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New U.S. Sanctions Unlikely To Derail Nord Stream 2

It is difficult to surprise anyone in today’s world with another set of sanction-slapping. A bipartisan group of US senators has expressed its intent to put another spoke in the wheel of Gazprom’s 55 BCm per year Nord Stream 2 pipeline. The new bill would amend the 2019 Protecting Europe’s Energy Security law by extending its force to entities that provide “underwriting services or insurance or reinsurance” relating to the construction of Nord Stream 2 as well as provide “services or facilities for technology upgrades or installation of welding equipment for, or retrofitting or tethering of vessels”. In a nutshell, wary of antagonizing European partners even further, Washington is seeking to implement a strategy of legislative precision strikes. Yet the chances of such sanctions derailing Europe’s prime pipeline-construction project remain pale, as we will see below.  The new anti-Nord Stream 2 bill is sponsored among others by Ted Cruz and Jeanne Shaheen, senators who were instrumental in drafting previous legislation against the gas conduit which purportedly threatens “Ukraine, Europe’s energy independence” (Shaheen) and “poses a critical threat to America’s national security” (Cruz). As can be seen from the senators’ comments, the encompassing narrative to buttress the bill’s prospects is a thin line to be walked – were the senators to publicly present the new measures as further attempts to use non-market measures to achieve the objective of higher US LNG exports to Europe, their case could be easily taken to arbitration courts. Yet some of the phrasings involved certainly do insinuate this – why else would a Russian subsea pipeline to Germany (which as of 2020 has no LNG terminal) threaten US’ national security? 

The difficulty of maintaining a healthy enough US-German tandem also transpires from the bill’s reported aim to sanction any entity that would “provide services for the testing, inspection or certification necessary for or associated with the operation” of Nord Stream 2. This is a direct jab at the German energy regulator Bnetza as it would be them who provide official approvals for the constructed pipeline. Bnetza has already been in the crosshairs of intra-European decision-making, rejecting Nord Stream’s application to have the pipeline exempt from the EU’s 3rd Energy Directive. This need not be the final decision on the matter (notwithstanding the decision Brussels can still grant a more lenient set of conditions to Nord Stream 2 if both parties manage to find common language) yet has already stirred up too much attention around the regulator. 

Related: Iran To Reach Production Target At World’s Largest Gas Field This Year 

The new set of US sanctions pit Washington against the European Union, concurrently upending its delicate balancing act vis-à-vis Russia. Ambassador Grenell’s sudden departure and President Trump’s decision to cut the size of US troops in Germany has complicated matters even further. In the meantime, Germany’s Baltic port of Mukran has seen a flurry of activity around the two Russian pipe-laying vessels assumed to complete Nord Stream 2. Akademik Cherskiy, the one which received significantly more media coverage due to its dynamic positioning capability, has moved out of the Far Eastern port of Nakhodka in February 2020 and carried out a prolonged (and oftentimes untraceable) 4-month voyage around Africa all the way to Mukran. It seems that the vessel is currently being retrofitted for the upcoming pipe-laying works and getting loaded with pipes to be laid. 

The second vessel, Fortuna, lacks dynamic positioning equipment – a precondition for pipe-laying in Danish territorial waters – but might carry out all the necessary works in the shallow waters of Germany’s Baltic waters. The Danish authorities have also barred pipelaying works in July-August around the Baltic island of Bornholm due to cod spawning season, adding another prohibitive layer to this summer’s construction developments. Since every single vessel associated with Nord Stream 2 is under immediate threat of ending up sanctioned by the US government, the supply vessels required to assist the pipe-laying ones will also be Russian – according to Russian media reports 2 such vessels have already departed from Vladivostok. 

Inasmuch as the constant sanctions threats keep on unnerving Gazprom’s management, the Russian gas export monopoly has found a seemingly simple yet effective way to complicate matters further for US senators. As Russian media reports have discerned, Akademik Cherskiy no longer belongs to Gazprom’s shipping subsidiary Gazprom Flot (which had owned it for 4 years, since 2016) – the vessel’s owner is a largely unknown Russia-based property investment fund STIF. What is adding another twist to the story is the fact that it seems almost impossible to understand who owns the investment fund and why it bought the pipelaying vessel. In effect, such a lack of clarity renders it quite difficult for US authorities to sanction STIF – it can hardly allow itself to initiate a lengthy and very risky legal dispute with Gazprom, stabbing in the dark in its pursuit of any Gazprom trace.

Derisking the day-to-day operations of Gazprom Flot was a good enough reason to sell Akademik Cherskiy as the company has already been subjected to sectoral sanctions, meaning that it is forbidden to provide US equipment and technology to the Arctic, offshore and shale projects that the company might be participating in. According to recent reports, the STIF investment fund was co-owned by two Gazprom subsidiaries before April 2020, however, given its private character has decided to conceal its current ownership structure. Theoretically, with its acquisition of Akademik Cherskiy, it might have concurrently switched owners yet there is no way of telling whether this has in fact happened.

By Viktor Katona for Oilprice.com

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  • Mamdouh Salameh on June 14 2020 said:
    The Nord Stream 2 gas pipeline is unstoppable irrespective of any additional sanctions the United States imposes to delay its completion.

    The whole world in particular the Europeans knows that the sanctions have very little to do with European energy security and everything to do with American self-interests aimed at selling more of US LNG in Europe at the expense of Russian gas supplies.

    Moreover, the Europeans aren’t going to exchange the cheaper Russian piped gas for the more expensive US LNG. US sanctions on Nord Stream 2 would neither change this reality nor deter a determined President Putin.

    So it is better for the Americans to accept that the completion of Nord Stream 2 is fait accompli. The sanctions might delay its completion for a few months but built it will.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Hugh Williams on June 15 2020 said:
    US sanctions will, in my opinion, have serious and long range effects on US companies. Many countries will avoid buying from US companies if another source can be found.

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