Nord Stream 2: A Geopolitical Lightning Rod

Nord Stream 2: A Geopolitical Lightning Rod

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August 7, 2018
Nord Stream 2: A Geopolitical Lightning Rod
At the July 2018 NATO Summit in Brussels, President
from all but the Danish government to enable its
Donald Trump criticized German support for a natural gas
construction. Although its parliament may reject the
pipeline project, Nord Stream 2, that would allow Germany
pipeline on national security grounds, the pipeline could be
to increase the amount of natural gas it imports directly
slightly rerouted to avoid Danish territorial waters.
from Russia via the Baltic Sea (see Figure 1). Although the
President later suggested he expected the project would
Figure 1. Nord Stream Gas Pipeline System
move forward, his comments underlined U.S. support for
energy diversification in Europe and revived interest in
potential sanctions against pipelines that could increase
dependence on Russian energy.
Background
U.S. policymakers have supported European Union (EU)
efforts to reduce reliance on Russian natural gas, especially
after Moscow temporarily halted exports via Ukraine in
2009 and 2006. Although European governments have
generally supported the goal of diversification, they have
been challenged to reduce Europe’s dependence on Russian
natural gas, which accounted for 37% of European imports
in 2017, up 5% from the previous year.

Source: Gazprom, edited by CRS.
Analysts cite various impediments to reducing European

reliance on Russian gas, including divergent perceptions
within Europe on the reliability of Russian supplies. Many
The German government has faced heightened criticism of
have criticized Germany, Russia’s largest natural gas
the project as concerns over Russian actions in Europe have
customer, for seeking to expand the Nord Stream pipeline
grown. In an April 2018 meeting with Russian President
system. Others suggest an expansion of Nord Stream would
Vladimir Putin, German Chancellor Angela Merkel
not necessarily lead to a rise in Russian gas imports by
addressed a chief concern of some critics by stating the
Europe, if Gazprom uses the new capacity to substitute for
project could not proceed without guarantees that Gazprom
gas transit through Ukraine.
will continue to export gas through Ukraine. Merkel did not
specify in what form such guarantees could be made. Some
In operation since 2011, Nord Stream 1 has a total capacity
analysts question whether the government could revoke
of 55 billion cubic meters (bcm) per year. In 2017, it ran at
permits that have already been granted.
about 93% of capacity and accounted for about 32% of
Russia’s total natural gas exports to Europe and 11% of the
Critics of the proposed pipeline had been hopeful that the
EU’s gas consumption.
European Commission could block or limit Gazprom’s
involvement in the project due to EU regulations intended
In March 2018, the German government granted permits for
to prevent monopoly control of energy projects. However,
Nord Stream 2, which would run parallel to Nord Stream 1,
these regulations have been interpreted as applying only to
doubling the pipeline system’s capacity to 110 bcm. Nord
intra-EU pipelines. EU member states have not acted on a
Stream 2 is estimated to cost about $11 billion and
Commission proposal to extend these regulations to
scheduled to begin operations in late 2019. It is owned
pipelines coming from outside the EU. Others have argued
entirely by Russian state-owned energy company Gazprom.
that possible U.S. sanctions on European lenders could
Half the cost is to be financed by five European companies:
compel them to decide not to go through with the project.
Engie (France), OMV (Austria), Shell (Netherlands/UK),
Uniper (Germany), and Wintershall (Germany). By
Support and Opposition
contrast, Gazprom owns 51% of Nord Stream 1; four
In general, supporters of the pipeline, including the
European companies—Engie, Wintershall, E.ON
German, Austrian, and French governments, argue that
(Germany), and Gasunie (Netherlands)—own the rest.
Nord Stream 2 would enhance the EU’s energy security by
increasing the capacity of a direct supply route. Germany
Project Status
and others have said that, once the gas reaches Germany, it
Despite continued opposition from some European
can be transported throughout Europe.
governments and EU officials, Nord Stream 2 has held up
under a critical review by the European Commission (the
Opponents of the pipeline—including, among others, the
EU’s executive agency) and secured the necessary permits
European Commission and President of the European

