Germany warns new US sanctions endanger Nord Stream 2 pipeline

German officials warned that proposed new US sanctions against the controversial Nord Stream 2 gas pipeline threaten the project’s survival, calling it serious interference in German and European sovereignty.

Nord Stream 2, owned by the Kremlin-controlled gas monopoly, Gazprom, has only 160km of underwater pipeline left to build to reach its receiving station in northern Germany.

Prior US sanctions targeted companies laying the pipeline, but German officials at a Bundestag panel hearing on Wednesday argued the new round could hit companies facilitating the project, and potentially even German officials. 

“We’re talking about direct and grave interference in Germany and Europe’s sovereignty and energy policy ,” said Niels Annen, minister of state in Germany’s foreign ministry, at the hearing.

Swiss company Allseas halted deepwater pipe laying for the project after the US sanctions were signed into law in 2019, and Russia vowed to continue on its own.

Nord Stream 2 has also been divisive within Europe. Some criticise the project as a means of advancing German commercial interests at the expense of Ukraine, which fears losing transit pipeline fees. Eastern European and Baltic states also worry about increased dependency on Russia.

Germany highlighted its role in brokering a new gas transit treaty between Moscow and Kyiv, which came into force on January 1 2020, to ensure gas continued to flow through Ukraine.

Many German analysts say the sanctions seem driven by American efforts to promote its own liquefied natural gas in Europe. Washington “has pushed the purchase of US LNG”, said Kirsten Westphal, of the German Institute for International and Security Affairs.

At Wednesday’s panel, Michael Harms, managing director of the German Eastern Business Association, estimated new sanctions could affect 120 companies from 12 European states, and that many companies could feel compelled to withdraw.

German chancellor Angela Merkel said the “extraterritorial sanctions” Congress was planning “are not consistent with my understanding of the law”. If passed, it would be harder to complete Nord Stream 2, but she said “we still believe it’s right to get the project done”.

The new proposed bipartisan sanctions, co-sponsored by Republican senator Ted Cruz and Democratic senator Jeanne Shaheen, are likely to be included in a defence bill winding its way through Congress.

“The purpose of the bill is to ensure that the third parties that Gazprom needs to complete the pipeline do not provide services that Gazprom needs,” said a Republican congressional official.

Thomas O’Donnell, a lecturer on global energy systems at the Free University in Berlin, said the aim was to bring down the project. “This hurdle is meant to be too high to get over.”

Lawmakers in the Senate and House are yet to vote on this year’s National Defense Authorization Act. Last year, the process took about six months, meaning Nord Stream 2 may yet have time to manoeuvre. 

Gerhard Schröder, a former German chancellor close to Russian president Vladimir Putin and currently chairman of the shareholders’ committee of Nord Stream AG, told the Bundestag hearing that €12bn would have to be written off if the project failed, and urged counter-sanctions.

Nord Stream 2 spokesman Ulrich Lissek said: “Today’s hearing in the Bundestag indicates that Europeans are not going to take it any more.”

Berlin is pushing for a European response. The bloc’s foreign policy chief, Josep Borrell, said the European Commission was “preparing the ground” for counter-sanctions. Critics are sceptical the EU will reach consensus, citing its failure to act against the previous sanctions.

The project has had other recent setbacks. In May, Germany’s energy regulator and an EU court declined to exempt it from unbundling rules, which require separate, independent companies to handle the transportation and distribution of energy.

“If it wasn’t for Brexit, the biggest disaster of a European state would have been Nord Stream 2,” said Alan Riley, a fellow at the Atlantic Council. “It is hurting European relations and it is hurting relations with America.”

Additional reporting by Demetri Sevastopulo in Washington