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US steps up sanctions pressure on Nord Stream 2 gas pipeline contractors

Highlights

State Department tells firms to wind down in 30 days

Guidance expands interpretation of latest US sanctions

Washington — The US State Department on Oct. 20 widened the scope of sanctions against the Nord Stream 2 natural gas pipeline and warned companies involved in the final installation that they face sanctions if they do not wind down activities within 30 days.

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The new guidance expands on the State Department's interpretation of Congress' Protecting Europe's Energy Security Act of 2019, which targets vessels laying pipe at least 100 feet below sea level for Nord Stream 2, TurkStream pipeline or any successor project. It added that companies providing "facilities for upgrades or installation of equipment for those vessels," or funding for such work also faced potential sanctions.

"The Department of State and the Department of the Treasury are prepared to use the full range of sanctions authorities to halt construction of these pipelines," the State Department said.

The guidance says the US will not impose sanctions on those who violate the law's "if those persons immediately engage in, and complete within 30 days, a good-faith wind down of such activities upon the issuance of this clarification."

Kevin Book, managing director of ClearView Energy Partners, said that while the latest guidance could potentially lead to mandatory sanctions against Gazprom or other key subsidiaries under the PEESA law, "we believe the Trump administration could use PEESA's waiver authorities to stand down from a direct confrontation."

"In our view, a new sanctions law likely to emerge from Capitol Hill by year-end could bolster today's interpretation of PEESA," Book said in an Oct. 20 note to clients.

Book said the latest State Department action may have been spurred by apparent retrofits of the Russian pipe-laying vessel Akademik Cherskiy that would enable it to complete NS2 construction without support from other ships.

"This mid-sea upgrading appears to reflect an unwillingness of German entities to risk US sanctions by facilitating the retrofits," he said.

The Akademik Cherskiy is currently anchored in the Baltic Sea off the coast of Kaliningrad. It moved from the German port of Mukran -- where it had been for almost five months -- on Oct. 1, according to S&P Global Platts trade flow software cFlow.

Other vessels -- considered as potential support vessels -- have come and gone from the port, including the Ivan Sidorenko, which is now in port at Kaliningrad.

The action comes after Germany's foreign minister gave a new boost to the Nord Stream 2 project, saying in an Oct. 17 interview that he "assumes" the project will be completed.

A little over 150 km of Nord Stream 2 remains to be laid in Danish and German waters, but with the political debate becoming ever more frenzied, it remains unclear how and when the pipeline will be completed.

Russia and the US continue to trade blows over the project, particularly since the poisoning of Russian opposition politician Alexei Navalny on Aug. 20.

Nord Stream 2 would double the capacity of the gas corridor via the Baltic Sea to Germany to 110 Bcm/year and would reduce the need for Russia to use Ukraine as a transit country for gas supply to Europe.