REUTERS

Nord Stream 2: will U.S. be able to slam Putin's energy project

10:00, 12 February 2020
6 min. 1144

The U.S. Congress is drafting a new package of sanctions against participants in the Nord Stream 2 gas pipe project, that's if Russia eventually succeeds in completing it. They will affect European companies, including investors and also future recipients of Russian gas. UNIAN tried to figure out whether the U.S. would be able to sink Putin's project.

The United States has been drafting new sanctions against the Nord Stream 2 gas pipeline, which is being built to bypass Ukraine and has been designed to deprive the country of its gas transit status along with billions worth of revenues.

This time, a blow to the Gazprom project could actually become "fatal". According to German media, citing sources in American diplomatic circles, sanctions will affect European companies that are now investing in the pipeline, as well as those that will further receive Russian gas. More details about those new sanctions are allegedly set to come as early as February or March.

The sole shareholder of Nord Stream 2 is Russia's Gazprom, which partnered up with Germany's Wintershall and Uniper, Austrian OMV, French Engie, and British-Dutch Shell. It is these partner companies who can get a "slap in the face" from across the pond. Finland, Sweden, Germany, and Denmark have all given their consent to laying the pipe in their territorial waters. The U.S. sanction attacks will not affect these states in general, which is quite logical. All of them, except Germany, have long resisted Russian pressure. Denmark has almost achieved success in its denials, stalling project implementation for almost 12 months.

It is worth noting that the previous U.S. attempt to slay Nord Stream 2, taken in December 2019, didn't work out. It only hindered deadlines for putting the pipe into operation. And while sanctions awaited the decision of Congress and signature of U.S. President, construction teams have completed the most part of the laying. Only  150 kilometers are yet to be laid out of 1,200 along the bottom of the Baltic Sea.

Pressure was exerted on Gazprom contractors – pipe layers. Although the Swiss-Dutch company Allseas, the key technical partner of the Russians, the world leader in the area, immediately after sanctions were imposed, ceased participation in the project, Russia announced that the construction of the gas pipeline would be completed with their own means.

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Gazprom has at its disposal an "obsolete" Akademik Chersky pipe-laying ship, which requires significant modernization to complete the construction. The vessel was urgently sent to Singapore for an upgrade. She is set to arrive there on February 22. It is not yet known how much time it will take to upgrade the ship but, most likely, the NS2 completion date will be delayed by several months.

Russian President Vladimir Putin, the main mastermind behind Russian gas expansion, acknowledged a certain defeat. He didn't rule out that the pipeline would start operating, most likely, in the first quarter of 2021 (initially, Nord Stream 2 was supposed to have been completed by the end of 2019, and this year it should have started operating as planned).

Germany's Handelsblatt wrote that the German government raised alarm over the likelihood of new U.S. sanctions against Nord Stream 2, considering them "illegal and extraterritorial."  Berlin continues supporting the project, assuring the international community that they will continue to try to convince the United States that the pipeline is exclusively commercial project, rather than a political one that would increase Europe's dependence on Russia. Another argument voiced by Berlin is that the conflict between Russia and Ukraine on the transit, which was one of the main reservations to Nord Stream 2, is allegedly settled. A new long-term contract for gas transit through Ukraine has been signed, which means that everyone is supposed to be happy with the outcome.

It should be emphasized though that it's Germany that will benefit most from the project, becoming the key European gas hub, meaning billions of euros in revenues annually. Apparently, hence the stable gas friendship between Moscow and Berlin. But international experts cast doubt on the stability of the transit contract between Ukraine and Russia in case Gazprom implements their bypass pipe project, given the Kremlin's traditions of creating force majeure situations from scratch.

Germany believes that Nord Stream 2, worth $10 billion, will be able to be completed within a "reasonable term", with the help of diplomacy. That is, indignation is out there, albeit very restrained. Berlin does not dare to get into an open conflict with the United States. But Washington is not responding to all the persuasion. At the same time, an ultimatum confrontation can't be ruled out.

REUTERS

So will there be sanctions?

President of the Center for Global Studies "Strategy XXI", Mykhailo Honchar, believes that the new U.S. sanctions are real. The Americans have successfully hindered the Nord Stream 2, slowing down its implementation. But reports that the Russian pipe-laying vessel Akademik Chersky was sent to Singapore for an upgrade show that Russia is not going to abandon its intentions. Germany and Austria, although they announced their assistance in the process of completing the pipeline (such reports have been voiced at the official level by federal governments of both countries in recent weeks), in fact, can hardly help the Russians, except at the level of moral and political support. This is all about bravado.

