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U.S. - sanctions - Gazprom: Washington's attempt to defeat Nord Stream 2

20:00, 04 June 2020
6 min. 775

The U.S. threatens Russia with new sanctions over the construction of the Nord Stream 2 gas pipeline, which was designed to deprive Ukraine of gas transit revenues. UNIAN figured out whether Washington could defeat Moscow in the latest episode of gas war.

Despite the global threat – the coronavirus pandemic – economic issues are going nowhere from the international agenda. Now, one of the topics discussed globally is Russia's moves to try to complete its Nord Stream 2 gas pipeline project, which is designed to deprive Ukraine of the gas transit country status, as well as billions of dollars in revenues.

The reason for putting this issue on top agenda was the statement by the outgoing U.S. ambassador to Germany, Richard Grenell. In anticipation of the end of his cadence in Berlin, he said that new sanctions against Nord Stream 2 were just around the corner and that they could be passed by the American Congress very quickly.

The new sanctions package enjoys bipartisan support, according to Grenell, who spoke with Handelsblatt.

Also, he called on the German federal government to rethink its policy on Russia and "stop feeding the beast", while failing to provide sufficient financial support to NATO.

They intend to adopt sanctions to prevent the implementation of the Nord Stream 2 project. The main reason is Russia's use of gas as a tool of political pressure, which casts doubt on the principles of the European Union. Only Germany keeps supporting the project. If the pipeline is put into operation, the country will become the largest gas hub in Europe. Therefore, Berlin considered the statement by the U.S. ambassador inappropriate.

"The time when the pandemic is putting enormous pressure on countries around the world is not suitable to escalate the spiral and threaten further extraterritorial sanctions, which are contrary to international law," said Peter Altmeier, spokesperson for the German economy and energy.

This is not the first dispute between Germany and the United States. Berlin was outraged by U.S. sanctions against the project, introduced in December, which forced companies involved to cease construction immediately. The Swiss Allseas almost immediately brought their pipe layer out of the Baltic Sea. So the construction of the Nord Stream 2 was suspended. But Russia said that all problems would be resolved. To complete the construction by the end of 2020, the Akademik Chersky ship was "modernized". In early May, she anchored outside the German port of Mukran.

By the way, the history of this ship is quite amusing. History says that the new U.S. sanctions are a reality, and most importantly, this time, they are a direct threat to Gazprom. So, realizing that restrictive measures will affect their assets, while the Akademik Chersky is one of them, the vessel was in 2016 transferred to the ownership of the Samara Thermal Energy Property Fund. That is, the vessel, presumably, has nothing to do with Gazprom. And if it's the case, sanctions shouldn't be a problem. But problems didn't end there.

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The snag with the completion of Nord Stream 2 led to the fact that the German Federal Network Agency (Bnetza) rejected the application of the Nord Stream 2 AG operator to provide Nord Stream 2 with exceptions to the EU Gas Directive.

It was approved last year and in fact is an amendment to the Gas Directive, according to which gas pipelines from third countries must also comply with the Third Energy Package. That is, a single company cannot be both gas supplier and owner of a gas pipeline, while independent suppliers must have access to the pipe. This means that up to 50% of its capacity should be reserved for them. In the case of Nord Stream 2, this means that the project will operate at half capacity – at 27.5 billion cubic meters per year. The Directive, at the request of Germany, indicated that exceptions could be granted, but only if the pipeline was built before May 23, 2019.

Actually, the date was precisely the deadline for the commissioning of Nord Stream 2. But U.S. sanctions did their job, and the pipe didn't fit into Germany-lobbied mitigation scheme.

Russia immediately announced that, despite various "barriers", Nord Stream 2 will have been commissioned before the end of 2020, while Gazprom will find ways to circumvent restrictive measures. For example, they could transfer gas delivery points to European customers to where the Baltic gas pipeline enters German territorial waters and, in fact, crosses the EU border, or to the NS2 entry point in Russia.

Seeing all the "cunning" schemes on the part of Russia, the United States moved to threaten Russians with new sanctions. But will they be able to destroy the Nord Stream 2?

U.S. vs Russia

President of the Center for Global Studies "Strategy XXI", Mykhailo Honchar, believes that sanctions will be introduced. They have already been designated, and the corresponding bill has been developed. And they cover the companies that will risk joining the completion of the NS2 project.

