Nord Stream 2 Work Resumes Despite U.S. Efforts To Stop It

(Bloomberg) -- The construction of Russia’s controversial Nord Stream 2 natural gas pipeline, which has been halted for a year, is set to resume in German waters Friday.

The move to complete the final section of the project will stretch already fraught diplomatic relations with the U.S. as lawmakers in Washington aim to tighten sanctions.

The vessel Fortuna is starting to lay two parallel underwater pipeline sections from Nord Stream 2, the German Waterways and Shipping Authority Stralsund said. Fortuna will lay a 2.6-kilometer (1.6-mile) section of the pipeline in German waters at depths of less than 30 meters, according to the company building the project.

The 1,230-kilometer pipeline was weeks away from completion when work was halted a year ago after U.S. President Donald Trump imposed sanctions on companies working on the link, and lawmakers in Washington are poised to approve new penalties this month. All except 160 kilometers of the pipe have been put in place, and the bulk of the remaining section will be in the Danish waters.

The U.S. maintains the 9.5 billion-euro ($11.2 billion) pipeline gives Russia too much leverage over Europe and potentially deprives U.S. liquefied natural gas suppliers of markets. Russia’s gas export company, Gazprom PJSC, who owns the project, has quietly been working on ways to restart work despite sanctions.

The resumption of construction of the pipeline is key to bringing natural gas from Russia to Germany to be distributed to the rest of Europe.

Gazprom’s shares jumped as much as 3.9% in the wake of the announcement.

The next round of sanctions are aimed at preventing companies that access the U.S. financial system from writing insurance and certification for the pipeline.

That would hit the primary insurer Zurich Insurance Group AG, and Det Norske Veritas Holding AS, the Norwegian company verifying the pipeline’s safety and integrity.

“We have both the program to implement the project, as well as specific steps that should be taken, that will be taken in order to implement this project,” Russian Foreign Ministry’s spokeswoman Maria Zakharova told reporters Dec. 10. “We are also well aware that the United States of America won’t stop trying to prevent Russia from implementing not only this project, but also its foreign policy and international activities in general.

Separately, Germany is looking at other ways to protect its section of the project by looking at a legal mechanism that would help protect from the U.S. sanctions.

Germany must prepare for a “hard confrontation” to defend its interests in the project that will increase gas supplies from Russia, said Rolf Muetzenich, the co-ruling Social Democrats chief whip in parliament. He backs a proposal by the provincial government of Mecklenburg-West Pomerania -- Chancellor Angela Merkel’s home district and the place where Nord Stream 2 lands -- to create new legal protections.

The provincial government where the pipeline will end in Germany proposed a state-protected legal entity that would hold assets inside of a foundation, ostensibly operating under a philanthropic purpose to protect the environment, according to a Nov. 23 regional cabinet proposal seen by Bloomberg. The German-language name of the proposed foundation is the “Stiftung Klimaschutz MV.”

The government of Mecklenburg-West Pomerania needs to move “urgently” toward legal protections that ward off pending U.S. sanctions, according to the document. Mecklenburg-West Pomerania’s finance and energy ministries both declined to comment on the proposal.

Foundations and trusts can be set up in Germany with a philanthropic purpose and entail a transfer of private assets to a entities that are regulated separately under the law, according to the country’s Foundations Federation website.

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