FRACK 3: LNG and Ukraine
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There is a profound unity of intention and action between American businesses and the American state, especially when it comes to foreign policy. The two spheres share individuals who build careers by moving seamlessly from private to public service and back again, but that is just a symptom of an underlying conjunction of incentives. Often explicitly, the interests of American companies are the interests of the state. While maintaining a level of specificity necessary to be accurate, we should treat these two meta-human entities as two hands of the same being.
In January, 2013, Charif Souki, still for the time being the CEO of Cheniere, and his policy advisor, Ankit Desai, began a series of meetings with the Obama/Biden Administration. These meetings were coordinated by Heather Zichal, then the deputy energy secretary for the administration, who would soon join the board of Cheniere. Desai had formerly worked alongside Zichal on John Kerry’s 2004 presidential campaign, and had also served as political director for then-U.S. Senator Joe Biden. This was not the first contact between Cheniere and the Obama/Biden administration; rather, these meetings were among the 32 that the administration held with representatives of Cheniere during the Obama presidency.
The message that I think was given to Joe Biden was: we need Russian gas off the European market so we can export LNG. After 2015’s announcement of the proposed expansion of the Nord Stream Pipeline, that sentiment manifested itself as opposition to the project, creating diplomatic tension with Germany, who very much felt they needed it.
It didn’t have to be Souki who delivered this message: anyone in the gas industry, say, Aubrey McClendon, or any advisor or analyst, would have done the same. They had an attachment to the success of the LNG project that was more than rational—it was, as I wrote before, narrative. Again, it was the gas itself over-determining human activity, driving us again into war.
In 2015, Carl Ichan took a $1 billion stake in Cheniere and pushed out Souki as CEO in 2016. His termination triggered payments of stock and other compensation valued at $165 million. Nonetheless, rather than enjoy a comfortable early retirement and allow the LNG industry to grow at a natural pace, he immediately started a new company he named Tellurian (which I interpret to mean that he had read Cyclonopedia and decided to lean in to the daemonic aspect of his project). He started trying to raise capital to build an even bigger LNG project on the Gulf Coast.1
Perhaps it is to state the obvious, but LNG will always be more expensive than pipeline gas. You’re taking the molecule out of a pipeline, freezing it, shipping it in specialized and expensive boats across the ocean, and then warming it up. Even though utilities are corrupt, it is still difficult to raise a lot of interest to buy a more expensive commodity without getting any increased use-value in return. So, anywhere that could be served by an existing pipeline had no real use for LNG. It makes sense that Japan would be interested, and other islands as well. I still think the Chinese were mostly making nice to the Americans by buying American LNG.2 All those cargoes were going through the Panama Canal. If Sabine Pass were built with Pacific consumers, would it not have been built on the West Coast? No, we had eyes on the developed, European market.
So, Biden set about the business of starting a war with Russia. I have constructed a more detailed timeline of these events, which I will post next week; for now, I’m trying to run through these years as quickly as I can:
Things got started in November, 2013, when Viktor Yanukovych decided not to sign an Association Agreement with the European Union. Like all other Ukrainian presidents since the end of the Cold War, he was balancing between power from the west and power from the east. Russia had accelerated as a petropower, and shipped gas through Ukraine. Also, 30% of the residents of Ukraine as it was then constituted are Russian.
Well-documented and western-dominated forces turned this event into the occasion for the Ukrainian nationalist opposition to come out in force. As Vincent Bevins accounts, there were certainly liberals who participated in the early stages of the Maidan movement, but the event itself was driven by the Right, which in Kiev means Banderites, who believe that they have a Ukrainian identity distinct from and superior to Slavs. It was thought that this way of thinking was subscribed to by about 25% of the country — the 25% who voted for Poroshenko over Yanukovich in the 2014 election. Moss Robeson has extensively documented the support that the Banderites received from the U.S. and Canada, before, during, and after the events of the Maidan.
With extensive U.S. and Canadian support, this nationalist sect staged a false flag event, toppled the elected government and installed Petro Poroshenko the President.
Of the 21 members of the new cabinet, 19 were from west Ukraine, “effectively locking out Russian-speaking Ukrainians from the new regime.” The far right, OUN-B-aligned Svoboda party, which secured less than 1 percent of the vote in 2006 and 2007, got 5 cabinet seats and 5 governorships covering one-fifth of the country.
