Submitted by Taps Coogan on the 16th of January 2020 to The Sounding Line.

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The nearly complete Nord Stream 2 natural gas pipeline, which will enable increased Russian gas exports to Germany through the Baltic Sea, has propelled the issue of German energy dependence back onto center stage. When completed, the pipeline will double Germany’s direct natural gas import capacity from Russia and allow Russia to reroute a portion of its natural gas flows to bypass Ukraine, whose government has come to rely on pipeline transit fees.

Despite energy being the lifeblood of modern economies, and despite intense focus in the US on the potential to increase its natural gas exports, the economic scale of natural gas imports in Europe is actually remarkably small, especially at today’s intensely low prices.

A Reality Check

Extrapolating data for the first half of 2019, it is likely that Germany imported slightly less than $30 billion of natural gas in 2019. 35% of those imports came from Russia, meaning that Germany likely imported around $10 billion of Russian natural gas in 2019.

At full capacity, the Nord Stream 2 pipeline can move 55 bcm of natural gas per year, which amounts to roughly $9.4 billion a year at current prices ($4.7 per MMBTu). For a slew of reasons, it is unlikely to used at full capacity anytime soon, if ever.

While $10 billion a year may seem like a lot of money, Russian natural gas imports to Germany amount to just 0.2% of Germany’s $4 trillion economy and barely 1% of German imports. They are equal in size to just 0.6% of Germany’s annual tax revenues. Russian natural gas is responsible for just 4% of German electricity. Quite literally, Germans spend more than twice as much money on soft drinks every year ($24 billion) than they spend importing natural gas from Russia. At today’s prices, that will still be true if the Nord Stream 2 pipeline is completed and used at 100% capacity.

If Russia were to cease its natural gas exports to Germany, it would be inconvenient. It would also be a very solvable problem, both in terms of the cost and availability of alternative sources. This is particularly true as Germany and Europe continue to build import capacity for seaborne natural gas far in excess of what they are ever likely to use. The EU already has over 150 bcm of spare seaborne natural gas import capacity (LNG import capacity), more than can be pumped through both Nord Stream 1 and Nord Stream 2 at the same time.

For the entire European Union, roughly 39% of natural gas imports come from Russia, amounting to roughly $68 billion a year (at $4.7 per MMBTu). Russian natural gas contributes just 8% of the European Union’s electricity generation.

Discussions about Russian pipelines are often framed around their impact on future US natural gas export opportunities. The US exported goods worth roughly $2.5 trillion in 2019, despite the impacts of the US-China trade war. The US trade deficit for 2019 is likely to be somewhere around $621 billion. If the US somehow displaced 100% of Russian natural gas exports to the entire European Union, it would increase overall US exports by less than 3% and narrow the trade deficit by just 11%. The US is not going to balance its trade deficit with natural gas.

To really put the small cost of Europe’s Russian gas imports into perspective, consider that the ECB prints an additional 20 billion euro ($22 billion) every month through its balance sheet operations. That is twice the cost of Germany’s annual gas imports from Russia. In the US, the Federal Reserve prints $60 billion every month, more than all of the natural gas the US could ever hope to export to Europe per year.

In a world with booming seaborne natural gas exports (LNG), the Russian gas monopoly on Europe has already been broken, and at these prices, neither Russia nor anyone else is going to get rich selling natural gas to Europe.

Simply put, natural gas is fantastically inexpensive. While that may not last forever, even if prices were to quadruple, it would still be very cheap within the broader context of Western economies.