U.S. Targets Insurers In Latest Round of Nord Stream 2 Sanctions

The U.S. is drawing up additional sanctions on the Nord Stream 2 natural gas pipeline project, the latest obstacle in the path of the 9.5 billion-euro ($11.2 billion) Russia-to-Germany link that's been halted almost a year.

House and Senate negotiators agreed to target insurers and technical certification companies working on the project in a defense bill that must pass by the end of the year, according to three people familiar with the matter. The move would add to penalties that stopped work on the natural gas link under the Baltic Sea just a few weeks before it was to be completed.

The rules could inflame tensions between the U.S. and Chancellor Angela Merkel over the project, which would bring gas into northern Germany and help Russia's state-backed exporter Gazprom PJSC tighten its grip on energy supplies to the region. President Donald Trump, backed by both Republicans and Democrats in Congress, have criticized Europe’s reliance on Russia and offered U.S. cargoes of liquefied natural gas as an alternative.

By adding insurers and certification companies to face sanctions, the U.S. will make it harder for Gazprom to complete Nord Stream 2, which will run 2,460 kilometers alongside an existing Nord Stream pipeline. Gazprom and its backers including Royal Dutch Shell Group say the pipeline will be needed to meet increasing demand and add flexibility to the system. Opponents say it will allow Russia to choke off flows through Ukraine, the primary route to market for much of Gazprom’s gas.

All except 160 kilometers of the link were laid down when Trump imposed sanctions late last year. Those measures prevented AllSeas Group SA from allowing its pipeline-laying ship to set down the last sections of pipe in Danish waters for Gazprom. The new sanctions would prevent ships from getting insurance and technical certifications they require to work offshore Denmark.

That would tighten the grip of rules that so far have prevented Gazprom from finishing the pipeline. After AllSeas pulled its vessel off the Nord Stream 2 project, Gazprom said it was working on finding an alternative. It brought its own pipelay ship, the Akademik Cherskiy, into the region. It isn’t clear whether it’s capable of finishing the project. The ship currently is in Mukran, a key logistics port in Germany for Nord Stream 2, according to Bloomberg ship-tracking data. It’s working on building a new ramp to load pipes, according to a report in Berliner Zeitung.

The Danish government requires the professional services firm Det Norske Veritas to certify the compliance of Nord Stream 2 before it can be put into operation, said Mitch Jennings, senior analyst at Moscow-based Sova Capital.

"According to my understanding, if the pipeline certification is restricted, the launch of the pipeline may become very difficult," he said. The new sanctions "might require Nord Stream 2 AG to find a certification agency that is willing to be subject to sanctions."

The measures would stop short of hitting German government officials who have allowed the project. New Jersey Senator Bob Menendez, the top Democrat on the Senate Foreign Relations Committee, said in an interview that members of Congress wanted "to make it clear that Germany, as an ally, and public officials within Germany, would not be part of any such sanctions."

"Spit on our closest friends, let Russia off the hook?" Engel said on the House floor in July. "Doesn’t sound right to me."

The sanctions are contained in an amendment to the defense bill and draw their language from legislation introduced earlier this year by Senators Ted Cruz, a Texas Republican, and Jeanne Shaheen, a Democrat from New Hampshire. Cruz and Shaheen were instrumental in pushing through Nord Stream 2 sanctions in last year’s NDAA.

German officials have been worried of a possible escalation of the trade conflict before Trump leaves office in January and have as a result tried to postpone the EU sanctions against Boeing Co. but failed because of opposition from the European Commission and France.

The new sanctions legislation in the U.S. specifies that previously enacted sanctions apply to all pipe-laying activities and insurance.

Earlier this year, the U.S. warned energy companies taking part in Russian pipeline projects of impending sanctions.

"Get out now or risk the consequences," Secretary of State Michael Pompeo said in July.