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Updated February 5, 2020
Russia’s Nord Stream 2 Pipeline: Will Sanctions Stop It?
The Trump Administration and many Members of Congress
Critics of Nord Stream 2 were initially hopeful that the
have expressed opposition to Nord Stream 2, a Russian-
European Commission (the EU’s executive agency) would
owned natural gas pipeline project that, if completed, will
block the project by invoking EU regulations intended to
enable Germany to increase the amount of natural gas it
prevent monopoly control of energy projects. In early 2019,
imports directly from Russia via the Baltic Sea (see Figure
the EU amended an existing gas directive to extend its rules
1). Reflecting concerns about European dependence on
to EU territorial waters. Proponents hoped that the
Russian energy, the Protecting Europe’s Energy Security
amendment would require Gazprom to adhere to EU rules
Act of 2019 (PEESA), enacted as part of the FY2020
prohibiting operators from owning both the pipeline and a
National Defense Authorization Act (NDAA, P.L. 116-92,
majority of the gas flowing through it. In November 2019,
Title LXXV), establishes sanctions related to the
however, the German parliament ruled that the restrictions
construction of the Nord Stream 2 pipeline. Given
would not apply to Nord Stream 2, as the pipeline was
sanctions-related delays, the pipeline currently is scheduled
already under construction at the time they were agreed.
for completion by the end of 2020 or early 2021.
Figure 1. Nord Stream Gas Pipeline System
Background
U.S. policymakers have supported European Union (EU)
efforts to reduce reliance on Russian natural gas, especially
after Moscow temporarily reduced exports via Ukraine in
2006 and briefly halted them in 2009. Although the EU has
articulated an ambitious energy diversification strategy,
some European governments have not reduced dependence
on Russian gas, which accounted for 46% of EU imports in
2018. Factors behind continued European reliance on
Russian supply include rising demand for natural gas,
diminishing European gas supply, financial investments by
Russia in European infrastructure, and the perception of
many Europeans that Russia remains a reliable supplier.
Nord Stream 2 is being constructed alongside the Nord
Source: Gazprom, edited by CRS.
Stream 1 pipeline, in operation since 2011. Nord Stream 1
Support and Opposition
has a total capacity of 55 billion cubic meters (BCM) per
year. In 2018, it ran at 107% of stated capacity. Nord
Supporters of Nord Stream 2, including the German and
Stream 2 also is to have a capacity of 55 BCM per year,
Austrian governments, argue that the pipeline will enhance
doubling the system’s capacity.
EU energy security by increasing the capacity of a direct
and secure supply route at a time of rising European
Nord Stream 2 is estimated to cost about $10 billion. It is
demand for gas. German officials and others have said that
owned entirely by Russia’s state-owned energy company
once the gas reaches Germany it could be transported
Gazprom. Half the cost is being financed by five European
throughout Europe. These advocates say they support
companies: Engie (France), OMV (Austria), Shell
developing additional infrastructure to ensure this is
(Netherlands/UK), Uniper (Germany), and Wintershall
possible. The German government stresses that it also
(Germany). This ownership structure is different than that
supports broader European energy supply diversification
of Nord Stream 1, in which Gazprom has a 51% stake; four
efforts, including by backing construction of a new
European companies—Engie, Wintershall, E.ON
liquefied natural gas (LNG) terminal in northern Germany.
(Germany), and Gasunie (Netherlands)—own the rest.
Opponents of the pipeline—including, among others, some
Project Status
EU officials, Poland, the Baltic states, Ukraine, the Trump
Despite opposition from some European governments and
Administration, and many Members of Congress—argue
EU officials, construction of Nord Stream 2 began in 2018.
that it will give Russia greater political and economic
In October 2019, the Gazprom-owned Nord Stream 2 AG
leverage over Germany and others that are dependent on
pipeline company secured its last necessary state-level
Russian gas, leave some countries more vulnerable to
construction permit from Denmark. As of January 2020,
supply cutoffs or price manipulation by Russia, and
about 100 miles of the approximately 760-mile pipeline
increase Ukraine’s vulnerability to Russian aggression.
reportedly remain to be constructed.
https://crsreports.congress.gov
Russia’s Nord Stream 2 Pipeline: Wil Sanctions Stop It?
Impact on Ukraine
volume of Russian energy exports transiting through
One concern of Nord Stream 2 opponents is that the
existing pipelines in other countries, particularly Ukraine,
pipeline would reduce Ukraine’s significance as a transit
relative to the average monthly volume of Russian energy
state for Russian natural gas exports to EU members.
exports transiting through such pipelines in 2018.”
Before Nord Stream 1 opened in 2011, most of Russia’s
natural gas exports to Europe transited Ukraine. Currently,
As of January 2020, PEESA’s impact on completion of the
around 40% transit Ukraine. According to Ukrainian oil and
Nord Stream 2 pipeline is uncertain (TurkStream was
gas company Naftogaz, its revenues from gas transit totaled
inaugurated on January 8, 2020). On December 21, 2019,
$2.65 billion in 2018.
