 We're back in America, energy in America. I'm Jay Fidel, and it's Wednesday afternoon at 3 p.m. Hawaii time, but it's not 3 p.m. Hawaii time in Washington. It's more like 9 p.m. in Hawaii time in Washington time in Washington. And we have Max Pizzer. He's one of the directors of Epring, the energy policy research organization in Washington. Welcome to the show, Max. Thanks for having me. It's nice to be here. Yeah, great to see you. You're welcome. Likewise. So, you know, we were trying to figure out what is going on as a consequence and an energy in the world today. And I had noticed it and you certainly have studied it, namely the pipeline between Russia and Germany. Now, more than one pipeline, about to have two pipelines from Russia to Germany. And there's all kinds of implications to that. Can you talk about it? Sure, absolutely. The context is a little deeper, it's a little broader, and I was trying to form a context for this. But let's go back to the mid-1970s. In the mid-1970s, the dominant fuel for all sectors in these sectors was crude oil. In the mid-1970s, you had a major crude oil crisis. Air Boyle and Bargo, and then the Iranian Revolution, which sparked crude oil prices considerably, imposed huge costs, economic burdens, things like that. So various constituencies in the world were looking for ways to move away from crude oil. One candidate was natural gas. At the same time, the Soviet Union realized that it had an abundance of natural resources and was in need of high currency. So the two things came together in the context of Europe. In 1980, a huge pipeline system moving natural gas from the Arctic regions of the Soviet Union and into, and in Siberia, moved gas through the various republics, including the Republic of Ukraine, Soviet Republic of Ukraine, through Czechoslovakia, which existed at the time, and into Austria to be distributed further throughout Europe. So that's the energy context, the pipeline system that we have. Well, suffice to say that Russia has an unending supply of natural gas, doesn't it, from various places around the country? Right. Currently, it has the largest conventional reserves, natural gas reserves in the world, something of over a trillion, you would keep, natural. But the United States, with its share of revolution, can certainly begin to compete. As more of that resource becomes reserves, economically proven reserves. The other aspect is that Western Europe needs natural gas. They're not getting anything of consequence from us. So the best source is from Russia, isn't it? Right. So back to what took place in 1982, so you had this huge pipeline system commission. Europe, your opinion wasn't quite dependent on natural gas as it was then, but if we move to the present, Europe, looking at my notes here, consumes about 50 billion cubic feet a day. It produces about 15, so you have a differential that needs to somehow be made up. The critical differential is made up of the gas that is now sourced in Russia and translated to countries like Ukraine, Belarus, and Poland, into the industrial countries of France, Germany, Italy, places like that. What you had also is a lot of political contention. You had a major natural gas crisis in 2006, a major natural gas crisis in 2009. This is in Europe. This was brought on by disagreements between, what at that time was Ukraine and Russia, former shallower folks in the Soviet Union now becoming one more adversarial. And so given these problems that Russia had transiting in 2006 and 2009, and then also not being a reliable satellite country of Russia, Russia has started using it. It has decided to look for different ways of transiting its gas into its critical commercial region, to essentially Germany and Transnately. Well, that seems reasonable in the circumstances, doesn't it? I mean, Russia wants to sell the gas to Western Europe. Western Europe wants to buy the gas. The Ukraine kind of stands in the way, and the Ukraine is not at peace with Russia. And maybe Russia is legitimately concerned that the Ukraine could cut that pipeline, and thus hold it up. Well, that's what happened in 2006 and 2009. But since then, you have the existing pipeline system. It's reliable. It can ship 15 billion cubic feet per day, which, given the metrics that I mentioned before, 15-15, so European Union consumes 15, produces 15, it needs a differential of 35. So 20 of that can come from Russia, and 15 can be transited through Ukraine. But because there's all these points of contention, there's been an invasion of Ukraine by Russia and Russia's proxy, et cetera. The first pipeline, Nord Stream, bypassed, that was commissioned in 2011. Let me go back for one second, Max, and that is that when the gas crosses Ukraine, in the existing pipeline through Ukraine, does Ukraine get a piece of the action? Are they compensated for having it? Yeah. I mean, so the national gas and oil company, Nostahar, owns the transit system, and revenue that they derive from the transit system, which is shipping fees, that affects the budget of Ukraine. That affects the national budget of Ukraine. So if Russia bypasses Ukraine, which sounds like it's happening, then Ukraine makes less money from its own transit pipeline, right? Right, exactly. And the way the pipeline systems are set up is to move Russian gas. You can't source gas from other countries that have gas, such as Turkmenistan, which has a huge resource of natural gas. All those pipelines are directed towards the producing regions of Russia. But it's the geopolitics of the region. So Russia wants to cut off Ukraine in different ways, but still rely on its sources of hard currency, which are the industrial states of Europe, Germany, France, Italy, and so on. So the pipelines, the first one's already built, huh? That's not taking all the gas, though. Right. So you have the