"Of course, American sanctions are always targeted. They would primarily affect the management and owners of companies that would cooperate with Gazprom. Thus, they would lose the opportunity to do business with the United States, cooperate with American companies, the ability to cross into the United States, etc. Although, on the one hand, it may seem that sanctions are insufficient. For example, Gazprom, when they re-registered its only pipe-laying vessel Akademik Chersky to Samara Thermal Energy Property Fund , were probably thinking precisely this way. Indeed, U.S. the new owner wasn't supposed to care about the U.S. sanctions: they don't cooperate with the U.S. and nor do they do business around the world. The situation with the Swiss Allseas looked different. The U.S. sanctions package introduced in December forced the company to withdraw from the project their pipe layer Solitaire. But if the Russians believe that with such a trick they leveled the risk of falling under new sanctions, then this isn't the case," said Honchar.

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In his opinion, now the ideal situation would be where the Akademik Chersky ship is seized, say, to pay off the claim of a Polish state company which won Stockholm arbitration vs Gazprom in the amount of $1.5 billion, while Russia refuses to pay.

Also, the new bill says that the cheat maneuver with the ship will not help the Russians, since sanctions will target not only the entity that currently owns certain assets, technologies and equipment that can be used for laying Nord Stream 2, but also those who have handed the said assets over to that entity. In other words, the Akademik Chersky vessel, which had previously been on Gazprom's balance sheet before being handed to the Samara Fund, which itself will be subject to sanctions, will lead to Gazprom also falling under those sanctions.

"But for Gazprom, this would equal a death sentence. Previously, the Americans spared the company. Now they won't. Gazprom has a certain relationship with the U.S. financial system. So for them, this would be a sort of collapse," said Honchar.

But even if Russia completes the construction of Nord Stream 2, then the expert says no one will be willing to use it; otherwise, the risk remains of being targeted by U.S. sanctions after receiving gas from this pipeline.

There's another important factor that could destroy Nord Stream 2.

"The Danish regulator has not yet given its final consent to pipe-laying works. Therefore, the fact that the Russians are now sailing back and forth around the German island of Rügen doesn't mean that they have restarted their work. The fact is that there's no certainty on the Danish side that the Akademik Chersky, along with the Fortuna barge, will be able to do their job without hitting the risk zones hosting loads of chemical munitions sunk around Bornholm Island after World War 2. I don't rule out the possibility that, if Russia ignores this very serious element and sneakily pursues with construction, NATO will quickly restore order. European experts have repeatedly stated that, it would seem, there's a certain map that shows the exact location of chemical munitions dumping sites. However, in the process of further research, it turned out that the sites aren't indicated properly. Moreover, batches of highly hazardous munitions have been carried by underwater currents downstream toward the coast of Sweden. Gazprom assures that it has talked with almost every fish swimming at the sea bottom, but the risk is still very high," says Honchar.

The expert believes that it actually doesn't matter in which way Nord Stream 2 will be stopped. For Ukraine, the main thing is that it never starts operating. Even if Gazprom completes it by 99.9%, falling short of just 1 kilometer worth of pipes, the project won't work.

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Head of the Center for Energy Research, Oleksandr Kharchenko, it is too early to talk about which U.S. sanctions will actually be introduced. Today this information remains beyond a public plane. Nevertheless, just as the first batch of sanctions was clearly formulated and hit right on target, this will also be the case with the second package. There is no reason to expect that the United States will fail in its endeavor.

Read alsoNord Stream 2 poses major threat to environment in Baltic Sea over WW2-era chemical munitions – experts

"Theoretically, Gazprom has the opportunity to try to complete the construction of Nord Stream 2. But so far nothing's been done as they only sail their ships back and forth. Gazprom is now as the risk group. For the company, sanctions would be an extremely unpleasant story. Frankly speaking, it would be a heavy blow for them. In general, for Russia, things are developing in a very wrong way now. Therefore, I doubt that Gazprom will launch the Akademik Chersky. Another issue for Gazprom is the Danish construction permit. Fortunately for us, they don't have the opportunity to have their vessels operating within the framework of an already issued permit, although it might be amended. Now the Russians are actively negotiating, with no results so far. American and Ukrainian diplomats are very pro-active in working with the Danes, trying to provide them with all kinds of support since there is pressure coming on the part of the Germans, as well as the Russians. Therefore, there are many multidirectional factors, as well as the understanding that the current U.S. sanctions have already complicated the situation a lot, while a new package of measures is being prepared that will make the completion of the pipeline impossible as such. Sanctions are introduced precisely so that the project isn't implemented. And the fact that Russia is convinced of the opposite is its very problem. The threat of construction failure is more than real. I believe that the new sanctions will not allow completing the Nord Stream 2," summed up Kharchenko.

U.S. sanctions targeting Nord Stream 2, based on the statement of the American diplomat, could be approved "very quickly." I wish this will be the case because time doesn't wait.

Nana Chornaya

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