Allseas, the Swiss-Dutch company laying the pipeline,
stated that it had “suspended its Nord Stream 2 pipelay
If Nord Stream 2 becomes operational, observers expect it
activities [and would] proceed, consistent with the
to further reduce transit through Ukraine. In December
legislation’s wind down provision.” On December 27,
2019, Gazprom and Naftogaz negotiated a contract to
2019, the State Department said that “the United States’
transit 65 BCM in 2020, a volume equal to about 75% of
intention is to stop construction of Nord Stream 2” and that
the 2018 volume of 87 BCM, and 40 BCM a year from
PEESA’s sanctions would be imposed “unless related
2021 to 2024, a volume equal to about 46% of the 2018
parties immediately demonstrate good faith efforts to wind-
volume. Despite the reduction in export volumes, Ukraine’s
down.” Russian officials have said that Russia should be
Minister of Energy has said the agreement provides for
able to finish construction of the pipeline. In January 2020,
about $3 billion a year in transit revenue.
Russian President Vladimir Putin said that he expected the
pipeline to be completed no later than the start of 2021.
Many observers consider that reducing Ukraine’s role as a
transit state would not only deprive Ukraine of revenue but
Other relevant sanctions legislation is included in Section
also threaten Ukraine’s security. It would not necessarily
232 of CRIEEA, which authorizes (but does not require)
increase Ukraine’s vulnerability to energy supply cutoffs, as
sanctions on those who invest at least $1 million, or $5
Ukraine stopped importing natural gas directly from Russia
million over 12 months, or engage in trade valued at the
in 2016. It could, however, increase Ukraine’s strategic
same amount for the construction of Russian energy export
vulnerability, as Russia’s dependence on Ukraine for gas
pipelines (22 U.S.C. §9526). In October 2017, the
transit would no longer be a potential constraining factor in
Administration published guidance noting that Section 232
its policies toward Ukraine.
would not apply to projects for which contracts were signed
prior to August 2, 2017, the date of CRIEEA’s enactment.
U.S. Policy
Gazprom signed financing agreements with five European
Congress and the Administration have expressed opposition
companies in April 2017. Section 232 does not provide for
to the Nord Stream 2 pipeline. The Countering Russian
sanctions on financing specifically, although it provides for
Influence in Europe and Eurasia Act of 2017 (CRIEEA,
sanctions on the provision of services and support.
P.L. 115-44, Title II) states that it is U.S. policy to
“continue to oppose the Nord Stream 2 pipeline given its
European Response to U.S. Sanctions
detrimental impacts on the EU’s energy security, gas
Some European opponents of Nord Stream 2, including the
market development in Central and Eastern Europe, and
European Commission, have joined supporters of the
energy reforms in Ukraine.” At a July 2018 NATO Summit
pipeline in criticizing U.S. sanctions established by PEESA.
in Brussels, President Donald Trump criticized German
EU officials have stated that the EU rejects as a “matter of
support for Nord Stream 2. In December 2018, the House of
principle” the imposition of sanctions against EU
Representatives passed H.Res. 1035, which called for the
companies conducting legitimate business in line with EU
cancellation of Nord Stream 2 and the imposition of
and European law. Other opponents of the pipeline, such as
sanctions with respect to the project.
the Polish government, support PEESA as a necessary
mechanism to prevent completion of the project.
U.S. Sanctions Related to Nord Stream 2
The Protecting Europe’s Energy Security Act of 2019
European critics of PEESA have expressed concerns that
(PEESA) requires sanctions on foreign persons who the
the threat of U.S. secondary sanctions could jeopardize
President determines have sold, leased, or provided subsea
what has been strong U.S.-European cooperation in
pipe-laying vessels for the construction of Nord Stream 2
imposing sanctions on Russia. Others have voiced suspicion
and TurkStream (another Russian pipeline that is to supply
that U.S. opposition is rooted primarily in a desire to
natural gas to Europe), or any successor pipeline, since
increase U.S. LNG exports to Europe. They contend that
December 20, 2019 (the date of the NDAA’s enactment).
imposing sanctions on an ally in order to advance national
PEESA provides for a 30-day wind-down period;
economic interests—especially when U.S. LNG is more
exceptions for repairs, maintenance, environmental
expensive than gas from Russia and cannot replace all
remediation, and safety; and a national security waiver.
Russian imports—could have longer-term ramifications for
the U.S.-German relationship.
PEESA provides for the termination of sanctions if the
President certifies to Congress “that appropriate safeguards
Paul Belkin, Analyst in European Affairs
have been put in place” to minimize Russia’s ability to use
Michael Ratner, Specialist in Energy Policy
the sanctioned pipeline project “as a tool of coercion and
political leverage,” and to ensure “
Cory Welt, Analyst in European Affairs
that the project would
not result in a decrease of more than 25 percent in the
IF11138
https://crsreports.congress.gov
Russia’s Nord Stream 2 Pipeline: Wil Sanctions Stop It?
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https://crsreports.congress.gov | IF11138 · VERSION 4 · UPDATED