legacy system, which was commissioned in 1982, that moves gas through Ukraine through Belos, through Poland. You have the Nord Stream 1, which was, I don't recall exactly when it was started, but it was commissioned in 2011, and it's fully commissioned by the end of 2012. But it runs at about 30% capacity, 30% to 40% capacity. But what constituencies in Russia want is to build a parallel pipeline that runs through the Baltic, under the Baltic Sea, from Russia near St. Petersburg, to a port city in Germany. So they want to build yet another one. So effectively, you would challenge Ukraine or completely eliminate all the Russian gas that is transmitted through Ukraine. Well, I read about this in my initial reaction, maybe it's naive, is why would Germany do this? Germany wants the gas, but I guess Russia must have said something that if you don't cooperate with us and take this Nord Stream pipeline, you're not going to get gas, so you better cooperate and you better forget about trying to preserve the Ukraine connection, right? That's something to it. I don't know to what degree Germany explicitly wants or needs the gas, but Germany is a liberal democracy. There are many different constituencies. There are lobbying interests. There are certainly Russian lobbying interests. A former chancellor who preceded Angela Merkel is now, I think, on the Gas Problems Board, Russia's natural gas monopoly. So I think Gerhard Schroder, that's the first thing. So you have competing interests, lobbying for and against bringing in more natural gas via this Nord Stream system through Russia into Germany. There has been speculation. Maybe there are German interests that want to create a natural hub system, and thereby control natural gas prices throughout Germany, France, and Italy. And that will create certain frictions within the European Union with Germany having such a stronghold on natural gas prices. But that's speculation. I wonder how does it work from, say, Germany to France or Germany to Italy? So now there's going to be a pipeline across Germany going west into France. There's going to be a pipeline across Germany, coming down from the Baltic through Germany and into Italy. Does Germany make money on that? Sure. There's transit fees there. The pipelines are already in place. There's major storage in and around Vienna. There's other storage facilities throughout the whole of the EU. You have a weekly report that's very similar to the one that's generated here in the United States. You have a weekly report that's generated for the European Union telling you what the balances are, what the levels are. That system is very transparent. The system that's not particularly transparent is the German constituencies aligned with Russia, the contracts that Russia creates with member countries. There are a lot of bilateral agreements. To give you some context with the United States, the United States sells natural gas. It doesn't say, well, Japan will give you a special price. The Philippines will give you a special price. Taiwan will give you a special price. There aren't those kinds of bilateral agreements. You have a system that is... You have Henry Hub pricing. You price against that. You put the gas in the cargo and you ship it. So the receiver knows the system that's used for pricing the gas and then everything else is freight and a little bit of costing and a bit of profit. That system doesn't exist in the way Russia markets its gas throughout Europe. I'd be worried about monopolistic pricing because so far in this discussion we've only talked about gas that comes from Russia, which Russia controls. It is essentially, as far as that gas is concerned, it's a monopoly holding a sword over all of Western Europe's head. If you wanted to raise the price, what is Germany going to do? What is France and Italy? What are they going to do? We haven't talked about Spain or Holland or any of that or Switzerland or the soft underbelly either. We have Germany, France and Italy. Those are the key industrial countries of the European Union. I mean, already you source gas from North Africa. Not a lot, but say I think 5 billion cubic feet from that metric that I mentioned before, 15, 15. So 50 billion is what Europe needs to consume. 15 is what it can produce, and it needs to make up the difference in the middle. So you get some from North Africa, but that's one of the Mediterranean. You get from that from Algeria to Alaska, from Albania, coming in through Sicily, Tunisia, Sicily, on the Italy and up into the rest of Europe that way. USLNG, US liquefied natural gas, that's supposed to become import. Given what I described just a minute ago about how the United States interests market their LNG, liquefied natural gas, they put it in, but it's yours. You know the price you pay for it, you can do what you want with it. That act is a balancing system and is a buffer on Russia's pipeline stronghold. So, OK, go ahead, Pete. Well, you go ahead. No, I'm waiting for you. OK, well, let's wait together for a minute, Max. This is Max Pizzer. He's the director with APRNC. We're talking about the recent election in Ukraine and within the context of the Russian efforts to build not one, but two, possibly more gas pipelines that cut Ukraine out and how that affects Europe, the EO, and for that matter NATO. This is really interesting stuff affecting Europe and directly or indirectly also affects in the United States. We'll be right back after this one minute break. Aloha, I'm Cynthia Sinclair. And I'm Tim Appachella. We are hosts here at Think Tech Hawaii, a digital media company serving the people of Hawaii. We provide a video platform for citizen journalists to raise public awareness in Hawaii. We are a Hawaii non-profit that depends on the generosity of its supporters to keep on going. We'd be grateful if you'd