US threatens Nord Stream 2 gas pipe investors with sanctions

Diane Pallardy

16-Jul-2020

LONDON (ICIS)–The five European companies providing half of the Russian Nord Stream 2 pipeline’s financing could fall under US sanctions after the state department withdrew a key cut-off date in its legislation. But this is unlikely to translate into actions, according to experts who spoke to ICIS.

Until 15 July, the scope of US sanctions legislation excluded direct investors, enhancing Russia’s ability to build export pipelines before 2 August 2017. But yesterday the US deleted that cut-off date, meaning contracts signed for Nord Stream 2 and the second line of TurkStream will be included. These two infrastructures are yet to be finished.

“The US signals that sanctions could potentially be applied retroactively, including in respect of European companies that are Gazprom’s partners in Nord Stream 2. However, it is hard to see how this could be enforceable; this would be against the law and should it happen it would certainly be contested in international courts,” according to Katja Yafimava, researcher at the Oxford Institute for Energy Studies.

“The question is whether the state department has the right to independently enforce the provisions of this law. The state department is formally subordinate to the president, but no separate documents have been issued stating that the president gave the state department the right to impose sanctions from the [sanctions act] package,” according to Igor Yushkov, an expert of the National Energy Security Fund and the Financial University under the Government of the Russian Federation.

The five EU investors in Nord Stream 2 signed the financing agreement on 24 April 2017, before the sanction act’s initial cut-off date of 2 August 2017. But they sent the committed funds gradually including after 2 August 2017.

“It is not yet clear whether the US will consider the loan tranches to be a violation of sanctions, even if the loan agreement was signed before 2 August 2017,” Yushkov said.

This development is partly a US reaction to the Danish Energy Agency’s recent decision to amend its construction permit, allowing the developers of Nord Stream 2 to use both anchored and dynamic-positioning pipelaying ships, Yafimava said.

“The US is simply ratcheting its rhetoric, trying to put pressure on the European companies through CAATSA but it leads nowhere,” she said.

ADDITIONAL US SANCTIONS

In June several US senators proposed more sanctions against Nord Stream 2, including pipe-laying vessels and insurance, port, or tethering service providers for the vessels. The US senate included the proposed sanctions in the draft national defence act, Republican congressman Steve Womack tweeted on 30 June. This key piece of legislation sets the annual budget of the US and must be signed into law before the end of the year.

Russia has two pipelayers that could finish the project around late September if both resumed pipelay on 3 August, when the new Danish permit becomes valid.

But if the new national defence act is signed into law before then, it could affect the Russian pipelayers’ ability to finish the project.

EU REACTION

The proposed additional sanctions in the draft national defence act “are unacceptable and contrary to international law, and the EU firmly opposes them,” EU high representative for foreign affairs and security policy Josep Borrell said on 25 June. He said the European Commission was preparing the way for a “reinforced sanctions mechanism” to improve resilience of European projects faced with third-party sanctions.

The German parliament’s economic and energy committee has tasked the government with preparing a response to these potential new sanctions. An expert hearing took place on 1 July, but the content of discussions was not made public.

French Engie, Austrian OMV, Dutch Shell and German Wintershall and Uniper committed to provide half of the €9.50bn NS2 project’s finances. Russia’s state-owned gas producer Gazprom provides the other half of the financing and is the sole shareholder of the project.

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