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Why Washington May Detour Russia's Big Pipeline Project

Opposition to the planned Nord Stream 2 gas project had been limited to Europe. But now the Trump administration is challenging it too — with possible sanctions.

Nord Stream 2, already in the pipes
Nord Stream 2, already in the pipes
Alastair Gill


The political heat over Russia's proposed Nord Stream 2 gas pipeline to Germany is now coming from far afield, after the United States announced plans to sanction companies working with Moscow's state-owned gas giant Gazprom on the controversial project.

Speaking in the Ukrainian capital Kyiv, where he was heading a delegation attending the inauguration of Ukrainian President Volodymyr Zelenskiy, U.S. Energy Secretary Rick Perry said on Tuesday that Congress was set to begin drafting a bill on sanctions, Bloomberg reported.

"I expect over the course of the not-too-distant future that the U.S. Senate as well as the U.S. House will send a bill to the president of the U.S. that will have some very, very onerous restrictions on companies that continue to do business with the Nord Stream 2 development," said Perry in Kyiv. "So stay tuned."

Initiated by Russia in 2015, the pipeline is set to travel 1,220 kilometers under the Baltic Sea from Ust-Luga in Russia's Leningrad Region to the German port of Griefswald. Running parallel to the already existing Nord Stream pipeline, which links the Russian Baltic port of Vyborg to Griefswald, Nord Stream 2 will double the amount of gas supplied to EU countries via Germany to 110 billion cubic meters per year. Germany, which is heavily dependent on Russia for energy, is a strong backer of the project, which is scheduled to be completed by the end of the year.

If completed, Nord Stream 2 will cement European reliance on Russian natural gas.

Russia says Nord Stream 2 is necessary in order to secure reliable energy supplies to Europe and give it more direct access to the EU market. But as tensions between Moscow and the West have soared over the annexation of Crimea and the Russian-backed rebellion in eastern Ukraine, doubts have emerged over whether the Kremlin's motives are purely economic, with critics in Europe arguing that the pipeline could become yet another weapon in Russia's "hybrid warfare" arsenal.

Europe currently receives 40% of its gas from a pipeline that crosses Ukraine. Kyiv not only earns up to $3 billion annually in transit fees as of 2017, but also has the power to turn off the taps if its own supply is threatened. On more than one occasion in recent years, Gazprom's European customers have fallen victim to tariff disputes between Moscow and Kyiv — always timed to coincide with winter cold — that have seen Ukraine blocking the westward flow of gas in protest.

Nord Stream 2 would bypass Ukraine, Poland and the Baltic States, thus effectively allowing Moscow to hold Kyiv — and potentially other nations — to ransom over energy, providing it with a useful weapon in its standoff with NATO in Eastern Europe.

Publicly, at least, the United States is taking the same line as the pipeline's critics in Europe: that if completed, Nord Stream 2 will cement European reliance on Russian natural gas while providing Moscow with a lever to exert political pressure on its neighbors.

But in comments made to theKommersant FM radio station, Kremlin press secretary Dmitry Peskov made it clear that Moscow sees other motives behind Washington's efforts to frustrate the completion of the pipeline. Peskov argues that there is a clear link between U.S. opposition to Nord Stream 2 and Washington's intentions to export American gas to Europe.

Gazprom itself appears uncowed by warnings of U.S. sanctions, and says that none of its partners have withdrawn from the project as a result of American threats. The project's financial partners include Uniper SE, Engie SA, Royal Dutch Shell Plc, OMV AG and BASF SE's Wintershall.

Andrei Kochetkov, an analyst from the Moscow-based Otkrytie Broker company, told Russia's leading business dailyKommersant on Tuesday that in the event of sanctions, Gazprom would be ready to complete the project using its own resources. "The project is currently being carried out by a consortium of several (Western) companies," he noted. "But the Russian company has already stated on numerous occasions that if its European partners are unable to continue participating, then it can complete the project on its own."

In the end, the fate of Nord Stream 2 may be decided not in Washington, but in Copenhagen. The pipeline requires approval from each country whose territorial waters it passes through, and while Finland, Sweden, Germany and Russia have already given the green light for construction, Denmark has been stalling.

Copenhagen has asked the Nord Stream 2 consortium to look into alternative routes. Rather than kill the project, however, Denmark's maneuverings will probably just delay it. Whatever happens, it appears the U.S. has arrived too late to influence the outcome. That leaves Russia set to profit — perhaps at Europe's expense.

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