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Outlook 2019: Next US Congress to keep pressure on Russian energy sector

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Outlook 2019: Next US Congress to keep pressure on Russian energy sector

Highlights

Major bills from last Congress likely to be re-introduced

Sanctions on Nord Stream 2, upstream investment considered

State Department still deciding mandatory Skripal penalties

Washington DC — Nearly a dozen US legislative bills targeting Russia's energy sector will die when the current Congress leaves Washington, but the new Congress seated in January is expected to keep the same pressure on Moscow.

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Past measures likely to be revived include sanctions against Russian state-owned Gazprom's Nord Stream 2 natural gas pipeline to Germany, banning investment in Russian crude production and new international energy projects supported by Moscow, blocking oil and refined product imports from Russia to the US, and banning dollar-denominated loans to the Russian government.

"I think they all feel like they need to do something on energy," said Brian O'Toole, a senior vice president at BB&T Bank and former senior adviser who managed sanctions at the Treasury Department's Office of Foreign Assets Control. "That's what it seems like to me since it keeps appearing in every bill. That said, the energy provisions in all of these bills look more like opening volleys."

Russia's seizing of three Ukrainian navy ships and their crews in November has only increased the bipartisan push on Capitol Hill to take action against Moscow.

The next Congress may add Russia's shipping and insurance sectors to the list of possible targets as a result of the Sea of Azov incident, O'Toole said.

The Senate will return without several major Russia hawks including former Republican Senators Bob Corker of Tennessee and Jeff Flake of Arizona. But that will not likely erode the Senate's desire to take the lead.

"There's always been a sense, especially on Russia, that the Senate puts out a pretty bipartisan product," O'Toole said.

With Democrats controlling the House of Representatives, incoming House Speaker Nancy Pelosi of California may use the Russia issue to pressure the White House.

"I think Pelosi knows more than anybody that these bills really piss off Trump, so I think there's going to be momentum there," O'Toole added. "The Senate may, if it sees something bubbling in the House, try to get something together so they're not faced with a proposal coming from the House. The Senate wants to drive the conversation on this."

The Trump administration has so far held off on leveling new sanctions against Russia under an August finding by the State Department that Moscow violated a 1991 chemical and biological weapons law in the March poisoning of a former Russian agent and his daughter in the UK.

The State Department informed Congress in November that Russia had not met the law's conditions for verifying it no longer uses banned weapons and allowing inspectors, a spokeswoman said. That certification triggers mandatory sanctions, but the White House has not decided which three of the six penalties in the law to impose.

"We want to get the sanctions right," State Department spokesman Robert Palladino said in November. "It's important that we do so. That's a process that takes time."

The penalties include banning US imports of Russian goods, including petroleum, and blocking loans or technical assistance to Russia by international financial institutions.

The US imported about 339,000 b/d of refined products and 73,000 b/d of crude from Russia in the first nine months of 2018, according to the latest Energy Information Administration data.

Separately, the House approved on December 11 a largely symbolic measure expressing opposition to the Nord Stream 2 gas pipeline and supporting sanctions against the project under the Countering America's Adversaries Through Actions Act.

Russia's state-owned gas company Gazprom aims to start up the 55 Bcm/year Nord Stream 2 pipeline by the end of 2019. It runs under the Baltic Sea and follows a similar route to the original Nord Stream facility, which came online in 2011.

The US has long opposed the Nord Stream expansion, arguing that Europe should not be so dependent on Moscow for energy. The government has recently been touting US LNG exports as an alternative to Russian gas, in addition to supporting the Southern Gas Corridor from the Caspian region to the EU.

The House resolution called on European governments to reject the pipeline and urged Trump to "use all available means to support European energy security through a policy of diversification to lessen reliance" on Russia.

--Meghan Gordon, meghan.gordon@spglobal.com

--Edited by Jeff Mower, newsdesk@spglobal.com