Norwegian DNV GL, the world’s largest ship classification society, has issued a statement saying that it won’t certify the Nord Stream 2 pipeline.
According to the European Union regulations, all offshore objects must be certified before that can start their operation.
The news broke a day after the new United States National Defense Authorization Act had taken force on Jan. 1. The document gave companies servicing the Nord Stream 2 pipeline a 30-days notice to pull out of the project to avoid new of U.S. sanctions.
DNV GL was among the last European companies to participate in the Russian state-sponsored gas pipeline project and it has decided to pull out.
New U.S. sanctions, if imposed, are believed to be able to deliver a final blow to the pipeline which is designed to transport additional 55 billion cubic meters of gas from Russia to western Europe through a German gas terminal.
If completed, the Nord Stream 2 pipeline would allow Russia to bypass Ukraine when transporting gas to European countries.
In 2019, Ukraine signed a new five-year contract with Russian state energy giant Gazprom. The contact requires Russia to transport at least 65 billion cubic meters of gas through Ukraine’s gas transmission system in the first year. The total worth of the contract is over $7 billion.
The problematic pipe
The construction of the Nord Stream 2 pipeline has been marked by scandals since its launch in 2015.
Today, after 94% of the work completed, the unfinished construction project worth over $11 billion is one of the most disputed issues between the United States and Germany.
The Nord Stream 2 pipeline is the second pipeline ordered by Russia’s Gazprom to be constructed on the bottom of the Baltic Sea.
Under Ukraine’s pro-western President Viktor Yushchenko, Russia looked to halt Ukraine’s European integration by substantially raising gas prices for Ukraine. Yushchenko responded by decreasing the among of gas transported to Europe through Ukraine, provoking gas shortages in Europe.
To respond, in 2012, Russia built the Nord Stream 1 pipeline connecting mainland Russia and the German port town of Greifswald. It has a total annual capacity of 55 billion cubic meters of gas. The pipeline that runs through Russia, Finland, Sweden, Denmark and Germany allowed Russia to decrease the dependency on Ukraine’s gas transmission system, which Russia had long sought for.
The construction of Nord Stream 1 owned by Nord Stream AG, a Gazprom subsidiary, was supported by many European countries.
Everything changed in 2014 when Russia invaded Ukraine: occupied Crimea and started its war in the Donbas, which has already killed over 13,000 people.
The U.S. and the EU imposed sanctions against Russia, while politicians and energy experts began looking for ways to decrease Europe’s dependency on Russian gas.
However, not everyone was on board.
In 2015, Germany, a key mediator between Russia and Ukraine, agreed to build the second Nord Stream pipeline, effectively cutting off Ukraine and many eastern European countries from Russian gas.
The move caused an uproar in Ukraine and the U.S.
Sanctions piling up
Unlike Ukraine, the U.S. found ways to slow down the construction: year after year, it has been imposing strict sanctions on companies directly involved in building, certifying and maintaining the Russian pipeline.
As a result, the pipeline scheduled to begin operation at the beginning of 2020 is still under construction. And new sanctions may place additional restrictions on those actively seeking to complete the project.
“Whoever engages in this project now will be sanctioned by U.S. law, this includes certifiers and insurers,” says Swedish economist Andreas Aslund, a senior fellow at the Atlantic Council think-tank.
“I think this is it. These U.S. sanctions should suffice to stop Nord Stream 2,” he adds.
In December 2019, the U.S. sanctions forced Allseas Group, the Swiss-Dutch contractor that was laying the last leg of the pipeline, to suspend its activity. Now, in January 2021, new sanctions already forced DNV GL to pull out.
“This project, I believe, will never deliver gas,” U.S. Senator Ted Cruz said at an online conference on Dec. 16 organized by the Atlantic Council.
Cruz co-sponsored the recent legislation that is designed to deliver a final blow to the project.
“(The sanctions target) critical vulnerabilities without which the pipeline cannot be completed,” Cruz said.
However, with only 147 kilometers left to be constructed in Danish territorial waters, many observers are cautious to say that the project is dead.
The U.S. sanctions have been primarily opposed by Germany, France and the Netherlands whose companies have a share in the Swiss-based Nord Stream AG company, the official owner of the pipeline.
Russia’s final push
After years of mounting sanctions, Russia is left alone in its attempts to finish the expensive project. Since 2020, Russia has been singlehandedly producing, transporting and installing pipes to secure the project’s completion.
In December, Nord Stream AG reported that it has completed construction in German waters. Now only the Danish site is left to be built.
According to the Danish Maritime Authority, Russian barge Fortuna will begin construction in Danish waters on Jan. 15. In early 2020, Russian President Vladimir Putin told the press that he expects the project to be completed in March 2021 — a 15-month delay from the initial plan.
“Russia might have the capacity to complete the project on its own but not under such conditions,” says Aslund. “Nobody will want to certify the pipeline. Therefore, Denmark cannot permit its completion in its economic zone.”
Meanwhile, Ukraine was already able to capitalize on the project’s delays.
In December 2019, Russia was forced to sign a new five-year contract that secures Ukraine’s role as the main gas transporter to Europe. The contract envisions penalties for transporting less gas than required and forced Russia to pay a $2.9 billion fine to Ukrainian state energy company Naftogaz as per the Stockholm Arbitration.
