US Officials Issue Sanctions Warnings to Europe Over Russian Gas

U.S. officials have warned at an energy conference in Brussels that the Trump administration will take punitive action against European companies that are building the Kremlin-favored Nord Stream 2 natural gas pipeline, which will deliver energy from Russia to Germany while bypassing Ukraine.

Nord Stream 2 (NS2) will largely replace an older pipeline running through Ukraine and Poland that has the backing of the German government. But it is prompting the alarm of Central European governments, increasingly infuriated with Berlin’s dismissal of their concerns.

They object to Nord Stream 2 — which will run 1,200 kilometers from Vyborg, Russia, to Lubmin, Germany, and snake under the Baltic Sea — not only because they’ll lose lucrative transit fees from the older pipeline, but because they fear the Kremlin wants to develop NS2 largely for political reasons, not commercial ones.

Speaking at the energy conference in the Belgian capital, Nicole Gibson, deputy director of the U.S. State Department’s office for Europe, warned that if European companies resume laying pipe later this year they “risk significant sanctions.”

Declining to go into any details about the threatened sanctions, Gibson said Washington doesn’t accept that Nord Stream 2 is a done deal. “Some people say it is a fait accompli that Nord Stream 2 will be done. We don’t see it that way… We call on European leaders to make sure Nord Stream 2 is not implemented,” she said.

Ukrainian leader Petro Poroshenko has warned that NS2 would allow the Kremlin to switch off gas to Ukraine and Central Europe when it wants to blackmail its nearer neighbors without disrupting supplies to Western Europe, lessening likely push back from the more powerful European countries while it toys with weaker ones.

Her high-profile warning, upping the political stakes, comes two months after Richard Grenell, the U.S. envoy to Germany, sent letters to dozens of European construction and energy companies saying they face sanctions if they resume in the spring the laying of NS2’s concrete-coated steel pipes. Construction work was suspended in December because of winter weather.

Washington’s opposition to Nord Stream 2 has been consistent — the Obama administration also was critical.

U.S. President Donald Trump’s opposition has a harder edge, however, with officials seeing a dark political menace behind the new pipeline. They argue NS2 will undermine European security, deepen Western Europe’s dependence on Russian energy and give the Kremlin a greater opportunity to use natural-gas supplies to exert political influence and blackmail Western European governments.

Nord Stream 2, which will be owned by the Kremlin-directed energy giant Gazprom, would double the capacity of Russian gas delivered to Germany, the European Union’s most powerful economy. NS2 will cost billions of dollars to build. Russia currently supplies more than one-third of the natural gas Europe uses, though with demand increasing, that could reach closer to 50 percent next decade, forecast energy industry experts.

Last July, during his visit to the annual summit of NATO allies in Brussels, President Trump expressed his frustration with German Chancellor Angela Merkel over the Russia-to-Germany undersea pipeline, saying, “We’re supposed to protect you from Russia, but Germany is making pipeline deals with Russia. You tell me if that’s appropriate. Explain that.”

But Merkel has dug in amid pressure from Germany businesses, which say NS2 will slash their energy costs. The German Chancellor also appears to be distancing herself from a promise she made last year to Central European leaders when she acknowledged for the first time allies’ geopolitical concerns, saying NS2 could proceed only if Ukraine’s role as a transit country for Russian gas also was protected.

Germany, along with NS2 transit countries Finland, Sweden and Denmark, counter-argue the pipeline will increase Europe’s energy security by avoiding potential cutoffs from the more politically volatile Ukrainian route. Washington believes the pipeline also is a Russian bid to hurt Ukraine economically by stripping it of gas transit fees.

Ukrainian officials estimate their losses from Nord Stream 2 will be high, running at about $2.5 billion a year.

“When Nord Stream 2 is finished this year, there will be no need to use the Ukrainian gas transit system,” Yuriy Vitrenko, managing director of Ukraine’s Naftogaz, a state-owned oil and gas company, told the Brussels conference. “Ukraine will lose approximately 4 percent of GDP,” he added.

Kremlin officials say Washington wants to stop NS2 because U.S. energy giants are hoping to export surplus shale gas to Europe as liquified natural gas (LNG). U.S. officials have made no secret of their hopes that American energy firms will be able to profit from a halt to NS2, but say that isn’t the major reason for their objections to the pipeline.

U.S. officials’ alarm about NS2 is echoed by European security officials. NATO’s former head, Anders Fogh Rasmussen, has described Nord Stream 2 as a “geopolitical mistake” for the EU, saying it would make a mockery of EU sanctions on Russia for its 2014 annexation of Crimea.
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