Trump’s sanctions lead Allseas to halt Nord Stream 2 work

Daniel Flatley, Stefan Nicola and Ewa Krukowska December 24, 2019

WASHINGTON (Bloomberg) - Allseas Group said it would halt operations on the Nord Stream 2 pipeline from Russia to Germany as U.S. President Donald Trump approved sanctions targeting the project, which critics say will bind Europe more tightly to Moscow.

Germany lashed out against the U.S. penalties on Saturday, saying they’re “incomprehensible” and interfere in its internal affairs. “They hit German and European companies,” Ulrike Demmer, a spokeswoman for Chancellor Angela Merkel’s government, said in an emailed statement.

The $11 billion project is just weeks away from completion and has led Trump to call Germany “a captive to Russia.” He has criticized the European Union for not doing more to diversify imports away from the nation that supplies more than a third of its gas.

Nord Stream 2 AG, the Gazprom PJSC-backed company planning the undersea link, said Saturday that it would work to finish the project as soon as possible. “Completing the project is essential for European supply security,” it said in an emailed statement.

Switzerland’s Allseas, whose ships are laying the last section of the pipe in Danish waters, had earlier said it would suspend work “in anticipation of the enactment of the National Defense Authorization Act.” It wasn’t immediately clear if the work can be completed without the input of Allseas.

The government in Moscow condemned the U.S. punitive measures, which it insisted would not derail Nord Stream 2. “Russia will continue to implement its economic projects irrespective of any sanctions,” the foreign ministry said in a website statement.

The European Commission is currently analyzing the potential impact of sanctions on companies of the region, according to EC spokesman Stefan de Keersmaecker.

Nord Stream 2 is set to ship as much as 55 billion cubic meters of Russian gas annually directly to Germany, doubling the capacity of the existing Nord Stream link. The U.S. and Eastern European nations see it as a threat to the Ukrainian transit route that has been in place for decades, bringing revenue to the smaller former Soviet Union nation. The new link theoretically gives Russia the ability to bypass Ukraine as a transit corridor.

The completion of Nord Stream 2 could would bring fresh supplies of gas to Europe’s already glutted market. That would make it more difficult for the U.S. to gain a bigger foothold in shipping cargoes of liquefied natural gas by tanker into Europe.

The goal of the sanctions is to replace Russian gas supplies to European energy markets with more expensive U.S. LNG and curb Russia’s influence in the world, Dmitry Novikov, first deputy chairman of the State Duma lower house of parliament’s foreign affairs committee, told Interfax. “There are wider political tasks of weakening Russia to the maximum and eliminating it as a global competitor,” Novikov said.

U.S. Sanctions. Sanctions on the Nord Stream 2 pipeline were included in the 2020 NDAA after members of Congress pushed for their inclusion. The NDAA authorizes $738 billion in funding for the U.S. military and national security. The measure is one of the few that receives broad bipartisan support, which means lawmakers often use it as a vehicle for their priorities.

Texas Republican Senator Ted Cruz, the main Senate sponsor of the sanctions, wrote a letter with Wisconsin Senator Ron Johnson to AllSeas Chief Executive Officer Edward Heerema on Wednesday, warning the company that it would face “crushing and potentially fatal” sanctions if it continued work on the pipeline.

“The consequences of your company continuing to do the work -- for even a single day after the President signs the sanctions legislation -- would expose your company to crushing and potentially fatal legal and economic sanctions,“ they wrote.

Ukraine Transit Deal. The U.S. sanctions come as Gazprom reached a deal on extension of onshore transit to Europe via Ukraine, which has been the main route for Russian gas exports amid legal and political tensions between two neighboring nations. Ukraine will offer to Gazprom transit pipeline capacity of 65 billion cubic meters for the next year, while in 2021-2024 the booked capacity will reach 40 billion cubic meters per year, according to the Russian gas giant.

Gazprom and Ukraine have also agreed to consider extension of the new transit deal on the same conditions through 2034, according to Ukraine’s energy ministry.

Securing the Ukrainian transit route is “a big refresh in the Russian, Ukrainian and European gas relations,” European Commission Vice President Maros Sefcovic said in an interview with Bloomberg Saturday after the agreements were reached.

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