go to thinktechhawaii.com and make a donation to support us now. Thanks so much. Thanks so much. Aloha, my name is Andrew Lening. I'm the host of Security Matters Hawaii airing every Wednesday here on Think Tech Hawaii, live from the studios. I'll bring you guests. I'll bring you information about the things in security that matter to keeping you safe, your co-workers safe, your family safe, to keep our community safe. We want to teach you about those things in our industry that may be a little outside of your experience. So please join me because Security Matters, Aloha. Okay, we're back with Max Pescher. He's the director of E-Princk in Washington, D.C., joins us by remote connection. We're talking about the Ukraine today. We're talking about Russian gas through, or maybe not through, the Ukraine to Western Europe and how that affects the geopolitical mix in Europe. So I guess I would ask you, where is the EU on this? Is the EU part of the arrangement by which gas is transmitted through Europe? The EU is a complex authority. It has a cat-herding problem. Its member states have its own ideas as to how to proceed. You have a super authority and various delegations of ideas as to how to create a unified system. Some of these things came out of the crisis that you had before. Some of the things that I mentioned are the 2006 and the 2009 natural gas cut-offs that took place. The EU realized that it needed to have more robust integrated systems. So in those particular cases, that's where the crisis would. But other crises that the European Union had, it hasn't bolstered the unification. It's some sort of disunification. So the European project, as many people to me have described it, is failing in that sense. So it's being undermined. So you have a fragmentation. You have a fragmented interest. You have Germany going one way and within Germany itself you have constituency. You have some kind of Russia, a tighter relationship with Russia, or more EU-centric. So the whole Brexit phenomenon. This is so interesting. Vladimir Putin would like to undermine the EU. Likewise, he'd like to undermine even more. He'd like to undermine NATO. This is one way that he can do it. Tell us how that works and what effect is it having on the solidarity of the EU and the solidarity of NATO? Well, from how I understand it, the EU questioned the United States' effort in Iraq. That undermined the confidence of EU member states. And that began the political fragmentation of the EU from away from an integrating power to one that's fragmented. Russia has exploited that to a great degree. Russia, but still, Russia's natural resources have no strong internal market, so they need to market their natural resources into places like the European Union. Russia is a regiment. It wants to influence its neighbors. It wants to engage in geopolitical conflict. It wants to influence those things. NATO is an obvious threat to that. So by undermining the EU, the next step would be NATO. So you've had, quote-unquote, relative peace since 1945. It's not human input. That can be jeopardized, say, possibly within the next 10 years. There's been an awful lot of damage already within the last 15. I'll leave my thought there. Well, you know, it's saddest to me. Like, Vladimir Putin has a long-range, multifaceted plan undermined both the EU and NATO to improve, you know, the relative power of Russia. This is one terrific way to do that. I mean, the threat... He's a tactician. I don't know if he's got a strategic plan, but he's a tactician and he wants to survive. He doesn't want to end up like Muammar Gadot. He doesn't want to have an internal evolution to sort of chase them into some canal or whatever, and that'll be the end of it. And he's succeeded in the sense that he's preserved his power, he's expanded his power, and he's stabilized his name and consistency. And that gets to Ukraine, where Ukraine is... It has a very strong sense of its sovereignty. It has a very strong sense of its nationhood. It has a... It's a liberal democracy, and institutions are relatively young and not fully experienced. It's not something like the United States where we have the political situation that we have. Here, our institutions are still deliberate. So the defense department, et cetera, you know, I'm sorry, go ahead. Well, you have this new election recently. Well, I guess if only a week or two ago. This time Zelensky... April 21st. Zelensky, a comedian, a one-year-old comedian, and that's not the old guard at all, except there's this word that Zelensky's connected with some oligarch in Russia, so he may have connections that affect his judgment. Well, actually, he's connected to Ukrainian oligarch, and they're very important. All these oligarchs, you know, which team do they play for? Yeah, right. In the case of the oligarch that Zelensky's connected with, it's a very much Ukrainian one, but this Ukrainian oligarch wants to preserve his wealth within Ukraine, and his wealth in Ukraine is being challenged, because the scuttlebutt is that there was a bank. He siphoned off billions of dollars. He's accused of siphoning off billions of dollars, and he's fled the country. He's fled prosecution, so he's living abroad. There's Kolomoisky, the name of the oligarch. People say he bankrolled Zelensky's election. Zelensky's careful to say yes and no, but what got Zelensky in the pot was that he had a TV show on this guy's television channel, and he played a Ukrainian president on the TV channel, so right away he had name recognition, and the people were so dissatisfied by the incumbency, you know, for a variety of reasons. Slow-moving on the zombie of the war, not enough fight against the corruption. I mean, you can say, well, corruption has improved. We've won by six percent. We've normalized the country by six percent, but how do you see