Reed Smith Client Alerts

In its efforts to reduce Russian leverage over Europe, the U.S. has enacted legislation imposing sanctions on foreign companies involved in constructing Russian-sponsored gas pipelines in the Baltic and Black Seas.

Authors: Leigh T. Hansson Brett Hillis Alexander Brandt Noah T. Jaffe Eli Rymland-Kelly

Introduction

On 20 December 2019, President Trump signed into law the National Defense Authorization Act for Fiscal Year 2020, which, in addition to establishing the Space Force as a sixth branch of the U.S. military, contained several new sanctions bills, causing significant tension between the U.S. and a number of its allies.

One of the most controversial aspects of the new legislation, the Protecting Europe’s Energy Security Act of 2019 (“PEESA”), provides for sanctions to be imposed on non-U.S. persons involved in certain activities with respect to two natural gas pipelines running from Russia: the Nord Stream 2, which runs to Germany and the TurkStream, which runs to Turkey. Each of these pipeline projects is owned by, and will receive natural gas from, Gazprom PJSC, an energy company in which the Russian government has majority ownership.

PEESA has already had intended and unintended effects. The Dutch-Swiss offshore services company, Allseas Group, a major contributor to Nord Stream 2, announced within hours of PEESA’s enactment that it would suspend work on the project. The bill has also flared transatlantic tensions.

This client alert explains the new U.S. sanctions and their effect on non-U.S. companies. It also considers the global impact future development of the targeted pipelines may have.