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Nord Stream 2: A Geopolitical Lightning Rod
Council, Poland, the Baltic States, Ukraine, the Trump
an equivalent amount for the construction of Russian
Administration, and many Members of Congress—argue
energy export pipelines (Sec. 232; 22 U.S.C. 9526).
that it would give Russia greater political leverage over
Germany and others that are dependent on Russian gas.
It is unclear how CRIEEA’s Section 232 sanctions might
Critics also contend that Nord Stream 2 could leave some
apply to Nord Stream 2. The legislation does not provide
countries more vulnerable to supply cutoffs or price
for sanctions on, specifically, financing, although it does
manipulation by Russia. They add that by reducing the
provide for sanctions on the provision of services and
transit of Russian gas through Ukraine, Nord Stream 2
support. In October 2017, the Trump Administration
would deprive Ukraine of revenue and reduce its
released guidance noting that Section 232 sanctions would
importance to Russia as a transit state.
not apply to projects for which a contract was signed before
August 2, 2017. Gazprom signed financing agreements with
Impact on Ukraine
the five European companies in April 2017.
Russia began to reduce its gas transit through Ukraine after
Nord Stream 1 opened in 2011. Previously, most of
Some Members of Congress have introduced legislation
Russia’s natural gas exports to Europe transited Ukraine.
that would impose mandatory sanctions on investment or
Currently, around 40%-50% transit Ukraine.
trade in Russian energy export pipelines (S. 3229) or
operating or transacting with the Nord Stream 2 pipeline
If Nord Stream 2 moves forward, it could further reduce
(H.R. 6384). Other bills have been introduced that would
transit through Ukraine. Potentially, it could eliminate it
support (1) sanctions against Nord Stream 2 (H.Res. 1035)
entirely, in conjunction with TurkStream, a pipeline under
or (2) efforts to halt construction of this and other Russian
construction to transport Russian natural gas to southern
export pipelines (H.R. 6224, H.R. 6437).
Europe via the Black Sea. The combined capacity of Nord
Stream 2 and TurkStream is 87 bcm a year (93 bcm
European Responses
transited Ukraine in 2017).
European supporters of Nord Stream 2, including the
German government, have criticized Section 232 sanctions.
According to Ukrainian oil and gas company Naftogaz, its
They argue that opening European-backed projects to U.S.
operating profit for gas transit was over $900 million in
sanctions could jeopardize what has been strong
2016 and $535 million in 2017. In addition to the revenue
transatlantic cooperation in imposing sanctions on Russia.
loss, many observers consider that Ukraine’s loss of gas
transit would threaten its security. It would not necessarily
Some European officials have voiced suspicion that U.S.
increase Ukraine’s vulnerability to energy supply cutoffs, as
opposition to Nord Stream 2 is rooted in a desire to increase
Ukraine stopped importing natural gas from Russia in 2016.
U.S. liquid natural gas (LNG) exports to Europe. They
It could, however, increase Ukraine’s strategic
point to another statement in CRIEEA that the United
vulnerability, as Russia’s dependence on Ukraine for gas
States “should prioritize the export of United States energy
transit would no longer be a constraining factor in its
resources in order to create American jobs, help United
policies toward Ukraine.
States allies and partners, and strengthen United States
foreign policy.” They contend that imposing sanctions on
Considerations for Congress
an ally in order to advance national economic interests—
The 115th Congress and the Administration have declared
especially when U.S. LNG is more expensive than gas from
opposition to the Nord Stream 2 pipeline. The Countering
Russia and cannot replace all Russian imports—could have
Russian Influence in Europe and Eurasia Act of 2017
longer-term ramifications for the U.S.-German relationship.
(CRIEEA, P.L. 115-44, Title II) states that it is U.S. policy
to “continue to oppose the Nord Stream 2 pipeline given its
EU concerns were appeased in part by language inserted in
detrimental impacts on the EU’s energy security, gas
CRIEEA which said that the President should “continue to
market development in Central and Eastern Europe, and
uphold and seek unity” with European partners on sanctions
energy reforms in Ukraine.”
and that new U.S. sanctions on pipeline ventures would be
imposed in coordination with U.S. allies. Following the
In June 2018, Assistant Secretary of State for Europe and
enactment of CRIEEA, the European Commission
Eurasia Wess Mitchell said the United States seeks to
expressed satisfaction that “European interests can thus be
“stop” the Nord Stream 2 project, which would “make the
taken into account in the implementation of any [U.S.]
eastern flank of NATO more vulnerable to Russian
sanctions.” Still, some remain wary that implementation of
pressure, reduce Ukraine’s security as a transit nation and
new U.S. sanctions could affect European energy projects.
render it more susceptible to Russian aggression, and make
Europe more dependent on Russian monopolies.” In July
Paul Belkin, pbelkin@crs.loc.gov, 7-0220
2018, Assistant Secretary of State for Energy Resources
Michael Ratner, mratner@crs.loc.gov, 7-9529
Francis Fannon expressed the United States’ “unqualified
Cory Welt, cwelt@crs.loc.gov, 7-0530
opposition to the Nord Stream 2 pipeline, as well as the
need to maintain the robust gas transit in Ukraine.”
IF10943
Some opponents of Nord Stream 2 support sanctions
against the pipeline. CRIEEA authorizes (but does not
require) sanctions on those who invest at least $1 million,
or $5 million over 12 months, or engage in trade valued at
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