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March 18, 2019
Nord Stream 2: A Fait Accompli?
The Trump Administration and many Members of Congress
Figure 1. Nord Stream Gas Pipeline System
have criticized Nord Stream 2, a Russian-owned natural gas
pipeline project that would allow Germany to increase the
amount of natural gas it imports directly from Russia via
the Baltic Sea (see Figure 1). Although the pipeline is
currently under construction, new European Union (EU)
regulations agreed to in February 2019 require German and
EU regulators to make a final ruling later this year on the
project’s compliance with EU law. Nevertheless, many
observers believe the pipeline’s construction will proceed.
Background
U.S. policymakers have supported EU efforts to reduce
reliance on Russian natural gas, especially after Moscow
temporarily halted exports via Ukraine in 2009 and 2006.
Although the EU has articulated an ambitious energy
Source: Gazprom, edited by CRS.
diversification strategy, some European governments have
Critics of the proposed pipeline have been hopeful that the
not reduced dependence on Russian gas, which accounted
European Commission (the EU’s executive agency) would
for 43% of non-EU imports in 2017. Factors behind this
block the project by invoking EU regulations intended to
continued reliance on Russian supply include rising demand
prevent monopoly control of energy projects. These
for natural gas, diminishing European gas supply, financial
regulations initially applied only to intra-EU pipelines. On
investments, and the perception of many Europeans that
February 8, 2019, the EU agreed to extend jurisdiction of a
Russia remains a reliable supplier.
2009 natural gas directive (2009/73/EC) to pipelines
located in the offshore territorial waters of EU member
Nord Stream 2 is being constructed alongside the Nord
states. This means that the key principles of the 2009
Stream 1 pipeline, in operation since 2011. Nord Stream 1
directive—requiring third-party access, tariff regulation,
has a total capacity of 55 billion cubic meters (bcm) per
ownership unbundling, and ownership transparency—are to
year. In 2018, it ran at 107% of stated capacity. Nord
be applied to all gas pipelines entering and exiting the EU.
Stream 2 would also have a capacity of 55 bcm per year,
doubling the full system’s capacity.
The impact of the amended gas directive on Nord Stream 2
remains unclear. According to the amendment, Gazprom
Nord Stream 2 is estimated to cost about $10 billion and is
would need to “unbundle” the pipeline, as legally it will not
scheduled for completion by late 2019. It is owned entirely
be able to own and administer both the offshore segment of
by Russia’s state-owned energy company Gazprom. Half
the pipeline in German territorial waters and the gas supply
the cost is being financed by five European companies:
that flows through it. Analysts have identified several ways
Engie (France), OMV (Austria), Shell (Netherlands/UK),
in which Nord Stream 2 could seek to comply with the new
Uniper (Germany), and Wintershall (Germany). This is
regulation. These include transferring the portion of the
different than the ownership structure of Nord Stream 1, in
pipeline in German territorial waters to a third party or
which Gazprom has a 51% stake; four European
seeking an exemption to the regulation. Ultimately, any
companies—Engie, Wintershall, E.ON (Germany), and
ruling by German regulators would need to be approved by
Gasunie (Netherlands)—own the rest.
the European Commission, which in the past has spoken out
against the project.
Project Status
Despite opposition from some European governments and
Support and Opposition
EU officials, Nord Stream 2 has secured the necessary
In general, supporters of the pipeline, including the German
construction permits from all but the Danish government.
and Austrian governments, argue that Nord Stream 2 will
Even if Denmark were to reject the pipeline on national
enhance EU energy security by increasing the capacity of a
security grounds, Nord Stream 2 officials have said that the
direct and secure supply route at a time of rising demand
pipeline could be rerouted to avoid Danish territorial
for gas. German officials and others have said that once the
waters. Gazprom hopes to complete construction on time,
gas reaches Germany it could be transported throughout
though most agree that the new legal requirements
Europe. They say they support developing additional
(discussed below) could delay the project for at least six
infrastructure to ensure this is possible.
months.
The German government maintains that its support for the
new amendment to the EU gas directive demonstrates the
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Nord Stream 2: A Fait Accompli?
government’s commitment to addressing concerns within
2. In November 2018, Secretary of State Pompeo said that
Europe about the project. They argue that the extension of
Nord Stream 2 “undermines Ukraine’s economic and
EU regulations to the offshore pipeline will force Gazprom
strategic security and risks further compromising the
to comply with EU standards, putting to rest any
sovereignty of European nations that depend on Russian
outstanding concerns about the project’s legal status.
