Aggressive U.S. energy policy tests ties with European allies

[July 10, 2019]  By Timothy Gardner and Alissa de Carbonnel

WASHINGTON/BRUSSELS (Reuters) - For the administration of President Donald Trump, a policy of "energy dominance" means reducing dependence on imported oil and promoting exports to boost the national economy and Washington's political influence overseas.

For many of America's European allies, however, it means unwelcome interference in its markets.

The Trump administration has capitalized on a decade-long U.S. drilling boom to pursue some of the most aggressive foreign energy policies in the nation's history. So far, that has meant sanctions on oil exports from OPEC-members Iran and Venezuela and threats against firms helping Russia build a natural gas pipeline into Europe.

To fill the supply gap, Washington is promoting a rising wave of U.S. crude oil and natural gas exports.

The Trump administration has billed the moves as a way to achieve foreign policy goals, with the added benefit of helping both U.S. energy producers expand their markets and American allies diversify their supplies. But Washington has irritated many European diplomats and energy companies who resent its growing global influence on energy markets and view its policies mainly as a way to give U.S. producers an advantage, according to interviews with diplomats, executives and analysts.

Growing friction over energy is grating on trans-Atlantic ties that are already strained by squabbles over NATO funding, trade, climate change and diplomatic gaffes.

"We value highly the relationship with our American partners, allies and friends," EU Economics Commissioner Pierre Moscovici told reporters at a briefing in Brussels last month. “But ... they should also refrain from unilateral action."

Moscovici also advocated using the euro in more international energy transactions, which are almost universally conducted in U.S. dollars.

"We are all about the diplomacy, but you have to ask at some point whether it is worth it," said another EU diplomat, who asked not to be named.

The diplomat spoke to Reuters at a U.S. embassy party attended by U.S. Energy Secretary Rick Perry in Brussels in June, where a handful of other European diplomats were sharing gripes about what they saw as Trump's brash, go-it-alone approach on energy.

A senior Trump administration official, speaking on condition of anonymity, said the energy strategy aims at the mutual benefit of the United States and its allies.

"What the U.S. energy sector is doing is unleashing our energy resources and our technologies and sharing them with our partners and allies around the world to help them diversify their energy mix and ensure reliable supply," said the official.

A Department of Energy press release recently called U.S. gas exports to Europe a way to spread "molecules of freedom" across the Atlantic.

The United States has become the world's top oil producer and is on a path to become the world's third largest exporter of natural gas, thanks to a technology-led drilling boom that the Trump administration has sought to boost by slashing environmental regulations.

The United States sent of 43.3 million barrels of crude oil and products to Europe in the six months ended in March, a 27 percent increase from the same period a year earlier, according to the Energy Information Administration. Meanwhile, U.S. liquefied natural gas exports to Europe have nearly tripled since last year, when the European Commission agreed to buy more in a trade meeting with Trump.

"Increasingly, the America First framework translates into advocating for oil and gas sales around the world," said Tim Boersma, a senior research scholar at Columbia University's Center on Global Energy Policy.

EUROPEAN RESISTANCE

The unilateral U.S. sanctions on Iran and Venezuela would have triggered steep oil price increases without the surge in U.S. supply.

Trump's decision last year to pull out of the Iran nuclear deal – which has evolved into an unprecedented effort to completely block its oil exports - was opposed by Europe's leaders and reluctantly accepted by its energy companies, who faced U.S. penalties including being excluded from the U.S. financial system.

President Donald Trump talks with Energy Secretary Rick Perry after delivering remarks during an "Unleashing American Energy" event at the Department of Energy in Washington, U.S., June 29, 2017. REUTERS/Carlos Barria/File Photo

Germany, France and the UK have since taken steps to resist Washington, including setting up a barter-based trade mechanism called Instex that would allow it to trade with Iran outside the U.S. financial system in a way that skirts U.S. sanctions. Europe hopes to use Instex to allow Iran to exchange its oil and gas or other goods for medicine, food or other humanitarian supplies from the EU.

"They have sovereignty and self-respect at issue here. They're trying to say we're going to do Iran trade; we're going save the nuclear deal and provide a mechanism; and we don't appreciate being unilaterally dictated to," said Sanjay Mullick, a sanctions lawyer at Kirkland & Ellis LLP.

SQUABBLES OVER SANCTIONS

Meanwhile, British-and Swiss-based trading houses and refineries have received insistent calls from U.S. State Department officials warning about trading oil products with sanctioned countries.

Last month, for example, Mark Saavedra, a State Department official at the bureau of energy resources, called several European energy trading houses to instruct them not to trade jet fuel with Venezuela, a product that was not specifically on the U.S. sanctions list for that country, according to three industry sources familiar with the calls.

The U.S. has been trying to block shipments of refined fuels to the Latin American country to prevent it from blending it with its heavy crude oil to make it more suitable for export, part of an effort to ratchet up pressure on socialist President Nicolas Maduro.

The sources said the trading houses believed the State Department had overstepped its authority.

Frank Fannon, the U.S. Assistant Secretary of State for Energy Resources, said don't expect State to put down the phone anytime soon. Such requests, he said, are a friendly way to tell allies how to avoid sanctions themselves.

"It may be unwelcome news, but it's important that we convey that clearly and unequivocally," Fannon said.

FIGHTING A RUSSIAN PIPELINE

Trump has also hurled criticism at European nations for supporting a long-planned, multi-billion-dollar Russian gas pipeline to Germany, the Nord Stream 2, saying it would give Moscow too much influence over Europe's biggest economy and threatening to sanction companies that help the project.

That’s rubbed some EU diplomats and companies the wrong way.

"It will be a disaster for Europe to ditch Nord Stream 2 under U.S. pressure," said Rainer Seele, CEO of energy company OMV Austria's largest company and one of five European companies including France's Engie helping to finance Nord Stream 2.

The Russian gas via pipeline is cheaper than U.S. liquid natural gas, he said, and U.S. pressure threatens "Europe's independence and security of energy supplies."

Some countries such as Poland and Lithuania, however, are happy to buy the incoming U.S. liquefied natural gas shipments to help break reliance and barter better prices from Russian gas export monopoly Gazprom.

On June 12, Polish Oil and Gas Company (PGNiG) signed an agreement with U.S. company Venture Global LNG to buy 1.5 million metric tons of LNG a year.

But even diplomats opposed to Nord Stream 2 take issue with Washington’s tone and tenor, according to the Reuters interviews.

"We don’t want to be dictated to," said one.

(Reporting by Timothy Gardner; Additional reporting by Alissa de Carbonnel in Brussels, Dmitry Zhdannikov in London and Humeyra Pamuk in Washington Editing by Richard Valdmanis and Brian Thevenot)

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