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18th Feb 2019

EU bets on US 'consultations' to save Russia pipeline

  • Flagship Russian project to come online in 2019 (Photo: Nord Stream 2 / Axel Schmidt)

EU firms are betting that a non-binding “consultation” process on new US sanctions will stop their investment in a Russian gas pipeline from turning into a fiasco.

Nord Stream 2, a Swiss-based Russian firm that is building the project, said on Thursday (3 August) that “potential sanctions” by the US on EU firms involved in the scheme will “only be implemented in close coordination with European allies”.

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  • Nord Stream 2 said they would “continue” and “proceed” (Photo: Axel Schmidt)

“This ensures that European interests can be taken into account, protecting energy security of European citizens and the freedom of European companies to engage in legitimate economic activities,” it said.

Anglo-Dutch firm Shell, Austrian firm OMV, France’s Engie, and German companies Uniper and Wintershal have each pledged €950 million toward the pipeline.

Nord Stream 2 said they would “continue” and “proceed” with the construction.

It added that US president Donald Trump might never go ahead with the penalties despite having signed a new Russia sanctions bill this week.

“We are analysing the implications of the president’s signing statements, which set the frame for implementation of any potential sanctions,” the Russian firm said.

Congress forced through the sanctions, which threaten fines against investors in Russian energy projects and which restrict Russian arms sales and bank credit, last week.

Trump signed it on Wednesday, but the Russia-friendly US leader said it was “flawed” and that it violated his “exclusive constitutional authority” on foreign policy.

The European Commission, which had threatened to retaliate within “days” if the bill went through, also placed its best on the consultation mechanism.

A Commission spokeswoman, Mina Andreeva, said in Brussels on Thursday that EU lobbying had led Congress to relax its original provisions.

She said it was a “good sign” that the levels of Russian investment in any given energy project that would qualify for US fines had been raised, which meant that they would impact “fewer” schemes of EU interest.

That still left Nord Stream 2 in the crosshairs.

But she added that there was “a clear [US] commitment to consult allies on a case by case basis whenever sanctions are to be imposed” on any “project with European participation that might have an impact on energy diversification”.

She said the EU would consider retaliatory action only if its concerns were ignored.

Nord Stream 2 would concentrate seven out of every 10 drops of Russian gas sold to the EU on the German route.

Its critics, which include Poland and the Baltic and Nordic states, say it would make them more vulnerable to energy blackmail.

The US state department also believes it would reduce Russia’s cost for invading Ukraine and would boost Moscow’s influence in Berlin.

The five big EU firms behind the project are among more than 200 international contractors building the €9.9 billion pipeline, most of which are European.

The Commission had earlier criticised Nord Stream 2 for increasing energy dependence on Russia, but its president, Jean-Claude Juncker has taken Austria and Germany’s side in the outcry on the US measures.

The Commission is also angling to negotiate the legal model that is to apply to the pipeline with Russia, to help to see its anti-monopoly laws applied to the offshore and onshore parts.

A US source told EUobserver that even if the US sanctions were never implemented, they would increase the “risk” and subsequently the cost of Nord Stream 2 construction.

The five EU firms already showed their skittish side by ditching their shares in the Swiss-based Nord Stream 2 consortium when a Polish anti-trsut regulator raised concerns last year.

Magazine

Nord Stream 2: Business unusual

Neither sanctions, EU law nor politics can stop the Nord Stream 2 gas pipeline from being built, its small army of European lobbyists has said.

Markets shun Nord Stream 2 amid US threat

Markets unwilling to lend money to finance the Russia gas pipeline due to risk of US sanctions, forcing its EU backers to "review" their plans.

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