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Despite construction work restart, Nord Stream Two remains in limbo

Author : Mateusz Kubiak

Source : Jamestown Foundation

Russian diplomacy is trying to downplay the risks for the project arising from NDAA 2021 sanctions
20:22, 15 December 2020

Nord Stream 2 gas pipeline
Reuters

On December 11, project operator Nord Stream 2 AG restarted construction work on the Nord Stream Two natural gas pipeline after an almost year-long break. This development, however, does not mean that completion of the 55 billion cubic meter (bcm) gas transit line expansion is a forgone conclusion. Indeed, the just resumed work is being conducted on a particularly short (only 2.6 kilometers long) section of the two-string pipeline, located within the German exclusive economic zone (EEZ); the construction vessels are not presently operating in the most problematic (due to the United States sanctions) Danish waters, where around 130 kilometers of pipe still need to be laid down on the sea bottom.

The current pipe-laying activities in the German EEZ are being performed by the 12-point anchor barge Fortuna, which was recently transferred to the murky Russian company OOO Universalnaya Transportnaya Gruppa. The vessel is not technologically advanced—among other issues, it lacks propulsion, so it has to be towed by an accompanying offshore supply ship to the “construction site”—making it vulnerable to the winter weather conditions in the Baltic Sea. Moreover, the Fortuna, while suitable for slow-pace pipe-laying in coastal waters or specific operations like above-water tie-in work, is not designed for proper construction work on the open sea. Therefore, it is highly improbable that the barge can also be used to complete the missing Nord Stream Two section in the Danish EEZ.

At the same time, uncertainties regarding the second Russian pipe-laying vessel, the Akademik Cherskiy, continue to grow. The Cherskiy, unlike the Fortuna, should be sufficient to operate in Danish waters; but it seems that the ship is still undergoing sea trials and is not yet ready to be deployed. Moreover, due to the recent revision of the US Department of State guidelines regarding the Protecting Europe’s Energy Security Act (PEESA), Russia has lost access to international foreign ship inspection services. The Norwegian classification society DNV GL (a maritime quality-assurance and risk-management company) already ceased these kinds of activities related to Nord Stream Two at the end of November; and facing the threat of US sanctions, it is questionable whether any other reputable non-Russian entity will be willing to step in and provide Nord Stream 2 AG with similar services. Even if that does not end up being a critical obstacle regarding the Baltic pipeline’s future, having to find another entity willing to provide accreditation is almost certain to cause further delays in the Akademik Cherskiy’s progress.

Beyond technical issues regarding the Russian pipe-laying fleet, an even more crucial development for the future of Nord Stream Two is the new set of US sanctions included in the final wording of the National Defense Authorization Act for the Fiscal Year 2021 (NDAA 2021) bill. The ultimate version of the document states that the companies that “provided services for the testing, inspection, or certification necessary or essential for the completion or operation of the Nord Stream 2 pipeline” will also fall under the US sanctions. Therefore, if adopted as is, NDAA 2021 will even more thoroughly cut Russia off from access to worldwide classification societies, most probably preventing Nord Stream 2 AG from securing independent verification of the pipeline’s compliance with technical design and industry standards in the future. And without such certification, the gas pipeline will not be allowed to operate.

In response, Russian diplomacy is trying to downplay the risks for the project arising from NDAA 2021 sanctions. The latest statement in this regard was made by Russian Deputy Foreign Minister Sergei Ryabkov, who concluded he has “no doubts that the Nord Stream Two pipeline will be completed”. But is his optimism justified?

Related: U.S. Embassy in Berlin demands to impose moratorium on completion of Nord Stream 2

First, the NDAA 2021 looks relatively certain to become law, even if some of its provisions (not related to Nord Stream Two) have been heavily criticized by the US President. The bill already passed both chambers of Congress with veto-proof majorities (335–78 in the House of Representatives; 86–14 in the Senate). The legislation now awaits signature by the President. But even if a veto creates delays by sending the bill to be voted on again by the Congress, that process is unlikely to result in any changes to the strict Nord Stream Two sanctions wording. Russia will need certification services in the second quarter of 2021 at the earliest (assuming that the Akademik Cherskiy starts pipe-laying already in December 2020), which provides plenty of time for new sanctions to be enacted.

Second, the proponents of Nord Stream Two have yet to present any countermeasures that would be effective enough to mitigate the looming new sanctions risks. Most recently, the media reported that Germany’s Mecklenburg-Vorpommern state (Land) authorities are planning to establish a “special-purpose” foundation specifically to circumvent the punitive US legislation. The idea is simple on its face: to found a state-owned entity that will act as an intermediary, thus preventing the sanctions from posing a threat to any of the commercial companies. This, however, will not be as easy as is being presented because of multiple formal and business reasons—particularly when it comes to the specific types of companies like the already-mentioned classification societies.

Due to the uniqueness of the certification services that an undersea pipeline project like Nord Stream Two requires, it will prove impossible for Germany to “hide” the engagement coming from one of the handful of societies in the world (DNV GL or another) capable of this task. Furthermore, the wording of the NDAA 2021 sanctions does not leave any room for misinterpretation in that regard. The company will come under US sanctions if it is identified as providing services “necessary or essential for the completion or operation of the Nord Stream 2 pipeline” (see above). It will make no difference, legally speaking, whether the offending company is provided servises for Nord Stream 2 AG directly or through a state-owned intermediary.

Related: Russian pipe-laying vessels resume construction of Nord Stream 2

Read the full story here.

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