"While the Russians are re-equipping their pipe layer and before they bring it to the Baltic Sea and start completing the Nord Stream 2, they are likely to face new U.S. sanctions – not abstract ones, as it was before, but specific ones. They will create inconveniences for Gazprom," the expert notes.

Honchar recalls that Gazprom does not sell its gas in the United States, although initially there were such plans: at the beginning of the previous decade, Gazprom wanted to supply about 54 billion cubic meters of gas to America in liquefied form. "But everything happened not as planned. And if Gazprom takes risks in the desire to complete the construction of Nord Stream 2 no matter what, it may see a response in blocking both the transactions it carries out through banks with American capital and assets. I think that now the USA is in no hurry with new sanctions, they just keep it to themselves," he says.

At the same time, the wait and see attitude of Gazprom's European partners is quite predictable: "In 2017, the United States began to actively talk about possible sanctions against Nord Stream 2, but the Europeans immediately said they would stay away. The fact is that all the European partner companies of Gazprom, to one degree or another, are partners with American companies. For example, Shell."

Honchar notes that now the United States is drawing some kind of horror story for Europe, giving it the opportunity to reconsider the options. Everything is done by analogy with how in 2015 the issue was discussed (mainly in the USA, to a lesser extent in the EU) about the possibility of disconnecting Russia from the SWIFT system of international bank settlements. None of this, due to global trade relations, has happened. But now, U.S. sanctions against Nord Stream 2 are realistic.

"And this is not specifically about the pipeline, but about how Russia uses its oil and gas exports. This is nothing but the export of corruption to Europe. And this has been said more than once. The United States understands what is happening, unlike European politicians. Therefore, under certain circumstances, America may resort to new harsh sanctions, radical measures, since they realize what Russian politics is evolving to," Honchar emphasized.

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"Gas" realities for Ukraine

If Russia manages to complete the Nord Stream 2 and bring it to full design capacity, it will immediately ignore contractual transit obligations to Ukraine. This has been repeatedly stated by experts. Naftogaz CEO Andriy Kobolyev also spoke about this. "I believe that if Nord Stream 2 is completed, there will be no transit through Ukraine," he said, adding that the EU gas directive on demonopolization of the market will yield no result.

Recall that Ukraine and Russia signed a new gas transit contract for a period of five years on December 30, 2019, with the possibility of extension until 2034. The minimum transit volume in the first year is 65 billion cubic meters of gas and in the next four years it's 40 bcm annually. The tariff will be set by the Ukrainian energy regulator in accordance with the European methodology. Direct deliveries of Russian gas to Ukraine were not provided for in package agreements. The parties may consider the possibility of their implementation in the future, but subject to the establishment of prices on the basis of a European hub. Another condition for inking the deal was that the parties renounced mutual claims in arbitrrations.

Honchar agrees with the likelihood of a bad transit scenario. Moreover, according to him, no one knows how well everything has been laid down in the new contract.

"We only know what we were told. But the devil is in the details. Gazprom would have betrayed itself if it hadn't made any pitfalls in the document. Ukraine needs to continue efforts to destroy Nord Stream 2 because it seems we have somewhat relaxed, which is very alarming. But the Germans and Russians keep stubbornly explaining to Europe and the rest of the world that the issue with Ukraine has been resolved and that gas transit through its territory will continue. Therefore, they say, there is no reason to oppose Nord Stream 2. We are dealing with the new composition of the European Commission and the European Parliament. That is why Russia and Germany are trying to reformat their attitude towards the pipeline. In this context, we need to intensify efforts so that the project is not implemented. And this will become a real guarantee that gas transit through Ukraine will be preserved. If the pipeline is completed, Russia, under one pretext or another, will dump the contract. We have seen this more than once. Everything possible must be done so that the Russian bypass route is neutralized. We need to work closely with our American and Polish partners," said Honchar.

In other words, Ukraine should do everything so that Nord Stream 2 doesn't work out. Indeed, even if a single meter of the pipeline will be left unfinished, it will not be able to operate. At the same time, it is important to shift our partners' focus on the fact that this is also in the interests of the EU, since Nord Stream 2 is not at all about diversification of supplies, it's not a commercial project as Russian and German politicians assure. However, a quick result shouldn't be expected in any case.

Nana Chornaya

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