Thread by @profalanriley1

1. What do the latest sanctions contained in Section 6231 of the National Defence Authorisation Act 2021 mean for Nord Stream 2? What are the likely next steps for the US & EU in protecting European energy security?

2. As I explained recently in my CEPA article the new sanctions are likely to prove fatal to the pipeline. Laying undersea pipelines requires scarce technical skills & services-the sanctions target those skills & services. cepa.org/eu-us-energy-s…

3. The new sanctions target a broad range of pipe-laying services on which NS2 needs to rely for the delivery of the pipeline, including tech upgrades, insurance & certification. The key point here is that they focus on services where there are only a small number of suppliers

4. Hence until the imposition of the sanctions by the NDAA on January 1st, the Norwegian firm DNV GL was providing testing and certification services for Nord Stream 2. Once the US Senate passed the NDAA bill by a margin sufficient to override the Presidential veto-they withdrew.

5. The withdrawal of DNV GL illustrates the effectiveness of US sanctions policy. With its withdrawal who is NS2 going to find to undertake that work? There are very few firms globally that can undertake the testing & certification of undersea pipelines.

6. NS2 needs a specialised firm to continue verifying the safety and technical integrity of the pipeline and issue a certificate of compliance at the completion of the project. Will any of the handful of companies globally who could undertake this work be willing to do so?

7. It is doubtful NS2 can just magic a testing and certification firm into existence and give it the responsibility for undertaking the testing and certification process. To start with the Danish authorities (through whose EEZ waters the pipeline will go) have to give consent.

8. Currently the Danish permit specifies DNV GL as the firm responsible for issuing the certificate of compliance. It is difficult to see how NS2 can go forward without finding a credible entity that could be recognised by the Danish authorities.

9. Similar problems apply in respect of the provision of tech, insurance & other services. Section 6231 provides legal protection for all suppliers if they begin winding down their operations in the 30 days from enactment (1st Jan). Thelegal incentives to wind down are compelling

10. Which expert global energy services company wants to lose access to US markets, finance and contracts? Clearly NS2 can seek to find solutions for all of these supply problems but the ability to solve these problems even with the full support of the Russian state is doubtful.

11. The plucky state of Mecklenberg-Pomerania has sought to come to the rescue of NS2 by establishing a foundation under which the construction of the pipeline can be continued. The idea is that the foundation would provide a legal shield for NS2 from sanctions. This is untrue.

12. It is also unwise. Both Section 7503 & Section 6231 of the NDAAs 2020 & 2021 include anti-circumvention provisions. Mecklenberg-Pomerania and all who are connected to this 'foundation' project are in danger of putting themselves within the scope of those provisions.

13. Furthermore, when the new administration takes office at noon on 20th January, the new administration can review the sanctions regime and look at what more, if anything, is necessary to bring the project to a clear and definitive halt.

14. One option for the new administration would be to actually use the broader sanctions powers already contained in Section 232 of CAATSA. Crucially this sanction power is not limited to pipe laying or pipe laying activities. New sanctions could be much more wide-ranging

15. This is why my view is that as we now stand, despite that only 160km of the pipeline is left to be completed, it is difficult to see how it will ever be brought into operation. Existing sanctions may be fatal, and if not, additional sanctions can be added to induce fatality

16. Also as I explain in my CEPA article above and my ICDS article below, the US working with the EU may well seek to move reactively beyond responding to Russian pipeline strategies to a more proactive strategy to reduce Russian energy leverage in Europ
icds.ee/en/biden-nord-…

17. Such a proactive strategy would have several prongs. One would involve linking the energy transition with energy security. Over the last decade, renewables have become much cheaper, eg solar utility-scale pv has fallen 80% in cost, onshore wind-40%. Green now=energy security

18. This green prong would involve support for the roll-out of renewables, enhancing the resilience of power networks, and crucially full synchronisation of the EU and non-EU power systems to the Russian border. Clearly some of this transition process is underway.

19. What is argued here is the prospect for the process to be speeded up and expanded on energy security grounds. Far greater cheap renewable capacity would create a major competitor to Russian gas unmoored from geopolitical and commercial leverage emanating from Moscow

20. A second prong would be full completion of the internal market in gas. The aim here would be to ensure that all the interconnections were in place within the EU and between the EU and non-EU market to enhance competition & increase access to alternative gas providers

21. It could be argued that completing the internal market in gas undercuts the energy transition. However, gas will remain vital as a backup fuel until it can be fully replaced, and in energy security terms that fuel must not be monopolised by a single or dominant supplier

22. Furthermore, a new gas internal market programme could include measures to prepare the storage and pipeline networks so that they can carry hydrogen, the most likely backup fuel which would replace natural gas in the next stage of the energy transition.

23. A third key prong would be to strengthen the legal platform for energy markets across the continent not just in the EU but within the Energy Community countries of non-EU Europe to make it easier for energy to flow easily across borders reducing the power of monopolies

24. The new admin may not support the specifics of this strategy. The US though is likely to move beyond merely reactive sanctions into a more proactive phase to reduce Russian energy leverage..it may well prove to be much more of a problem for Moscow than sanctions on NS2.