The New Map: Energy, Climate, and the Clash of Nations

by Daniel Yergin

the Russian companies are on their own, advancing by themselves, improving their capabilities. Eventually they will be able to substitute Russian-made equipment for that which they cannot buy from the West, bearing out Secretary of State George Shultz’s already cited dictum from the 1980s Soviet gas controversy—sanctions can be a wasting asset.

The U.S.–EU sanctions, as well as those of other countries, including Japan and Norway, had been imposed at a time of high oil prices and expectations of a continuing tight market. But then in late 2014 the oil price collapsed, delivering a new shock to a Russian economy and national budget so heavily dependent on

But the shock was cushioned by the policies of the Russian central bank. It closed insolvent banks, including those owned by powerful figures, and allowed the ruble to float.

The devaluation was a great boost to the Russian oil industry. It received dollars from its exports, but most of its expenditures on workers and equipment were in devalued rubles, and so the collapsing oil price had very little effect on industry activities within Russia.

Imported goods became much more expensive for Russian consumers, who were paid in what were now devalued rubles; and they cut way back on such purchases.

At the same time, owing to the fall in the ruble, domestically produced Russian goods were now much more competitive not only domestically but internationally. This applied to both manufactures and agriculture, in the latter case also aided by far-reaching reforms in the farming sector. Russia became the largest exporter of wheat in the world—quite a turnaround from the 1970...

But other parts of the economy were much threatened. The closing of international capital markets put Russian financial institutions and companies that had borrowed in dollars or euros in the precarious position of not being able to meet their debt payments.

Those funds had been built up over several years by Alexei Kudrin, finance minister from 2000 to 2011. He had been seared by the 1998 crisis when the Russian economy went into free fall and the government ran out of money. Kudrin had long been criticized for socking away some of Russia’s large oil earnings into sovereign wealth funds and paying off its foreign debt, instead of spending the money right away.

Yet when it was all added up, the Russian economy proved more resilient to the sanctions and oil price collapse than had been expected. By 2017, the economy had crawled back into positive economic growth, and by 2019 it was growing at 1.6 percent.

The new isolation instead made companies more dependent on the state and expanded the role of the government in the national economy.

These are government initiatives, with a considerable commitment to spending. The Russian economy was returning to state control. Reform would once again have to wait.

In late 2015, four years after Nord Stream started operating, surveyors began to map out a second pipeline route under the Baltic Sea from Russia to Germany. Opposition to Nord Stream 2, as it was known, was much stronger than against the original Nord Stream.

That was not, however, how other Europeans, including German chancellor Angela Merkel, saw Nord Stream 2. It was a commercial project, she said, and up to the companies involved—Gazprom and its European partners.

Donald Trump came into the presidency determined to set a new course on Russia.

“bright,” as in “eye-catching” or “shiny.”) Trump, however, was running in his own lane. “Russia” had become a bitterly divisive subject in Washington. A joint task force from the CIA, the National Security Agency, and the FBI concluded “the Russian government pursued a multifaceted influence campaign” in the 2016 election

Putin certainly did not hide his distaste for Clinton. It was mutual. She had said of Putin that as a former KGB agent, “by definition he doesn’t have a soul.”

In an effort to “do something,” the U.S. Congress passed myriad new sanctions, targeting individuals said to be close to Putin, and companies and financial institutions.

Normally, U.S. sanctions legislation permits presidential discretion so that they can adjusted as a policy tool in response to changes on the part of the sanctioned country.

Trump signed major sanctions legislation in August 2017 though he called it “seriously flawed” because it encroached on presidential authority.

Nord Stream 2 was targeted in several pieces of proposed legislation. There was an assumption among some in Washington that if the pipeline was not built, it would reduce Russian gas going into Europe. But that was not correct.

While the eastern members of the European Union wanted new sanctions aimed at stopping Nord Stream 2, the rest of the continent reacted differently. “Europe’s energy supply is a matter for Europe, not the United States of America,” said Germany’s foreign minister and Austria’s chancellor in a joint statement.

Wolfgang Ischinger, the chairman of the Munich Security Conference and the former German ambassador to the United States, observed that Americans would be highly riled were Brussels to pass legislation to block an oil pipeline from Canada to the United States.

The outlines of a deal over Nord Stream 2, at least in Europe, were becoming evident. The pipeline was not “just an economic project,” said Chancellor Merkel in the spring of 2018.

It turned out that the bluntest critic of Nord Stream 2 was Donald Trump. Across a breakfast table from NATO’s secretary-general, he declared, “Germany is totally controlled by Russia because they’re getting 60 to 70 percent of their energy from Russia in a new pipeline.

Not deterred, Trump renewed the attack via Twitter: “What good is NATO if Germany is paying Russia billions of dollars for gas and energy?”

A year and a half later, in December 2019, the $11 billion pipeline was only weeks away from completion. On December 9, Putin was in Paris to meet with German chancellor Angela Merkel, French president Emmanuel Macron, and Volodymyr Zelensky, the new president of Ukraine.

Three days later, on December 20, to the surprise of many, word got out that Russia and Ukraine had concluded a settlement of what had seemed to be their endlessly acrimonious natural gas battle.

