Russia’s Nord Stream 2 Pipeline: A Push for the Finish Line

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Updated May 28, 2020
Russia’s Nord Stream 2 Pipeline: A Push for the Finish Line
Recent reports suggest that the Russian government is
Supporters of Nord Stream 2, including the German and
trying to complete construction of Nord Stream 2, a
Austrian governments, argue that the pipeline will enhance
controversial natural gas pipeline that will enable Russia to
EU energy security by increasing the capacity of a direct
increase the amount of natural gas it exports directly to
and secure supply route at a time of rising European
Germany and onward to other European Union (EU)
demand for gas. German officials and others have said that
member states (bypassing Ukraine and other transit
once the gas reaches Germany it could be transported
countries). Pipeline construction was suspended in
throughout Europe. These advocates say they support
December 2019, after the United States imposed sanctions
developing additional infrastructure to ensure this is
related to the project. The Trump Administration and
possible. The German government stresses that it also
Congress have expressed opposition to Nord Stream 2,
supports broader European energy supply diversification
reflecting concerns about European dependence on Russian
efforts, including by backing construction of new liquefied
energy and the threat Russia poses to Ukraine.
natural gas (LNG) terminals in northern Germany.
In May 2020, a pipelaying vessel owned by a subsidiary of
Figure 1. Nord Stream Gas Pipeline System
Russian state-owned energy company Gazprom arrived at
Germany’s Mukran port, a logistics hub for Nord Stream 2.
Observers expect Gazprom to use that ship and a second
pipelaying vessel to try to finish the pipeline. About 100
miles of the approximately 760-mile pipeline remain to be
laid and connected (see Figure 1). Russian officials have
said the pipeline could be completed by the end of 2020 or
early 2021. Analysts note that even if Gazprom can finish
construction of the pipeline, the company still would need
to make significant changes to the ownership structure of
the pipeline to comply with EU energy regulations.
Background
Nord Stream 2 is being constructed alongside the Nord