The first act of the Poroshenko government involved marginalizing the Russian language from public spaces. Russian speakers had reason to fear violence and even ethnic cleansing at the hands of the new government, which is why Crimeans were universally relieved when Putin sent his special forces to secure the peninsula: “Russia’s actions saved hundreds of thousands of Russian-speaking Crimeans from an actual ‘reign of terror’ emanating from the Ukrainian neofascists in Kiev, their criminal oligarch benefactors, and friends in the Western bourgeoisie.” In March, after a referendum that showed that 96 percent of Crimeans supported rejoining Russia, that happened. Kiev began seizing Russian owned oil and gas assets in Ukraine, including the country’s third largest refinery at Odessa. While Biden headed to Kiev, Senators John McCain and Ron Johnson visited Bulgaria to pressure them into canceling the South Stream Pipeline.
Faced with a freshly hostile government in Kiev, the people of Luhansk and Donetsk took matters into their own hands. They knew what violence the Banderites were capable of, and so took steps to protect their Russian-Ukrainian families. Their geographical position on the mainland was more precarious than Crimea, and the Russian government, conservative in its approach, wouldn’t help them much for fear of antagonizing and escalating the situation. Their civil war settled into a low-intensity conflict.
The Trump days came and went in a blur of Russophobia, and Biden was back in office. Energy prices settled into what seemed like a permanent trough, as Sabine Pass continued its scheduled shipments to Japan and China, but it starts to look doubtful that the LNG market will grow much beyond that. The natural gas sector starts aggressively marketing its stocks to retail investors, as their institutional backers begin to lose faith that prices will ever rise. Trump signed new sanctions against Russia that stopped construction of the Nord Stream 2.
Zelensky won the presidential election in Ukraine as the peace candidate. With 70% of the vote, he had a clear mandate from the people to negotiate with Russia and end the war in the Donbas. He had roundly defeated incumbent Poroshenko, who had the votes of the right-wing Ukrainian Nationalist movement led by the OUN-B, an organization that takes its inspiration from the Nazi collaborator Stephan Bandera. However, for the moment, it seemed that the right-wing radicals had been silenced. The people of Ukraine rejected their hate and elected a Russian-speaking Jewish comedian. On the day of the election, an OUN-B member representing “Protect Ukraine” told the Daily Beast, “We are going to raise a new Maidan revolution if he [Zelensky] makes a single step away from our course… He is weak, he does not have a religion, he does not have a nationality.” The commander-in-chief of the Ukrainian armed forces said of Zelensky, “He will hang on some tree on Khreschatyk [the main street of Kyev] if he betrays Ukraine and those people who died during the Revolution and the war.” The betrayal he had in mind was “capitulating” to Russia.
Members of the OUN-B visited Washington in October 2018, then again in June 2019 — each time meeting with organizations including the Heritage Foundation, The American Foreign Policy Council, the RAND Corporation, and the State Department.
Nonetheless, the Ukranian people wanted peace with Russia, and so Zelensky set about making it. He agreed to the “Steinmeier formula” which would de-escalate the conflict in Donbas by holding free and fair elections.
In response, after another visit to Washington, right-wing leaders of the “Protect Ukraine” movement led by Andriy Levus, re-brand and relaunch as the “No Capitulation Movement” and issue a statement of demands that reads in part, “Peace with Russia cannot be reached at any cost.”
Region expert Stephen Cohen observes that Zelensky’s “life is being threatened by a quasi-fascist movement. He can’t go forward with full peace negotiations unless America has his back.” In this, America did not have his back; for whatever reason, to all appearances, America wanted war.
Ukraine became a central issue in the 2020 American election. Trump had been impeached for briefly delaying a shipment of weapons to Ukraine, and since it had been publicized that Joe Biden’s son sat on the board of the Ukranian gas company, Burisma.3 Biden’s campaign framed Nord Stream 2 as a problem of Russian Influence—a vaguely Russiagate-related idea that it would allow Russia the power to withhold energy from Europe to gain “influence” over the “West.” As in so many things, Trump agreed with Biden in principle and could boast of having imposed sanctions that delayed the project. Meanwhile, the Russians were continuing construction, using their own ships.
Sometime around the fog of COVID, between the elections and the inauguration, Zelensky is finally persuaded that if he continues to make peace with Russia, he will face another Maidan coup that would likely result in his death. To all appearances, he is made to understand that his best course of action is a complete and vigorous reversal; that if he can’t be with Russia, he must act aggressively against them. In September he approved a new National Security Strategy that identifies Russia as an aggressor in Donbas, and announces Ukraine’s intention to join NATO.