Some few hours after the Russians and the Ukrainians had finally settled their long-running conflict, Donald Trump, at Andrews Air Force Base in Maryland on his way to Florida, signed the defense bill, imposing sanctions on the Nord Stream 2 pipeline.

The sanctions targeted just one company—a Swiss firm that owned the pipe-laying barge, at the time the only one of its kind in the world equipped for this project.

Whatever the pipeline route, Europe would need additional natural gas imports to make up for declining domestic supplies. The Groningen gas field in northern Holland, discovered in 1959, was the biggest domestic source of gas within Europe, and the foundation on which the original European gas system had been built.

This would not affect new discoveries of the Netherlands’ offshore, but it would mean that Europe would lose what had been its largest domestic source of gas.

Yet the concern about Russia’s potential leverage from gas exports does not fully recognize how much both the European and world gas markets have changed.

There already were a number of terminals in Western Europe to receive the LNG, regasify it, and inject it into the European pipeline system. But not in Eastern Europe. The first country to remedy this was Lithuania, which was completely dependent on Russian gas and was paying higher prices than other countries.

Europe now has more than thirty receiving terminals for LNG, which can be ramped up on short notice. They are also part of an increasingly dense global network. Worldwide, over forty countries now import LNG, compared to just eleven in 2000.

Exporting countries have increased from twelve to twenty. Overall global LNG demand in 2019 was almost four times larger than in 2000, and liquefaction capacity is expected to increase by another 30 percent over the next half decade. Methane molecules from a growing number of countries now jostle and compete with one another for customers across the globe.

European buyers today have choices in the new competitive global market. They will put together portfolios of pipeline gas and LNG that fit their needs ...

Ukraine is no longer directly dependent on Russian gas, but rather imports gas that may or may not be Russian molecules through Slovakia, Hungary, and Poland. Moreover, domestic production supplies about two-thirds of total demand, and the share could go higher, as Ukraine may possess the largest natural gas resources of any country in Europe.

A surprising new competitor to Gazprom has entered the LNG business—within Russia itself. Since 2009, Russia has been exporting LNG from its Far East island of Sakhalin, north of Japan.

But not quite everyone agreed. Leonid Mikhelson, the CEO of the independent Russian company Novatek, was determined to develop LNG export capacity in the north of the Yamal Peninsula.

The region in which Yamal LNG intended to operate is three hundred miles from the North Pole and often unreachable by land and cut off by winds, fog, and blinding snow that forces helicopters to turn back midflight.

Already very challenging, the project became even more so in 2014, when Ukraine-related sanctions cut off Novatek’s access to Western finance. In order to survive, the $27 billion LNG project needed a new injection of money, and quickly. The Chinese came through with a $12 billion loan and also became partners in the project, along with the French supermajor Total, which had joined earlier.

The decision to go ahead with the project in 2013 had been met with much skepticism and doubt in both Russia and the international LNG industry. But by December 2017, the first cargo of LNG was ready to leave the new port of Sabetta.

That first cargo was sold on the spot market. It ended up in a British terminal, where it was bought by another company. From there, it became part of a cargo that was rushed to Boston to keep freezing New Englanders warm during unexpectedly cold weather.

Massachusetts sits near the vast volumes of inexpensive gas in the Marcellus shale, which would have enabled it to avoid Russian molecules. But environmental activists and regional politicians have unwaveringly blocked construction of a new pipeline from Pennsylvania.

The path of the tanker also delineated what has become known as the NSR—the Northern Sea Route. This fulfills a major Russian objective, the opening up of a transit route between Europe and Asia through the Arctic Ocean.

It has been facilitated by the retreat of the Arctic ice, although with more variability than sometimes recognized. For instance, in September 2014, the ice extent was 50 percent greater than it had been in September 2012. The route cuts the distance between Shanghai and Rotterdam by about 30 percent, and in the process avoids both the narrow Malacca Strait and the Suez Canal. This opening has been welcomed by Japan, South Korea, and especially by China, which, describing itself as a “Near Arctic State,” applies its own distinctive name to the route—the Polar Silk Road.15

Overall, however, the Northern Sea Route is still supplementary, owing to the challenges of ice and weather. There’s a fee, for instance, for icebreaking. But it is crucial for Yamal LNG, which targets...

But Europe is also a market. This holds out the possibility that Russian pipeline gas, whether it comes through Ukraine or Nord Stream 2, will fac...

LNG projects for Russia’s Arctic gas make clear that Russia will become the fourth major pillar for LNG supply in the 2020s, along with the United States, Qatar, and Australia. These Arctic projects will give Russia the same advantage that Qatar achieved earlier this century—the flexibility, as Putin put it, to go either “eastward” or “westward.” And Yamal LNG, said Putin, “is one more confirmation of the status of Russia as one of the world’s leading energy powers.”16 The development of ...

In May 2014, Vladimir Putin, accompanied by a large entourage of government ministers and businessmen, swept into Shanghai, welcomed on a state visit by President Xi Jinping. Russia’s “pivot to the east” had taken on a new urgency. For