Stream 1 pipeline, in operation since 2011. Nord Stream 1
Source: Gazprom, edited by CRS.
has a total capacity of 55 billion cubic meters (BCM) per
year. In 2018, it ran at 107% of stated capacity. Nord
Opponents of the pipeline—including, among others, some
Stream 2 also has a capacity of 55 BCM per year, which
EU officials, Poland, the Baltic states, Ukraine, the Trump
will double the Nord Stream system’s total capacity.
Administration, and many Members of Congress—argue
that it will give Russia greater political and economic
Nord Stream 2 is estimated to cost about $10 billion. It is
leverage over Germany and others that are dependent on
owned entirely by Gazprom. Half the cost is being financed
Russian gas, leave some countries more vulnerable to
by five European companies: Engie (France), OMV
supply cutoffs or price manipulation by Russia, and
(Austria), Shell (Netherlands/UK), Uniper (Germany), and
increase Ukraine’s vulnerability to Russian aggression.
Wintershall (Germany). This ownership structure is
different than that of Nord Stream 1, in which Gazprom has
Critics of Nord Stream 2 were initially hopeful that the
a 51% stake; four European companies—Engie,
European Commission (the EU’s executive agency) would
Wintershall, E.ON (Germany), and Gasunie
block the project by invoking EU regulations intended to
(Netherlands)—own the rest.
prevent monopoly control of energy projects. In early 2019,
the EU amended an existing gas directive to extend its rules
Support and Opposition
to EU territorial waters. In May 2020, Germany’s national
Although the EU has articulated an ambitious energy
energy regulator upheld the regulations, ruling that
diversification strategy, some European governments have
Gazprom could not own both the portion of the pipeline in
not reduced dependence on Russian gas, which accounted
German territorial waters and a majority of the gas flowing
for 46% of EU imports in 2018. Factors behind continued
through it. Analysts speculate that Gazprom could seek to
European reliance on Russian supply include possible rising
sell or transfer ownership of that portion of the pipeline in
demand for natural gas, diminishing European gas supply,
order to comply with the regulations.
financial investments by Russia in European infrastructure,
and the perception of many Europeans that Russia remains
Impact on Ukraine
a reliable supplier.
In recent years, Russia has sought to reduce the amount of
natural gas it transits through Ukraine. Before Nord Stream
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Russia’s Nord Stream 2 Pipeline: A Push for the Finish Line
1 opened in 2011, about 80% of Russia’s natural gas
percent in the volume of Russian energy exports transiting
exports to Europe transited Ukraine, which received
through existing pipelines in other countries, particularly
approximately $2.3 billion in fees in 2010. In 2018, around
Ukraine, relative to the average monthly volume of Russian
40% of these exports transited Ukraine, and Ukrainian
energy exports transiting through such pipelines in 2018.”
revenues from gas transit totaled $2.65 billion.
On December 21, 2019, Allseas, the Swiss-Dutch company
In December 2019, after the United States imposed
laying the Nord Stream 2 pipeline, stated that it had
sanctions on Nord Stream 2, Gazprom and the Ukrainian
suspended its activities. On December 27, 2019, the State
state-owned energy company Naftogaz concluded a renewal
Department said that “the United States’ intention is to stop
contract for the transit of Russian natural gas to Europe
construction of Nord Stream 2” and that PEESA’s sanctions
from 2020 to 2024. The contract provides for transit of at
would be imposed “unless related parties immediately
least 65 BCM in 2020, a volume equal to about 73% of the
demonstrate good faith efforts to wind-down.”
2019 volume of 89.6 BCM, and 40 BCM a year from 2021
to 2024, a volume equal to about 45% of the 2019 volume.
Other relevant sanctions legislation is included in Section
According to Naftogaz, the contract will lead to at least
232 of CRIEEA, which authorizes (but does not require)
$7.2 billion in transit revenue over five years.
sanctions on those who invest at least $1 million, or $5
million over 12 months, or engage in trade valued at the
If Nord Stream 2 becomes operational, observers expect it
same amount for the construction of Russian energy export
to further reduce gas transit through Ukraine. This would
pipelines (22 U.S.C. §9526). In October 2017, the
not necessarily increase Ukraine’s vulnerability to energy
Administration published guidance noting that Section 232
supply cutoffs; Ukraine stopped importing natural gas
would not apply to projects for which contracts were signed
directly from Russia in 2016. It could lead to declines in
prior to August 2, 2017, the date of CRIEEA’s enactment.
transit revenues, however, and increase Ukraine’s strategic
Gazprom signed financing agreements for Nord Stream 2
vulnerability, if reduced dependence for gas transit leads
with five European companies in April 2017.
Moscow to be even less constrained toward Ukraine.
Some European opponents of Nord Stream 2, including the
U.S. Policy
European Commission, have joined supporters of the
The Trump Administration’s focus on European natural gas
pipeline in criticizing U.S. sanctions established by PEESA.
issues has primarily been on expanding U.S. LNG exports
EU officials have stated that the EU rejects as a “matter of
to the EU, part of a larger effort to diversify European
principle” the imposition of sanctions against EU
energy imports, and oppose the Nord Stream 2 pipeline.
companies conducting legitimate business in line with EU
and European law. Other opponents of the pipeline, such as
Congress also has expressed opposition to Nord Stream 2.
the Polish government, support PEESA as a necessary
The Countering Russian Influence in Europe and Eurasia
mechanism to prevent completion of the project.
Act of 2017 (CRIEEA, P.L. 115-44, Title II) states that it is
U.S. policy to “oppose the Nord Stream 2 pipeline given its
Issues for Congress
detrimental impacts on the EU’s energy security, gas
Issues that Members of Congress may wish to consider
market development in Central and Eastern Europe, and
include the following:
energy reforms in Ukraine.” In December 2018, the House
of Representatives passed H.Res. 1035, which called for the
 Whether to encourage the Administration to impose or
cancellation of Nord Stream 2 and the imposition of
threaten sanctions on suppliers of Nord Stream 2
sanctions with respect to the project.
pipelaying vessels, pursuant to PEESA;
U.S. Sanctions Related to Nord Stream 2  Whether to consider additional sanctions in response to
The Protecting Europe’s Energy Security Act of 2019
the construction or use of Nord Stream 2;
(PEESA; P.L. 116-92, Title LXXV) establishes sanctions
 Whether to engage with European partners to assess
on foreign persons whom the President determines have
their current positions regarding the pipeline and options
sold, leased, or provided subsea pipe-laying vessels for the
for further regulation of Gazprom and the pipeline;
construction of Nord Stream 2 and TurkStream (another
 Whether to consider potential implications of the
Russian pipeline that is to supply natural gas to Europe), or
Ukraine-Russia gas transit agreement on U.S. policy
any successor pipeline, since December 20, 2019 (the date
of the NDAA’s enactment). TurkStr
toward Nord Stream 2.
eam was inaugurated in
January 2020.
For related products, see CRS Report R42405, European
Energy Security: Options for EU Natural Gas

PEESA provides for a 30-day wind-down period;
Diversification; CRS In Focus IF11177, TurkStream:
exceptions for repairs, maintenance, environmental
Russia’s Newest Gas Pipeline to Europe; and CRS In Focus
remediation, and safety; and a national security waiver. In
IF11547, The Three Seas Initiative.
addition, PEESA provides for the termination of sanctions
if the President certifies to Congress “that appropriate
safeguards have been put in place” to minimize Russia’s
Paul Belkin, Analyst in European Affairs
ability to use the sanctioned pipeline project “as a tool of
Michael Ratner, Specialist in Energy Policy
coercion and political leverage,” and to ensure “that the
Cory Welt, Specialist in European Affairs
project would not result in a decrease of more than 25
IF11138
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Russia’s Nord Stream 2 Pipeline: A Push for the Finish Line


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https://crsreports.congress.gov | IF11138 · VERSION 7 · UPDATED