The EU has long pursued an energy

[Trump 2.0 - Energy and International Relations 6]
(I'm going to organize last month's lecture and post it as a series. Please refer to it.)

3 lines summary

1. The EU has long pursued an energy transition policy, but the energy crisis caused by the Russian war has severely damaged industrial competitiveness
2. The U.S. mobilized various tactics to increase fossil fuel exports, including securing the Panama Canal, escalating conflicts in the Middle East, and pressuring China/India
3. The Trump administration's fossil fuel-focused policy is aimed at maximizing U.S. profits

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As expected, the Trump administration is putting pressure on Russia, Ukraine, and the EU to end the Russo-War. The Russo-War cost hundreds of thousands of lives in Russia and Ukraine, the parties to the war, and the damage to war and property consumed increased to an astronomical scale. The US wants the end of the Russo-War because the amount of direct and indirect support, including the provision of weapons, has grown to an overwhelming scale.

The Russo-Russian War wreaked havoc on the EU economy. The war started for several reasons, but the delay in opening Nord Stream 2, which directly connects Russia and Germany, along with Russia's security concerns following NATO's eastward movement, triggered the trigger. Since the 1980s, Russian natural gas has been supplied from West Siberia to Western Europe through a long-distance natural gas pipeline of up to 4000 kilometers. Natural gas was initially priced through the linkage of international oil prices, but after EU integration, as the EU reorganized the entire energy system, it was changed to be priced by market mechanism.

As the EU's energy system reform progressed in three stages, there were important changes such as integration of the regional energy market, direct connection of the electricity grid/gas grid, and marketization. Europe sought to transform its energy transition in the long term and required enormous capital investment, so it wanted to make the entire energy industry accessible to investors. In this process, natural gas was recognized as a "bridge" in the energy conversion process, and as conflicts between Ukraine and Russia over the use of pipes were repeated periodically, Germany undertook the project of establishing a direct link with Russia.

The Nord Stream 1 submarine natural gas pipeline, which directly connects Russia and Germany, was a successful business. The shorter transportation route and market competition pricing structure brought enormous economic benefits to Germany. However, Russia refused to change the long-term fixed/oil-linked contract to a short-term/market competition system, leading to litigation. By 2018, most of the lawsuits were concluded in favor of EU companies that are buyers of natural gas. Russia was directly hit when gas prices plunged due to the COVID-19 incident in 2020.

For this reason, from 2015 to 2020, natural gas prices in Europe and electricity rates in Germany contributed to strengthening the competitiveness of the European manufacturing industry while maintaining low levels. However, natural gas prices in Europe, which began to rise in 2021, soared along with the Russo-Japanese War, a major shock to the EU economy. Before the reorganization of the EU energy market, the electricity market and the gas market were separated, but after the reorganization, the two markets changed to a way in which wholesale prices freely fluctuate according to supply and demand. Since the entire EU is merging into a single market, if gas and electricity prices surge in a specific country, the entire EU is affected.

The EU began to experience an energy crisis in the winter of 2021, and the crisis in the winter of 2022 intensified to the worst. Prices of both electricity and gas have more than tripled in a year, and facilities in the EU's proud abundance of renewable energy have been of little help. Russian natural gas entering the pipeline has been reduced to less than 1/10 due to the Russo-War, but imports of LNG that could be supplemented did not contribute much due to a lack of LNG terminal capacity and a lack of piping networks/storage facilities in the region. In the chemical industry, which requires large-scale heat in the process, both natural gas and electricity prices have soared, and government policy support has also suffered the worst as it focuses on stabilizing household energy bills. In the case of Germany, in two years, energy-guzzling industries such as the chemical industry suffered from a more than 20% decrease in production and enormous losses, closing factories or reducing the number of employees.

Russia, on the other hand, has made a lot of money from soaring fossil fuel export prices.

The EU will no longer import Russian natural gas. This is because the grand plan to exchange energy and peace in the past no longer works. However, since the energy conversion process is too expensive without natural gas, there is a need for an alternative that can supply natural gas to the EU on behalf of Russia. Trump is calling on the EU to import US LNG on a large scale. If EU countries increase their defense spending burdens and do not import US LNG, they will pressure them to impose tariffs.

The U.S. has already become the world's No. 1 LNG exporter due to the shale revolution, and most of its export terminals are concentrated on the Atlantic and southeastern coasts of the U.S. (so-called Gulf of Mexico/United States Gulf Coast). It is price competitive because the route to Western Europe is relatively short compared to the transportation route to the Far East, but it remains to be seen how much U.S. LNG will be imported by the EU, which has been heavily dependent on energy sources from a specific country and suffered a big failure.

Trump is attempting to address two issues in order to export LNG to the EU and the Far East. The first is to cut off competitors who can supply natural gas to the EU, which the EU rejects from Russian natural gas, but the Middle East and Central Asia natural gas is a strong competitor for US LNG. When natural gas is supplied through piping from Iran, Turkmenistan, Israel, and North Africa to Europe, it is more price competitive than US LNG. It is expected that the use of Israel will continue to cause tension and conflict in the Middle East in order to contain this. Political stability is important in pipeline projects, so if the Middle East continues to conflict, it is not easy for Europe to import natural gas through the region.

In order to sell more US LNG to the Far East, LNG carriers must pass through the Panama Canal. If it does not pass through the Panama Canal, the route is lengthened, making it less price competitive than Middle Eastern LNG