Ukrainian President Volodymyr Zelenskiy and US energy secretary Rick Perry shake hands in Kiev, Ukraine, May 20 2019. Picture: MYKOLA LAZARENKO/UKRAINIAN PRESIDENTIAL PRESS HANDOUT/REUTERS
Ukrainian President Volodymyr Zelenskiy and US energy secretary Rick Perry shake hands in Kiev, Ukraine, May 20 2019. Picture: MYKOLA LAZARENKO/UKRAINIAN PRESIDENTIAL PRESS HANDOUT/REUTERS

Kiev  — The US plans to sanction companies helping construct the Nord Stream 2 natural gas pipeline being laid from Russia to Germany under the Baltic Sea.

Congress is expected to begin preparing a bill, energy secretary Rick Perry said on Tuesday in Ukrainian capital Kiev. That comes a day after the Gazprom PJSC-controlled company said that none of its contractors had pulled out because of the threat of US sanctions.

“The opposition to Nord Stream 2 is still very much alive in the US,” Perry said. “I expect over the course of the not-too-distant future that the US Senate as well as the US House send a bill to the president of the US that will have some very, very onerous restrictions on companies that continue to do business with the Nord Stream 2 development. So stay tuned.”

Key transit nation

The US argues that Nord Stream 2 increases Europe’s reliance on natural gas from Russia, which already provides more than a third of the region’s fuel, while at the same time threatening supplies to Ukraine, a key transit nation. The controversial link is backed by Germany and is still scheduled to start by the end of the year, though it faces delays from permitting issues in Denmark.

Gazprom did not  immediately respond to a Bloomberg request for a comment.

Two people familiar with plans for the bill told Bloomberg last week that Texas Republican Ted Cruz and New Hampshire Democrat Jeanne Shaheen — both members of the Senate foreign relations committee —  planned to introduce the bill targeting  Nord Stream 2.

A draft version of the bill would target vessels that lay the pipeline and would deny visas to executives from companies linked to those vessels. It also would block transactions in US-based property or interests belonging to those individuals and would penalise entities that provide insurance to the project.

Nord Stream 2 supporters argue that a new pipeline is needed to guarantee supplies will continue to flow in the coming decades as EU import needs rise. Opponents of the project say it hurts the bloc’s cohesion and weakens its energy union strategy aimed at integrating gas and power markets, diversifying energy supplies and improving security.

Uniper, Engie, Royal Dutch Shell, OMV and BASF’s Wintershall are European partners of Gazprom, the Russian gas export monopoly, in financing the project to expand the existing Nord Stream by 55 billion cubic metres a year.

Soured relations 

Trump has made opposition to the Nord Stream pipeline a signature issue in relations with Europe and, in particular, Germany. He has said the pipeline will give Russia too much influence over Europe’s biggest economy.

“If you look at it, Germany is a captive of Russia, because they supply — they got rid of their coal plants, got rid of their nuclear, they’re getting so much of the oil and gas from Russia,” Trump said in July 2018 at the start of defence alliance Nato’s annual summit. “I think it’s something Nato has to look at.”

The natural gas industry will be one of the main beneficiaries of German Chancellor Angela Merkel’s effort to close the coal and nuclear plants that  generate half of the nation’s electricity. While the government is seeking to spur renewables, industry executives, energy forecasters and investors say that more gas will be needed to balance the grid when power flows ebb from wind and solar farms.

That outlook helps explain why Merkel is allowing construction of the Nord Stream 2 pipeline and encouraging new facilities to import liquefied natural gas. In the years ahead, Germany may need much more gas to make up for closing power stations if it falters in its €500bn effort to shift towards cleaner fuels.