The U.S. Congress voted to override a presidential veto on January 1, passing the National Defense Authorization Act (NDAA) into law.
Tucked inside the legislation was a provision slapping new sanctions on the Nord Stream 2 pipeline, a last-ditch effort to derail a major natural gas pipeline in Europe. Despite the sanctions, Russia has vowed to complete the project.
Russia hawks in Washington have long tried to dissuade Europe from supporting the Nord Stream 2 pipeline.
Sanctions, and more sanctions
Russia hawks in Washington have long tried to dissuade Europe from supporting the Nord Stream 2 pipeline. They argue that the pipeline would enhance Russian leverage over Europe via an increase in gas exports. They also see Russia building a stronger position if it is able to provide a gas route to Europe that bypasses Ukraine.
The effort to block the pipeline picked up pace in Washington during the Trump administration, as the administration made natural gas exports a pillar of its energy policy. Russia criticized the U.S. for such action, arguing that Washington’s sanctions are “blatant protectionism,” aimed at “promoting their own product.” As it happens, U.S. officials inevitably promote American LNG as an alternative to Russian gas.
The U.S. government’s efforts have not gone down well in some parts of Europe. Several major western European companies are involved in the project, and while countries in Eastern Europe generally oppose the project, those in western Europe view Russian gas as a reliable source of supply. “I firmly believe the pipeline will be completed,” Uniper SE Chief Executive Officer Andreas Schierenbeck said in late December. Germany-based Uniper is one of the stakeholders in the pipeline. “People don’t have to like the pipeline, but Europe needs it.”
Opposition to the project found something of a bipartisan consensus on Capitol Hill. The Protecting Europe’s Energy Security Act of 2019 was added to the NDAA that President Trump signed a little more than a year ago. The legislation was cosponsored by Jeanne Shaheen (D-NH) and Ted Cruz (R-TX).
Last year’s sanctions targeted vessels that lay pipe at the bottom of the sea, as well as the companies that provided those vessels. At the time, the Nord Stream 2 pipeline was more than 90 percent completed, but the sanctions delayed construction for roughly one year. Without the specialized pipe-laying vessels, progress stalled.
Russia’s Gazprom responded by enlisted Russian ships and retooling them so that they can lay down pipe so that they did not need to rely on European companies worried about sanctions. Gazprom resumed work on the project in December, telling Reuters that it completed a section of pipeline in German waters. Russian pipe-laying vessel Fortuna completed the work.
Uncertain future, strained ties
The next step is work off the coast of Denmark. The most recent round of sanctions, passing into law with the U.S. Congress’ veto override, widens the scope of existing sanctions a bit, potentially ensnaring more entities that assist the project in some form. At a minimum, the latest sanctions “appear to complicate Fortuna’s planned work in Danish waters,” ClearView Energy Partners wrote in a note to clients.
The new sanctions appear to have had an immediate effect.
The new sanctions appear to have had an immediate effect. Norway’s DNV GL said it would no longer provide certification services for the Nord Stream 2 pipeline due to the threat of sanctions. That service verifies the safety and technical integrity of the pipeline system. According to S&P Global Platts, the project could find an alternative company to certify the system, but in addition to causing headaches, a switch may require obtaining new permits in Denmark, risking further delays.
But the full extent of the impact remains uncertain. The Atlantic Council says the sanctions amount to an “almost certain doom for Putin’s most important energy project.” Russia disagrees, and has downplayed the significance of sanctions. “This tool is absolutely uncompetitive,” Russian energy minister Alexander Novak said, according to TASS. “Everyone understands this, including the countries that are interested in fulfilling the [Nord Stream 2] project, the European countries and companies. They support the project and I’m sure that given this support it will be implemented,” Novak noted.
The Fortuna is expected to resume pipe-laying work on January 15, and the 150-kilometer segment in question could take three and a half months to complete, followed by another month or two of testing, according to Platts. The project could start operations in the third quarter of 2021, delayed by one quarter due to the latest sanctions, according to a Platts Analytics forecast.
The geopolitical battle over the pipeline has aggravated the Trans-Atlantic relationship.
The geopolitical battle over the pipeline has aggravated the Trans-Atlantic relationship. The Trump administration has already frayed relationships in Europe on a variety of issues, including a more adversarial approach to NATO and the confrontational approach on trade. The aggressive use of sanctions on Nord Stream 2 adds to the conflict between Europe and the U.S., for a questionable payoff.
“While these sanctions might halt the project for another year—and, possibly, indefinitely—they are also putting a strain on the already fragile transatlantic relationship, especially on US-German ties,” Ambassador Richard Morningstar wrote in a commentary for the Atlantic Council in December.
At the same time, Nord Stream 2 supporters may not see a ton of upside in the change of administration. Although the incoming Biden administration will reverse a whole host of Trump-era policies, it is not clear that there will be a major departure when it comes to Nord Stream 2. President-elect Biden also opposes the pipeline project, largely for the same reasons as the Trump administration.