Update Volume 2020/35 Nord Stream 2 and TurkStream - update on new US sanctions
Through this article, we would like to draw your attention to amendments in two US statutes which expand the sanctions that target the construction of the Nord Stream 2 and TurkStream pipeline projects and those who provide vessels and other services to these projects.
Nord Stream is the name of a system of offshore pipelines transporting natural gas from Russia to Germany. The first project, Nord Stream 1 (NS1), was completed on 8 October 2012 and includes two pipelines running from Vyborg to Greifswald. Nord Stream 2 (NS2) will run from Ust-Luga to Greifswald. Work on NS2 took place between 2018-2019 and the lines had been expected to become operational mid 2020, however this has been disrupted by the introduction of US sanctions.
TurkStream is a natural gas pipeline running from Russia to Turkey. It starts from the Russkaya compressor station near Anapa in Russia and crosses the Black Sea to the receiving terminal at Kiyiköy. Construction on TurkStream started in May 2017 and gas supply to Bulgaria via this pipeline started on 1 January 2020.
The two legislative amendments in question are “the Countering America’s Adversaries Through Sanctions Act (CAATSA)” and “the Protecting Europe’s Energy Security Act (PEESA)”. Although the wording in the CAATSA and PEESA sanction authorisations is different, both Acts have the potential to affect impact non-US ship owners as well as their insurers. We briefly expand thereon as follows:
- CAATSA: The ACT allows the US government to target certain high-value investments or other transactions related to the construction of Russian energy export pipelines with sanctions. On 15 July 2020, the State Department confirmed that they would use the Act to target the NS2 and TurkStream. As a result, any person who provides the Russian Federation with goods or services that directly and significantly facilitate the expansion, construction, or modernization of NS2 or TurkStream is therefore potentially in breach of US sanctions.
- PEESA and PEESA Clarification: PEESA came into force in December 2019 and mandates sanctions against vessels engaged in pipe-laying for the NS2 and TurkStream projects, and foreign persons who have knowingly sold, leased or provided those vessels for the construction of such a project or facilitated deceptive or structured transactions to provide those vessels for the construction of such a project. A group of Senators and Congressmen have recently proposed two amendments to PEESA seeking to expand the type of activities requiring mandatory sanctions, including any supply type services provided by vessels. Under these amendments anyone providing insurance or reinsurance for vessels engaged in pipe-laying or pipe-laying activities will also be in breach of US sanctions. In addition, the bills envisage a reporting mechanism in which underwriters of a sanctioned vessel will automatically be identified.
We remind our Members that cover will be compromised for any vessels involved in activities that put the NNPC at risk of breaching sanctions. In view of the direct sanctions threat posed to insurers by CAATSA and PEESA, there will be no club cover for any activity involving or related to the Nord Stream 2 or TurkStream construction projects. We strongly advise all our members to check whether these changes will affect ongoing or planned projects. Should this be the case, or if you have any concerns, please contact us.