gas.” In December 2018, the House of Representatives
passed H.Res. 1035, which called for the cancellation of
Still, opponents of the pipeline—including, among others,
Nord Stream 2 and the imposition of sanctions with respect
the European Commission and President of the European
to the project. In the 116th Congress, some Members have
Council, Poland, the Baltic states, Ukraine, the Trump
introduced bills and resolutions (H.Res. 116, H.R. 1081,
Administration, and many Members of Congress—argue
S.Res. 27, and S.Res. 74 ) further expressing U.S.
that it would give Russia greater leverage over Germany
opposition to Nord Stream 2.
and others that are dependent on Russian gas. Critics also
contend that Nord Stream 2 could leave some countries
It is unclear how existing sanctions might apply to Nord
more vulnerable to supply cutoffs or price manipulation by
Stream 2. CRIEEA authorizes (but does not require)
Russia.
sanctions on those who invest at least $1 million, or $5
million over 12 months, or engage in trade valued at an
Impact on Ukraine
equivalent amount for the construction of Russian energy
Another major concern of Nord Stream 2 opponents is that
export pipelines (Sec. 232; 22 U.S.C. 9526).
the pipeline would reduce Ukraine’s significance as a
transit state for Russian natural gas exports. Before Nord
The legislation does not provide for sanctions on financing
Stream 1 opened in 2011, most of Russia’s natural gas
specifically, although it does provide for sanctions on the
exports to Europe transited Ukraine. Currently, around
provision of services and support. In October 2017, the
40%-50% transit Ukraine. According to Ukrainian oil and
Trump Administration released guidance noting that
gas company Naftogaz, its operating profit for gas transit
Section 232 sanctions would not apply to projects for which
was over $900 million in 2016 and $535 million in 2017. If
a contract was signed before August 2, 2017. Gazprom
Nord Stream 2 moves forward, it is expected to further
signed financing agreements with the five European
reduce transit through Ukraine. The current transit contract
companies in April 2017.
between Gazprom and Naftogaz expires at the end of 2019.
Response of Nord Stream 2 Proponents
Many observers consider that reducing Ukraine’s role as a
The German government and other supporters of Nord
transit state not only would deprive Ukraine of revenue but
Stream 2 have expressed strong opposition to U.S
also threaten Ukraine’s security. It would not necessarily
interference in EU affairs concerning the pipeline. This
increase Ukraine’s vulnerability to energy supply cutoffs, as
includes criticism of Section 232 sanctions, which pipeline
Ukraine stopped importing natural gas directly from Russia
supporters argue could jeopardize what has been strong
in 2016. It could, however, increase Ukraine’s strategic
transatlantic cooperation in imposing sanctions on Russia.
vulnerability, as Russia’s dependence on Ukraine for gas
transit would no longer be a potential constraining factor in
Some European officials have voiced suspicion that U.S
its policies toward Ukraine.
opposition is rooted primarily in a desire to increase U.S
liquefied natural gas (LNG) exports to Europe. They
How the amended EU gas directive will affect negotiations
contend that imposing sanctions on an ally in order to
between Ukraine and Russia is uncertain. In an April 2018
advance national economic interests—especially when U.S.
meeting with Russian President Vladimir Putin, German
LNG is more expensive than gas from Russia and cannot
Chancellor Angela Merkel addressed a chief concern of
replace all Russian imports—could have longer-term
some critics by stating the project could not proceed
ramifications for the U.S.-German relationship.
without guarantees that Gazprom will continue to export
gas through Ukraine. Merkel did not specify in what form
European concerns with U.S. sanctions were addressed in
such guarantees could be made. In proposing the extension
part by language inserted in CRIEEA which states that the
of the gas directive, Germany and France stated that the
President should “continue to uphold and seek unity” with
change would be “indispensable for a fruitful discussion on
European partners on sanctions and that new U.S. sanctions
the future gas transit through Ukraine.”
on pipeline ventures would be imposed in coordination with
U.S. allies. Following the enactment of CRIEEA, the
U.S. Policy
European Commission expressed satisfaction that
Congress and the Administration have expressed opposition
“European interests can thus be taken into account in the
to the Nord Stream 2 pipeline. The Countering Russian
implementation of any [U.S.] sanctions.” Still, some remain
Influence in Europe and Eurasia Act of 2017 (CRIEEA,
wary that implementation of new U.S. sanctions could
P.L. 115-44, Title II) states that it is U.S. policy to
affect European energy projects.
“continue to oppose the Nord Stream 2 pipeline given its
detrimental impacts on the EU’s energy security, gas
Paul Belkin, Analyst in European Affairs
market development in Central and Eastern Europe, and
Michael Ratner, Specialist in Energy Policy
energy reforms in Ukraine.”
Cory Welt, Analyst in European Affairs
At the July 2018 NATO Summit in Brussels, President
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Donald Trump criticized German support for Nord Stream
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Nord Stream 2: A Fait Accompli?
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