In September 2021, the Nord Stream 2 was complete and ready to be put into operation. American pressure stalled final German certification and the pipelines remained still.
During a joint news conference on February 7 with the new German chancellor Scholz, Joe Biden promises to blow up the Nord Stream 2 pipeline: “I promise you, we’ll be able to do it.” Scholz doesn’t seem so eager. This is in violation of a deal Biden had made with Merkel the last summer, but Scholz doesn’t seem to feel like he can challenge the Americans on the point.
A few weeks later, Russia officially recognized the Donetsk and Luhansk People’s Republics. In an act that we are supposed to understand as retaliation for that political recognition, Biden forces Scholtz to suspend certification of the Nord Stream 2.
Finally, on February 24, 2022, Russia took the bait and started their “Special Military Operation.”
The next day, Feb 25th, Venture Global announced Final Investment Decision to fund the the largest LNG export plant yet proposed, called Plaquemines. The FID of $13.2 billion was announced along with a purchasing agreement from Shell to buy, on behalf of the UK, 2.72 BCM a year for a term of 20 years, from that plant after it comes online in 2026. The future may be misty and full of uncertainty, but Shell has guaranteed that it will need at least 2.72 billion cubic meters of LNG from Plaquemines every year from 2026 until 2046. (On top of what it will be buying from everywhere else.)
A month later, Joe Biden went to Brussels and sold the EU 15 billion cubic meters of LNG to be immediately redirected from shipments bound elsewhere. He also announced that his goal was to scale up American LNG supply to deliver the EU 50 billion cubic meters annually by 2030. The latter announcement was, in fact, the price to be paid for the first.
In the short term, Russian exports to the EU dropped by 56% and American LNG imports to the EU jumped from 2,585 million cubic metres per month to 4,562. All out of existing LNG infrastructure: Sabine Pass in Louisiana to export, Dunkirk to import. Even during that time (Spring 2022), these facilities were being utilized at a maximum of ~80% of capacity, a peak which went down quickly.
The announcement of the expansion of LNG capacity set off a feeding frenzy in the industry. At one point, a single ship’s cargo of LNG could earn profits of $TK. It is moments like this in which careers and fortunes are made. It wasn’t really Souki or any of the companies that made most of that money, it was the gas traders of the global Wall Street, who were a twitchy bunch used to extreme volatility.
These moments of panic pricing don’t last long, and so what you do at those times is to sell hard. Short term high spot rates became justification for sales pitches for new LNG plants that wouldn’t ship their first cargoes for years.
In addition to the Plaquemines, twenty new LNG plant projects were begun, intended to deliver a combined annual capacity of 227 billion cubic meters, expected to all come online by 2030.
In 2021, the EU imported a total of 157 bcm of gas from all sources, so this new capacity will equal about twice the existing demand. Dumping an excess seventy billion cubic meters of gas on the market in 2030 could crash the price of gas again. European utilities will be contractually obligated to guy LNG in these quantities for the next 15-20 years after deliveries begin after 2027, so these contracts demand we imagine the natural gas market in Europe into the 2040s.
Meanwhile, Russia has increased its LNG supply as well, and its primary buyers are Belgium and Spain. Russian pipeline gas was not sanctioned, since Germany couldn’t make up the difference in supply, and Russia’s Gas Transit Deal with Ukraine remains in force through the end of 2024, earning Zelensky’s government $4 billion annually.
Last week, the Biden administration announced that it would include a climate analysis in the approval process for new LNG projects. Bill McKibben counts this as a big win. However, given that there are two HUGE LNG facilities fully permitted and built—Plaquemines and Calcasieu Pass— but not in operation right now, there is still incredible capacity for LNG to expand without another permit being granted.
Note that you can email me at thespouter@substack.com. It forwards to my personal email.
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A similar explanation holds for the Dunkirk LNG terminal in France. The public utility, Électricité de France, funded the project and then sold its shares back to a private company that is owned mostly by money invested by Belgian municipalities, Fluxys. Probably the French did it to make a nice deal with the Americans at the same time as getting in a dig on Germany, as the gateway to Russian hydrocarbons. Maybe they thought a war with Russia was coming sooner or later. With only Dunkirk, European LNG import capacity was small compared to the infrastructure available in Asia.
Burisma is a strange company in that it controls very few gas reserves in Ukraine. Most of the country’s oil and gas assets are in the Donbas, and made inaccessible by the conflict. It is clear that Burisma is paying Hunter Biden a lot of money, but the larger question of what this means for the gas markets in Europe are unclear.