OGZPY PJSC Gazprom (PK)

By Brett Forrest 

The State Department in a report to Congress didn't name new companies as targets for sanctions related to an $11 billion pipeline designed to transmit Russian natural gas to Germany, allowing work on the pipeline to continue unabated for now.

Some Republican lawmakers criticized the State Department over the Nord Stream 2 report, which was required by Congress, and both Republicans and a key Democrat requested an explanation of the administration's position.

The Trump administration, urged by Congress, signed laws in 2019 and 2020 that halted the pipeline's construction for more than a year until its resumption earlier this month. The Biden administration has called the project a "bad deal," but Nord Stream 2 is shaping into a pressure point between the new administration and a bipartisan Congressional coalition that has assailed the project.

The report was expected to provide a list of companies involved in pipeline construction and are therefore subject to U.S. sanctions. Instead, the State Department named two entities previously sanctioned by the Trump administration -- the main pipe-laying vessel and its owner -- along with 18 companies, mostly insurers, that already have left or were leaving the project.

The failure to name any new targets for sanctions allows the work to continue while also providing the administration with time for discussions with Germany about the project and to formulate its own policy on the pipeline.

The State Department sent the report to lawmakers on Friday but didn't publicly release it or respond to questions about its findings. The Wall Street Journal reviewed a copy of the report this weekend. German officials didn't immediately respond to a request for comment.

Sen. Jim Risch (R., Idaho), the top Republican on the Senate Foreign Relations Committee, called the report misleading.

"Maritime tracking information makes it clear that ships not covered in today's report are currently active in supporting Nord Stream 2 construction," he said in a statement. "The administration's decision to ignore these activities demands an immediate explanation."

The pipeline if completed would allow Gazprom, Russia's gas-export monopoly, to all but abandon the Ukrainian transit system that for decades has handled the bulk of Russian gas deliveries to Europe.

U.S. lawmakers worry that Nord Stream 2 would strengthen Russia's grip on the European energy market, put an end to any geopolitical leverage Ukraine may still have in its struggle with Russia, and increase Moscow's influence on the continent. The pipeline is more than 90% completed, with about 100 miles remaining.

Friday's report cites Germany's commitment to the pipeline and rejection of potential U.S. sanctions related to the project, which it sees as "an attack on German and EU sovereignty," the report says. The German government, which is phasing out the domestic usage of coal and nuclear energy, considers Russian gas deliveries vital.

The Biden administration is eager to improve ties with Berlin, a critical European ally, which were strained by former President Donald Trump's skepticism of the NATO alliance and threats of tariffs on German goods, and by German Chancellor Angela Merkel's criticism of Mr. Trump's "America First" foreign policy.

Mr. Trump publicly opposed the pipeline, at one point urging Berlin to halt construction as the price of averting a trade war with the U.S. Berlin and Russian officials have characterized Nord Stream 2 as a solely commercial venture advancing energy security for Europe.

The Biden administration has opened talks with Berlin on the future of the pipeline, including "threats of sanctions against companies involved in the construction of Nord Stream 2," a German official said.

In a statement Saturday, Sen. Jeanne Shaheen (D., N.H.), a principal advocate of the Nord Stream 2 sanctions legislation, said that the law "laid the groundwork for effective action to stop the pipeline without unnecessarily harming trans-Atlantic relations."

"I look forward to being briefed by the Biden administration on additional steps they can take to stop the threat posed by the completion of the Nord Stream 2 pipeline," Ms. Shaheen wrote.

Mr. Biden hasn't articulated a detailed policy on the pipeline.

"We've been clear for some time that Nord Stream 2 is a bad deal and that companies risk sanctions if they are involved," State Department spokesman Ned Price said Friday, before the report was delivered. "Our goal in all of this is to reinforce European energy security and safeguard against predatory behavior."

A National Security Council spokeswoman didn't immediately respond to a request for comment.

The resumption of work on the pipeline on Feb. 6 should have triggered the application of mandatory sanctions. The administration thus far hasn't imposed them. The administration could waive the application of sanctions under a national-interest clause contained in the 2020 law.

Calling Friday's report a gift to Russia, Mr. Risch wrote that the report shows that the administration "has reversed itself" and that it now "believes it is a good idea to allow the completion of Nord Stream 2."

--William Mauldin contributed to this article.

Write to Brett Forrest at brett.forrest@wsj.com

(END) Dow Jones Newswires

February 21, 2021 13:31 ET (18:31 GMT)

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