Russia’s Nord Stream 2 Pipeline: Continued Uncertainty

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Updated June 25, 2021
Russia’s Nord Stream 2 Pipeline: Continued Uncertainty
Uncertainty continues to cloud the future of Nord Stream 2,
Support and Opposition
a natural gas pipeline under construction that would
Although the EU has articulated an ambitious energy
increase the amount of Russian natural gas export capacity
diversification strategy, some European governments have
directly to Germany and on to other European countries,
not reduced dependence on Russian gas, which accounted
bypassing Ukraine, Poland, and other transit states (Figure
for about 45% of EU natural gas imports in 2019. Russian
1). Successive U.S. Administrations and Congresses have
gas exports to the EU were up 18% year-on-year in the first
opposed Nord Stream 2, reflecting concerns about
quarter of 2021. Factors behind reliance on Russian supply
European dependence on Russian energy and the threat of
include diminishing European gas supplies, commitments
increased Russian aggression in Ukraine.
to reduce coal use, investments by Russia in European
infrastructure, Russian export prices, and the perception of
Nord Stream 2 construction was initially suspended in
many Europeans that Russia remains a reliable supplier.
December 2019, after the passage of U.S. legislation
establishing sanctions related to the pipeline. At the time,
Figure 1. Nord Stream Gas Pipeline System
fewer than 100 miles of the approximately 760-mile long
pipeline system (consisting of two parallel lines) remained
to be laid. Construction resumed in December 2020. In
response, the United States has imposed sanctions on
several entities and vessels, including five Russian ships
identified as engaging in pipe-laying activities.
Construction is ongoing, however. Reports indicate that one
of two lines of the Nord Stream 2 pipeline system is
complete, and construction of the second line may be
finished within months. Additional steps, including
certification by German authorities, would be required
before the pipeline begins to transport gas.
The German government is a key European proponent of

the pipeline. German and EU officials, including some
Source: Gazprom, edited by CRS.
opponents of the pipeline, have condemned possible U.S.
sanctions on European entities involved in the pipeline
Supporters of Nord Stream 2, including the German and
project as an infringement on national sovereignty that
Austrian governments, argue the pipeline will enhance EU
could have negative repercussions for broader transatlantic
energy security by increasing the capacity of a direct and
cooperation. German supporters of the pipeline, including
secure supply route. German officials say they support the
Chancellor Angela Merkel, welcomed the Biden
development of infrastructure to ensure that gas can be
Administration’s May 2021 announcement that it would
transported across Europe once it reaches Germany. They
refrain from enacting sanctions on Nord Stream 2 corporate
stress that Germany supports broader European energy
officers, despite imposing sanctions on additional Russian
supply diversification efforts, including construction of new
vessels involved in the project. Although the Biden
liquefied natural gas (LNG) terminals in northern Germany.
Administration says it remains strongly opposed to the
pipeline, some analysts speculate U.S. officials may be
Opponents of the pipeline—including, among others, some
seeking to avoid a broader deterioration in U.S.-German
EU officials, the European Parliament, Poland, the Baltic
relations due to the pipeline dispute.
states, Ukraine, the Biden Administration, and many
Members of Congress—argue that it will give Russia
Background
greater political and economic leverage over Germany and
Nord Stream 2 is being constructed alongside the Nord
others that are dependent on Russian gas, leave some
Stream 1 pipeline, in operation since 2011. If completed,
countries more vulnerable to supply cutoffs or price
Nord Stream 2 would double the total capacity of the Nord
manipulation by Russia, and increase Ukraine’s
Stream system, from 55 billion cubic meters (BCM) to 110
vulnerability to Russian aggression.
BCM per year. Nord Stream 2 is owned by the Russian
state-owned energy company Gazprom. About half the cost
Pipeline opponents, including within Germany, also have
is reportedly financed by five European companies: Engie
argued the German government should block the pipeline in
(France), OMV (Austria), Shell (Netherlands/UK), Uniper
response to malign Russian activity and human rights
(Germany), and Wintershall (Germany).
abuses. Chancellor Angela Merkel and others continue to
argue that the infrastructure project can be “decoupled”
from ongoing disputes with Russia.
https://crsreports.congress.gov

