Anxiety in Kremlin as Nord Stream 2 pipe may be left unfinished

Mykhailo Honchar
14:20, 25 November 2019
Economy
2124 0
Opinion

That's according to a piece published by an American non-governmental organization, American Council. However, this tool won't be effective for too long – literally a couple of months.

It is about a U.S. bill on protecting European energy security, which has received bipartisan support. The bill provides for targeted sanctions aimed at preventing the completion of Nord Stream 2. In particular, sanctions should strike Allseas, the company providing a critical vessel for deep-water pipe-laying.

Therefore, at the moment there is a real chance that the Nord Stream-2 will not be completed in the coming years. This possibility has existed since August 2017, when the U.S. passed a bill on sanctions against Russia, Iran, and North Korea, which provided for the possibility, but not the obligation, to impose sanctions, including related to the construction of Nord Stream 2. After that, all further moves were to be taken at the discretion of the U.S. Presidential Administration and Donald Trump himself. However, for obvious reasons, Trump was in no hurry to show political will and turn the opportunity into real action. Therefore, it is logical that additional bills later appeared in the U.S. Congress that spelled things out more clearly. They were not about imposing sanctions, but about the necessity of and obligation to take the step.

The latest of these bills was drafted this summer, then it passed all the necessary procedures in the Senate (this is the Senate bill), and in the last days of August it was finalized. It was supposed to be adopted after the end of the vacation season. However, once the vacation season was over, the budgeting process was launched, and then the impeachment inquiry flared up. All other issues, including that of Nord Stream 2, have been side-shelved by U.S. lawmakers. Therefore, they are yet to consider the legislation draft.

This is not so much about helping Ukraine, it's about U.S. interests – after all, Trump has vowed to stop Nord Stream 2

Now, the topic of NS2 construction has become more relevant as Denmark has issued a permit to lay the pipe in the offshore section of their maritime economic zone. And this was the last obstacle remaining to the completion of NS2 construction phase. The Americans were reminded that they should step up their efforts. There are currently two options on the table.

The first one is that the already drafted and procedurally prepared bill must be adopted, which does not envisage mandatory steps by the Trump administration, rather than some possible moves. As I mentioned, the bill had been prepared back in late August but it's still to be put to a vote.

Another option is that, based on a law that has been in place since August 2, 2017, Trump will show political will and take the necessary steps to introduce sanctions targeting contractors working on the Nord Stream 2 construction.

For Trump, now is a good opportunity to show that he is a person of action, not words, upholding American interests rather than just playing along with Putin's interests. So this is not so much about helping Ukraine, it's about U.S. interests – after all, Trump has vowed to stop Nord Stream 2, but now its construction is already in its final stages. If the project succeeds, it will automatically mean that Trump is a weak president who might threaten North Korean Kim Jong-in or Iran's Ayatollah, while failing to deal with Putin. After all, the non-imposition of sanctions by the United States will mean that Putin and his Russia have won – along with Russian-European corruption.

The window of these opportunities will close in two months, or rather, by Christmas.

Perhaps the U.S. strategy for the Nord Stream 2 is that Washington seeks to allow the Russians to spend their maximum and then, at the final stage, to hit them with sanctions. After that, Russia will have several billion dollars or euros less to spend on its war campaigns in Ukraine, Syria or other regions around the globe...

According to the piece by the American Council, if these sanctions are imposed, construction will not stop but be suspended for two to three years. Why is such period mentioned? Once such sanctions are imposed, a number of litigations can be expected, which are lengthy in their nature. Probably, the American Council estimated that these proceedings will last two to three years, or possibly more.

Plus, the European Commission has created a number of problems for Gazprom. Even if we imagine that Nord Stream 2 will be completed, now, given the provisions of the updated European legislation (Gas Directives), Gazprom will not be able to use Nord Stream pipes - both the first and the second one - by more than 50 % of their capacity. Accordingly, they will be suing in this regard, so there will be new litigations that could also take months and years. Even if the decision is in favor of Gazprom, it can also be appealed, and then Gazprom will appeal further. In other words, there appeals will be coming. This process could take years. So these two to three years of delay can prove to be an optimistic scenario.

The fact that the Russians suddenly mentioned the Academician Cherskiy pipe-laying ship also means that officials in Moscow are getting anxious

If we talk about how this situation will affect Ukraine, of course, stopping the Nord Stream 2 construction would mean preservation of transit of Russian gas via the territory of Ukraine. Therefore, it is extremely important for us.

If European legislation in the Third Energy Package is respected, above all, by the Europeans themselves, then, despite Gazprom having 110 billion cubic meters of capacity in four pipes of both streams, they will be able to use them only by 55 bcm. And the rest will keep flowing through the GTS of Ukraine as it is now. This will preserve the current status quo.

Can Ukraine urge the U.S. to decide to impose these sanctions? Hypothetically, we have such mechanisms. We need to work with U.S. lawmakers, to push them. It is important for us to show that we are interested in having more U.S. gas on the European market. The more gas on the market, the greater the competition and the lower the price.

Recently the first LNG tanker for the Ukrainian company ERU Trading arrived at the Polish terminal Swinoujscie. This is a modest purchase that is more technical and technological than commercial, but it is important – it all starts with the first step.

So we need to convince Americans not just with our rhetoric –our friends in Congress already understand everything. We need clear concrete action.

I would estimate the probability of such a positive scenario for Ukraine at 51%, that is, with slight optimism. I hope the Americans are just giving Putin a chance to bury as much money as possible in the Baltic Sea and then they'll reap him with sanctions. And the fact that the Russians suddenly mentioned the Academician Cherskiy pipe-laying ship also means that officials in Moscow are getting anxious.

Mykhailo Honchar is a Director for Energy and President of XXI Strategy Centre

If you see a spelling error on our site, select it and press Ctrl+Enter