that could engulf its car industry.

"Donald Trump is a deal maker...there is a deal to be made if someone (in Germany) stood up and said 'Help us protect our auto industry a little bit more, because we're great at it and we're going to help you on Nord Stream 2'," said one U.S. official, who was present at the April meeting between Ms. Merkel and Mr. Trump.

Ostensibly, Washington opposes the pipeline because it would make Ukraine--currently the main transit route for Russian gas headed west--and other U.S. allies in the EU more vulnerable to Russian pressure. German officials say the U.S. is also eager to displace Russia as a provider of gas to Europe.

"Trump wants to block Nord Stream 2 in order to sell liquefied gas to Europe via Germany. We are in principle open to that, but the question is what quantities the Americans can provide, and at what price," said a senior German official.

While Ms. Merkel hasn't dropped her support for the pipeline, she said on Thursday the EU had agreed at a summit Wednesday night to offer the U.S. "closer cooperation" in the field of gas in exchange for a permanent exemption from the steel and aluminum tariffs.

Mr. Trump has been pushing for better access for U.S. companies to an EU market he has criticized as over-protected. Barring an EU offer to address Mr. Trump's grievances, the U.S. will hit Europe with punitive steel and aluminum tariffs on June 1. The EU has promised retaliatory tariffs.

A senior White House official said Mr. Trump discussed the pipeline and tariffs with the German chancellor during their meetings, but never directly connected the two issues. "They are two separate issues," the White House official said.

Mr. Trump has publicly criticized the Nord Stream 2 pipeline, saying at a meeting with Baltic State leaders at the White House this year that "Germany hooks up a pipeline into Russia, where Germany is going to be paying billions of dollars for energy into Russia...That's not right."

A U.S.-German agreement on Nord Stream 2 may not be enough to resolve trans-Atlantic trade tensions. For trade talks to start, members of the EU would have to give the EU bureaucracy a mandate to start formal negotiations with Washington and not all members are interested in a new deal

Successive American administrations have pushed Europe, and Germany in particular, to create the infrastructure required to receive shipments of liquefied natural gas from the U.S.--a potential source of large revenues in a growing energy market.

Liquefied gas from the U.S. needs to be shipped over the Atlantic and would be considerably more expensive than Russian gas delivered via pipelines. A senior EU official working on energy regulation said Russian gas would be at least 20% cheaper.

"Trump's strategy seems to be to force us to buy their more expensive gas, but as long as LNG is not competitive, Europe will not agree to some sort of racket and pay extortionate prices," an EU official said.

Germany's pipeline plan has long been controversial with Ukraine, as well as several EU countries on the bloc's eastern edge who fear it gives Russian President Vladimir Putin power over gas deliveries--which Berlin has so far largely ignored.

But with fresh pressure from Washington and with Germany's lucrative U.S. trade relationship at risk, Ms. Merkel is traveling to Russia on Friday to meet Mr. Putin in a bid to broker a compromise that would satisfy the U.S. and her European partners.

She will ask Mr. Putin for a deal that would preserve the lucrative transit trade--Ukraine gets a fee for letting Russian gas through its territory on the way to eastern Europe--even after Nord Stream 2 comes online in 2019, a German official said.

German government officials say that since all the permits for Nord Stream 2 have been issued, there is no legal way to stop the project, which is run by Gazprom, the Russian energy giant, under financing agreements with international companies such as Engie, OMV, Shell, Uniper and Wintershall.

Nord Stream 2 is the second phase of an existing pipeline that already channels smaller amount of gas from Russia to Germany. Construction for the second phase started this week in Germany, after investors committed EUR5 billion ($5.9 billion) to the venture.

James Marson in Moscow,

Laurence Norman

in Brussels and Mike Bender in Washington contributed to this article.

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