that? You can't see that. So, this effect of electric goes and elects somebody other than Zelensky, which if we look back on our election of Donald Trump, it makes perfect sense. I mean, there were certain constituencies that were so grossly dissatisfied. You had a strong bureaucratic candidate, a candidate like Hillary Clinton. She would understand the bureaucracy, but she had her own problems. So, the same thing with the incumbency in Ukraine. Poroshenko, he had his own problems. He didn't divest himself into wealth, and so on and so on like that. So, that's what he brought Zelensky. Zelensky already in confrontation with, they're having a kitchen argument. He's not, he hasn't been inaugurated, but he's having kitchen arguments with Vladimir Putin. Putin said something, and Zelensky carried him right away. Well, that's the thing. He offered, go ahead. Yeah. Well, I mean, okay, I mean, I'm happy to hear he's resisting Putin, because Putin is the 800-pound gorilla in the neighborhood. But I wonder, how do you feel this election and Zelensky's, you know, Zelensky's success in the election will affect the pipeline issue and energy, either through Ukraine or in Western Europe, through these two additional pipelines, you know, north to Germany? I wasn't expecting that question. I honestly don't know. You know, I think the energy dilemma is that Ukraine having this asset, this resource, a pipeline transit system that could be utilized to efficiently move natural gas into new states without additional investment into a second pipeline underneath the Baltic that should be utilized. But I think Vladimir Putin wants and the constituency around them, they want to be able to control the countries around him. They want to control the, quote-unquote, the Arab blood. And Ukraine has proven that it's a liberal democracy. Successfully gone through three or four presidential elections. They were unencumbered. So, candidate to one, they displaced the other. You look at all the other countries around there, it's the same person in power to the last 20, 25 years. Maybe Vladimir Putin, okay, Putin's been involved in power almost 20 years. So, that challenges the orthodoxy in the neighborhood. And that's the trick. How it affects the resolution of natural gas? All things considered, Zelensky would not have been Putin's choice. And all things considered, Zelensky is not a predictable feature that a predictable government that Putin can easily manipulate. This is not what he wants. And I guess it actually leads Putin in favor of the pipelines to Germany rather than trying to reinstate a pipeline relationship or continue a pipeline relationship through the Ukraine. I want to ask you one other thing before we run out of time, Max. So, you have this odd arrangement with all this gas, a monopolistic kind of arrangement through Europe with Russian gas. That could be very problematic in case Russia wants to turn it off again. But query, is any of that gas going to the UK? That's my first question. Is any of this Russian gas going back across the channel to the UK? Or does the UK have other sources of energy? Well, the UK is sort of an outlier, but there's the pipeline system that exists between the UK and mainland Europe is known as an interconnector system, which means you can transit the gas either into the UK or from the UK into Europe, depending on who has the surface and who wants to move it. So, eventually that Russian gas can get into the UK. And speaking to the problematuring presenting the monopolistic situation, here in the United States we have pipeline systems, but the way the Federal Energy Regulatory Commission regulates it, these pipeline systems are common carrier. What that means is they cannot show bias to where they get their supply. If a natural gas producer says, I can deliver gas to your terminal, your injection point at a certain price, and you have capacity, you have to buy it. It doesn't matter where you source the gas. In the context of what's going on in Europe specifically with Russia, Russia is biased towards its own resources of gas. It doesn't want to inject tremendous man gas, it doesn't want to bring in gas from Kazakhstan or some of the other countries in the region. It wants to control its own source of oil. Right, right, all about control. One last question before we go, and that is the US, and recently President Trump indicated he wanted to get a waiver for ships carrying LNG. I don't know if that's limited to ships carrying LNG from or rather to Asia, or whether it also includes American ships or rather foreign-hole ships, non-Jonesac ships carrying gas from our East Coast to Europe. Does that affect gas going to Europe? Does it affect US interests or US sales of LNG? Are we a player in all this? Oh, absolutely. I think we already have LNG going into Europe. If I didn't say before, that impacts the whole dynamic that Russia, with its heavy hand, can control the degree to which Russia can extract monopolies. As far as waivers, I think once boats in the water coming out of the US Gulf Coast with LNG or there are even East Coast facilities now, it can sail to wherever there's a market. There's certain provisions in the pre-trading that are controlled by Lighthizer. I don't remember the name of the agency that he runs, but I'm a trade rep for Lighthizer. There are certain, but these are formal agreements. They're tested. It's not something that's ad hoc or provisional. Something to watch for sure, Max. LNG is so important everywhere in the world and especially in Europe. I mean, it's good that we have the ability to export it. That's Max Pijer with E-Print. Thank you so much for joining us today and explaining this process to us at these events. Thank you very much, Max. Thank you very much, Dave. All the best. Let's follow you to the next town. Let's follow it.