Congress and Cod

Gazprom no longer owns the pipe laying vessel Akademik Cherskiy. According to current records, the ownership of the vessel was transferred to the Samara Thermal Energy Property Fund. Now, despite the heavy existing sanctions and their restrictions, the Russian gas company and its subsidiary companies can indeed avoid the United States limits and complete the construction of Nord Stream 2.

The U.S. Protecting Europe’s Energy Security Act went into effect last December. This bill imposes sanctions related to providing vessels for the construction of Russia’s offshore energy export pipelines to Germany and Turkey. These sanctions also target companies who own, lease or sell such vessels.

Passage of the law has alarmed Allseas, the contractor fleet, which resulted in suspending the construction of Nord Stream 2 at the end of last December. At the time, about 6.5% of pipes still remained to be laid.

U.S. politicians believe they saved European energy markets from receiving imported oil directly as opposed to importing through intermediaries like Ukraine. In their opinion, no one will dare complete the construction of a Russian gas pipeline (Russian European, in fact), and Russia itself does not have the appropriate equipment to do so.

However, in 2015, Gazprom acquired a pipe laying vessel called Academik Cherskiy. The plan was to use it in Russia’s Far East oil fields in the Sea of Okhotsk. The ship left the port of Nakhodka at the beginning of the year, and it frequently changed destinations during its challenging route to the Baltic Sea. Although all interested parties knew where the ship was headed, there was no official reason to detain it.

Upon arrival at its final destination, Akademik Cherskiy began preparing to complete the Nord Stream 2 project. The vessel met all the requirements to work in Danish waters, particularly the installation of a dynamic positioning system. The official permit was not only issued on time, but Danish regulators gave the thumbs-up to the barge Fortuna which was not dynamic positioning-enabled, yet met all the other requirements.

The issue of ownership still remains unsettled, and so does the issue of sanctions. Since the beginning of construction, U.S. government officials have repeatedly stated that Gazprom Flot, which was operating the Akademik Cherskiy, could have become subject to restrictive U.S. measures, and even Gazprom itself could be subject to sanctions. Although the alleged restrictions are unlikely to cause any difficult consequences for Gazprom Flot, its parent company could face an array of significant problems. Hence, it was necessary to change ownership in order to avoid the cudgel of sanctions.

The initial ownership change of Akademik Cherskiy was announced at the beginning of the summer. Around the same time, U.S. senators introduced a bill that clarified and expanded the scope of sanctions and also clarified a number of provisions in the current European Energy Security Protection Act.

In particular, sanctions were imposed against those involved in the sale, lease, or provision of pipe laying vessels; and against those who “sold, leased, or provided those vessels for the construction of any such pipeline, or facilitated deceptive or structured transactions to provide those vessels for such a project.”

This was most likely an attempt to close a legal loophole discovered by U.S. lawmakers and probably by others, too. It raises the question of whether a company that gifted a pipeline vessel to another company instead of leasing or selling it should be penalized. We can answer this question indirectly from the expanded sanctions that Congress seeks to approve. Clearly, current laws do not fully regulate the transfer of vessel ownership between Russian export pipelines.

It’s worth mentioning that during the transfer of ownership to STIF, the sale and lease of the Akademik Cherskiy was not included. Moreover, this operation was also supported by Russian regulations which allowed Gazprom to keep certain aspects confidential, the disclosure of which could provoke new sanctions. Maintaining the current state of affairs will protect Gazprom Flot and its parent company from sanctions. There is a common belief that had the United States been given the opportunity to sanction Gazprom, it would have done so long ago. However, such a move could indirectly lead to a new set of trade-related confrontations with the European Union.

In the meantime, a scandal broke out last week regarding cod but was suppressed as quickly as it came. German media announced that due to the spawning of fish, the laying of the gas pipeline would be postponed until September. This risk had already been discussed in advance. The gas pipeline operator and the Danish regulator promptly released official statements that the area of construction would not affect the area of spawning, so the final stretch of North Stream 2 could begin in the near future and finish before new sanctions are passed.

The author is an analyst and deputy general director of the Institute of National Energy.

The author’s opinion may not reflect that of the editorial board.

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