By NSS staff
Donald Trump has finagled the sale of two sets of questionable products to Poland, namely, US-made Patriot missiles and LNG shipments, as part of his policy of “economic patriotism.”
Prior to Trump’s Warsaw visit, Poland had already signed up for the first-ever delivery of US LNG (liquefied natural gas) and had received its shipment about a month before Trump arrived to demonstrate his finesse in the art of the deal to the hapless Poles.
On May 8, Polish online news site Niezależna reported that, on this occasion, Prime Minister Beata Szydło had raved (our translation):
"This first shipment of gas from the United States to Poland will in future go down in history. This day is a really symbolic day that shows Poland is indeed putting into practice the idea of a secure country."
The English language Polish site Radio Poland was a bit more sober in its assessment:
“[Polish company] PGNiG said the deal with America’s Cheniere Energy, signed in April, had ‘good, attractive conditions’ but has declined to reveal the cost or volume of the shipment.”
Bloomberg then supplied the nitty gritty that the Polish company chose not to disclose:
“The LNG on the Clean Ocean vessel [from Louisiana] had a value of $5.97 per million British thermal units, according to an assessment by PanEurasian Enterprises Ltd., a tracker of LNG shipments, based on the price under a BG Group Plc contract for Sabine Pass cargoes. Russian gas at the German border cost $5.07 a million Btu in May, according to International Monetary Fund data.” [our emphasis]
Ok, so the US gas could be up to 15% more expensive than the Russian gas, and the prime minister is raving that paying a hefty overage is making Poland more secure, eh? To be fair, Polish officials did say that they pay more for Russian gas than the Germans do, but they did not say how much more.
As for the Patriot missiles, to put it bluntly, there is no such thing as missile defense against ICBMs, either for the West or for Russia, and US officials know this. Russia is currently developing a multiple independently targetable reentry vehicle (MIRV) which it calls the RS-28 Sarmat (NATO calls it by the emotionally charged name Satan 2, suggesting that Russian missiles are evil while NATO missiles are blessed by the Creator). This massive Russian ICBM can carry 15 nuclear warheads, travels at hypersonic speeds and is said to be impossible to intercept by any known defense system.
In September of 2016, the Russia and India Report wrote of the Sarmat:
“It will fly to the target at hypersonic speed (in excess of 5 Mach), changing its trajectory according to the rate and height so it could not be intercepted by any missile defence system, neither the current one nor the long range one, including the one relying on the space elements.
“For ‘Sarmat’, say the rocket men, ‘it does not matter whether there is a missile defence system or there isn’t one. It will not notice it’.“
Considering this sobering information, we can bluntly say that Poland has bought itself an extravagantly priced white elephant. The country is no more secure than before Trump swooped in with his sales pitch, and it is now much deeper in debt. In fact, thanks to the provocation implied by recent Polish statements, it is now more of a target than ever.
It has long been clear that Polish officialdom is motivated more by ideology, ie, a Russophobic view of the world, than by any sort of business rationale. Thus, earlier this year, Poland sued Russian gas company Gazprom to cut its capacity in the Opal pipeline running through Poland to Germany. The contention started back when Russia allowed Crimeans to accede voluntarily to Russia and secede from the Ukraine. The Crimeans did so out of a genuine fear of what they perceived as a fascist Russophobic government in Kiev that was preparing to ban the use of their native Russian language and make second rate citizens out of them. Following the lead of the blindly Russophobic US government, Poland called this accession an “annexation” by an “aggressive” Russia. Around the same time, Poland cited, as a pretext for punishing Russia, the allegation that Russia had targeted civilians in its war against terrorists in Syria – though no one could come up with a possible motive for killing civilians on purpose. Oddly, when the research group Airwars reported earlier this year, according to the NYT, that the US-led bombings in Mosul and Raqqa killed a record number of civilians, Polish authorities uttered nary a peep. Clearly, Polish energy policies have nothing to do with energy economics and everything to do with their age-old hatred of Russia. And instead of encouraging them to lose their bias for the sake of world peace, Donald Trump played to this bias in his Warsaw sales speech.
Meanwhile, Trump has proven he is a deal maker all right. But what does that make Beata and her fellow bureaucrats?
Most lay people would say that, intuitively, liquefied natural gas would have to be more expensive than gas delivered by pipeline. LNG requires a fairly expensive liquefaction process to prepare it for transport, and to this are added maritime shipping costs, an extravagantly priced regasification and storage facility and the costs of delivering the regasified product to the final consumer.
Indeed older analyses invariably assessed LNG as an inevitably more costly product. However, since in the current situation, the US is awash with surplus gas, the cost difference between the two forms of product is decreasing, and there is no foreseeable change on the horizon.
Therefore, to prepare for this analysis, we scanned several sources and, in particular, read through a long comparative study published by S&P Platts regarding the prices of LNG (now being sold by the US) vs pipeline gas (available to Poland from Russia). According to the study, there are numerous factors that affect the prices of the two gas forms, such as Asian LNG prices, which are in turn affected by a recent drop in demand. The price of Russian pipeline gas could in turn be affected by a possible price war. It will also be affected by the startup of the Power of Siberia pipeline to China, expected in about 2020.
Further, much of the US gas is recovered by fractionation, a costly process that is used with increasing frequency, and would tend to drive up prices for the Polish customers in the long run.
After a thorough discussion of the main considerations, the authors conclude the following:
“But Russia clearly does have the option to undercut the US LNG price to ensure it keeps its share of its key European markets and could flood the market with cheap gas, maximizing revenues and cash flow at a time when producers worldwide are suffering from the impact of such low prices.”
Thus by opting for LNG from the US, which is subject to more cost uncertainties than Russian pipeline gas and will always be subject to possible Russian price manipulation, Poland has put a lot of eggs in one basket, particularly if it opts to build more LNG terminals or upgrade its existing one to accommodate increasing LNG demand. Once any new terminals are online, there is probably no turning back to the likely-cheaper Russian pipeline option.
A Russian-language article by Ivan Danilov, owner of the blog Crimson Alter, as posted today by RIA Novosti, helps explain the strange behavior of Polish officials who agreed to a gas delivery deal that will no doubt cost them dearly in the long run and make more-rational Poles in future rue the day the deal was signed, and to a delivery of Patriot missiles that are in fact useless in today's world. The article shows, aside from Russophobia, what no doubt went through the minds of officials when they listened to Trump’s sales pitch. Danilov focuses on a book by psychologist Robert Cialdini, who studied the behavior of successful sales people in pyramid schemes and also sellers of “elite” vacuum cleaners. According to Cialdini, it is not the product that sells in these scenarios – where a rational customer would walk away from the deal – but rather the personality of the sales person clouding his mind with emotion. In the customer’s mind this seller’s charming personality becomes “anchored” to the product he represents and, without realizing it, he is in fact “buying” the sales pitch rather than the product.
Cialdini would say that salesman extraordinaire Donald Trump has sold himself in Warsaw.
We would say that, in turn, Poland has sold herself – but not in the same sense.