Friendship no more: how Russian gas is a problem for Germany

Nobody looks at the economic realities. One day, Russia will have to start making money on gas sold from Yamal. Today, the very high cost of exploration in Yamal is being subsidized by legacy exports so they don’t yet feel the pain fully. That will change as legacy exports go down after 2020. Current European hub prices are insufficient to make Russia happy but the threat from LNG makes it impossible to up the ante. However, this is not even a topic. Until it is.

For decades, the Friendship pipeline has delivered oil from Russia to Europe, heating German homes even in the darkest days of the Cold War. But a new pipeline that will carry gas direct from Russia under the Baltic Sea to Germany is doing rather less for friendship, driving a wedge between Germany and its allies and giving Chancellor Angela Merkel a headache.

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