Russia’s Nord Stream 2 Pipeline: Continued Uncertainty
Impact on Ukraine
PEESA provides for exceptions and waivers and authorizes
In recent years, Russia has sought to reduce the amount of
the President to terminate sanctions if the Administration
natural gas it transits through Ukraine. Before Nord Stream
certifies to Congress “that appropriate safeguards have been
1 opened in 2011, about 80% of Russia’s natural gas
put in place” to minimize Russia’s ability to use the
exports to Europe transited Ukraine. In 2018, about 40% of
sanctioned pipeline project “as a tool of coercion and
these exports transited Ukraine.
political leverage,” and to ensure “that the project would
not result in a decrease of more than 25 percent in the
In December 2019, after the United States established new
volume of Russian energy exports transiting through
sanctions related to Nord Stream 2, Gazprom and the
existing pipelines in other countries, particularly Ukraine.”
Ukrainian state-owned energy company Naftogaz renewed
a contract for the transit of Russian natural gas to Europe
On February 22, 2021, the Biden Administration identified
from 2020 to 2024. The contract provided for transit of at
Fortuna and KVT-RUS as also subject to sanctions under
least 65 BCM in 2020, a volume equal to about 73% of the
PEESA. On May 19, 2021, the Administration designated
2019 volume, and 40 BCM a year from 2021 to 2024, a
13 more vessels and four entities under PEESA. However,
volume equal to about 45% of the 2019 volume. In 2020,
the Administration waived the application of new sanctions
Russia shipped about 56 BCM to Europe via Ukraine,
on Nord Stream 2 AG, its chief executive officer, and
although Ukraine reportedly received the full contracted
corporate officers (Nord Stream 2 AG is the Swiss-based
amount of $2.1 billion in transit revenues.
company Gazprom established to construct and operate the
pipeline). Some Members of Congress have urged the
If Nord Stream 2 becomes operational, observers expect
Administration to impose additional sanctions to prevent
Russia to further reduce gas transit through Ukraine. This
Russia from completing construction of the pipeline.
would not necessarily increase Ukraine’s vulnerability to
energy supply cutoffs; Ukraine stopped importing natural
Response to U.S. Sanctions
gas directly from Russia in 2016. It could lead to declines in
The threat of sanctions appears to have encouraged some
transit revenues, however, and increase Ukraine’s strategic
companies to withdraw from the Nord Stream 2 project.
vulnerability, if reduced dependence on transit leads
The day after PEESA was enacted, Allseas, a European
Moscow to act more aggressively in Ukraine.
company that had been laying the pipeline, stated that it
was suspending its activities. In January 2021, after PEESA
U.S. Sanctions
was amended to authorize broader sanctions, other
Congress and successive U.S. Administrations have
European companies, including a certifier and an insurer,
opposed Nord Stream 2 since the pipeline’s inception.
reportedly withdrew from the project. Despite ongoing
Increasingly, congressional efforts to block the pipeline
questions about the viability of the pipeline, however,
have focused on sanctions, including through progressively
Russian officials state the pipeline will be completed.
more stringent sanctions legislation enacted in 2017, 2019,
and 2020. The Biden Administration has called Nord
The German government’s continued support for the
Stream 2 a “bad deal” and said that U.S. opposition to the
pipeline has prompted some critics of both Nord Stream 2
pipeline is “unwavering.”
and U.S. sanctions to argue that diplomatic efforts should
focus more on ensuring that Ukraine maintains its leverage
Section 232 of the Countering Russian Influence in Europe
as a gas transit country even if the pipeline is built. This
and Eurasia Act of 2017 (CRIEEA, P.L. 115-44, Title II)
could include German commitments to enact punitive
authorizes sanctions on those who invest at least $1 million,
measures against Russia should Nord Stream 2 supplant gas
or $5 million over 12 months, or provide goods, services, or
flows through Ukraine. Some also express concern that
support valued at the same amount for the construction of
additional U.S. sanctions could jeopardize U.S.-German
Russian energy export pipelines (22 U.S.C. §9526). On
and U.S.-European cooperation in other areas, including
January 19, 2021, the Trump Administration imposed
countering Russian aggression, while failing to prevent the
sanctions on the Russian vessel Fortuna, which Gazprom is
pipeline’s construction. Some observers viewed the
using to complete construction of Nord Stream 2, and its
Administration’s decision not to impose sanctions on Nord
corporate owner KVT-RUS, pursuant to Section 232.
Stream 2 officials, including EU nationals, as a sign of
possible efforts to avoid such a deterioration in broader
Additionally, the Protecting Europe’s Energy Security Act
bilateral relations.
of 2019, as amended in 2020 (PEESA; 22 U.S.C. §9526
note; P.L. 116-283, §1242), establishes sanctions on foreign
For related products, see CRS Report R42405, European
persons whom the President determines have sold, leased,
Energy Security: Options for EU Natural Gas
provided, or facilitated the provision of vessels for the
Diversification; and CRS In Focus IF11177, TurkStream:
purpose of subsea pipe-laying activities related to the
Russia’s Southern Pipeline to Europe.
construction of Nord Stream 2 and TurkStream (another
Russian pipeline that supplies natural gas to Europe), or any
Paul Belkin, Analyst in European Affairs
successor pipeline. As amended, PEESA also targets those
Michael Ratner, Specialist in Energy Policy
who provide underwriting services or insurance, or who
Cory Welt, Specialist in Russian and European Affairs
provide certain upgrades or installation services. Sanctions
do not apply to nonbusiness entities of the EU, member
IF11138
states, or the governments of Norway, Switzerland, and the
United Kingdom.
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Russia’s Nord Stream 2 Pipeline: Continued Uncertainty


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https://crsreports.congress.gov | IF11138 · VERSION 14 · UPDATED