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Future of Russia’s Nord Stream 2 Pipeline Looks Increasingly Uncertain

2021-01-20 15:14:01
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The future of Nord Stream 2 looks increasingly uncertain as the US put pressure on the project with new sanctions and companies walked away from the controversial Russian gas connection.

The new sanctions come just days before work on the pipeline in Danish waters begins. The question remains whether the connection, which is owned by a unit of Gazprom PJSC, will be further slowed as the US tries to limit Russian influence in Europe.

The Kremlin, for its part, pledged on Tuesday to complete the project, while Gazprom warned of the political risks associated with it. In Germany, lawmakers have sought a legal solution that they believe can protect an important port from sanctions.

The United States Department of State has imposed sanctions on the pipelay vessel Fortuna, which was scheduled to work on the project, and its alleged owner KVT-Rus. Meanwhile, Zurich Insurance Group AG ended all its coverages affected by the sanctions and engineering firm Bilfinger SE is said to have cut ties with the project.

The steps follow those of the Norwegian certification company Det Norske Veritas Holding AS and the Danish engineering firm Ramboll. All of this creates uncertainty about how soon those companies can be replaced and whether work will resume later this month as planned.

"It's a very delicate time for Nord Stream 2," said Richard Morningstar, founder and chairman of the Atlantic Council's Global Energy Center and former US Ambassador to the EU. "Recent events have raised many questions as to whether Russia will be able to complete the project."

US pressure on the project has increased in the closing days of President Donald Trump's tenure. The Ministry of Foreign Affairs has informed companies and the German government of the risks of aid to the project.

Construction of the 1,230-kilometer gas pipeline that will supply Russia's natural gas to Germany was halted following US sanctions in December 2019, when all but 100 miles of the connection had been constructed. The US – which has tightened its restrictions – claims that the Moscow gas connection gives too much of an impact on Europe's gas supplies and threatens the region's security.

Nord Stream 2 "would give Russia the means to bypass Ukraine completely, deprive Ukraine of essential revenues and open the country to further Russian aggressive actions," said Secretary of State Michael Pompeo.

Nord Stream 2 did not immediately respond to a request for comment. It's not clear now if work will resume later this month, and while Zurich's running away is a blow, other insurers are still attached to the project.

Gazprom considers construction of the gas link one of its investment priorities for this year, according to the company's bond prospectus released earlier this week.

In Germany, legislators have introduced a legal mechanism in Mecklenburg-Western Pomerania, where the pipeline comes ashore with the aim of being a lightning rod for sanctions and preventing direct legal problems for companies working on the project.

Last year, when the US began preparations for tougher sanctions against Nord Stream 2, the ship Fortuna has since changed hands at least twice. According to Russian newspaper RBC, it was recently registered with Moscow-based KVT-Rus OOO in December.

Nord Stream is one of a long list or urgent issues that aspiring president Joe Biden will have to grapple with at the start of his four-year tenure starting Wednesday. Antony Blinken, Biden & # 39; s choice of Secretary of State, is "determined to do everything we can to prevent the completion of the pipeline," he said at his confirmation hearing Tuesday.

The new government may propose a new set of sanctions passed as part of the defense law passed late last year.

“It would make sense to postpone the completion of the project for a while,” said Morningstar. To "allow time for consultations to see if there is a solution that removes any Nord Stream 2 threat to European energy security and protects Ukraine's interests."

–With the help of Brian Parkin, Dina Khrennikova and Daniel Flatley.

Copyright 2021 Bloomberg.

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