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Business Last Updated: Apr 1, 2020 - 11:55:59 AM


They’re Gonna Need A Bigger Boat: The Curious Voyage of the Akademik Cherskiy
By Benjamin L. Schmitt, Jamestown, March 31, 2020
Apr 1, 2020 - 10:54:31 AM

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Since its announcement in 2015, Russia’s proposed Nord Stream Two natural gas pipeline has remained the infrastructure project posing the largest single threat to the energy and national security of the European Union and Ukraine. The year 2019 witnessed the culmination of years of growing diplomatic opposition to the pipeline and resulted in two tangible actions taken by the Transatlantic community to respond to the national security challenge of the project. First, the European Union passed an update to the Gas Directive of its largest energy market liberalization regulatory framework, the EU Third Energy Package, which will impede Gazprom’s ability to operate the pipeline according to its standard monopolistic practices. The second move was a limited, technology-calibrated sanctions action taken by the United States within its 2020 National Defense Authorization Act, targeting firms providing vessels and technologies required to complete Nord Stream Two.

When signed into law on December 20, the U.S. sanctions action had the dramatic, real-time impact of stopping the active development of the project outright, as the principal pipelaying vessel owned by Swiss-based Allseas that had been engaged in the deployment of Nord Stream Two ceased construction operations, and exited the Baltic Sea in the following days. Thus far in 2020, Gazprom has been unable to advance the construction of Nord Stream Two, leaving the Russian Federation searching for a domestic alternative to attempt to complete the pipeline. The Russian-flagged pipelayer Akademik Cherskiy, has emerged as the presumptive alternative. However, since departing its previous anchorage in the Russian far east, the Cherskiy’s capabilities, history, and peculiar route to the Baltic Sea has led to much speculation in the expert community regarding when, and if, Moscow will be able to complete Nord Stream Two, both owing to the U.S. sanctions regime, as well as the technical realities of operating in the challenging physical environment of the Baltic Sea.

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Introduction

International energy security is a field within foreign policy that, save for daily market fluctuations, could be described as lumbering. This is particularly the case regarding European energy security. Major energy diversification infrastructure developments—from hydrocarbon pipelines and terminals, to offshore wind farms, to power plant deployments—often take years, or even decades, to come to fruition. Likewise, the march toward national and supranational policy frameworks and regulatory norms to support market liberalization, ranging from the European Energy Union, to the EU Third Energy Package, have been the result of years of tireless effort. Dialogues between EU member states, European Union bodies, and international financial institutions, and often additional diplomatic engagement from Transatlantic partners, including the United States and Canada, can grab headlines on topics that last for years at a time.

Since the announcement of Gazprom’s proposed Nord Stream Two natural gas pipeline in mid-2015, the project’s development also mirrored this long-term energy-sector infrastructure development path. Foreign policy circles on both sides of the Atlantic engaged in years of diplomatic discussion and debate, resulting in a strong Transatlantic plurality of political opposition to Nord Stream Two by mid-2019. Underscoring this reality, EU member states met in Brussels in Spring 2019 to pass an update to the Gas Directive of its Third Energy Package (Council of the European Union, April 15, 2019). The update was aimed at ensuring that the project could not operate according to Gazprom’s monopolistic business model as planned, and forced the project to abide by market liberalization rules, like third party access and ownership unbundling (rules that Gazprom continues to attempt to invent legal fictions to circumvent) (S&P Global, March 24; The Atlantic Council, December 6, 2019).

Meanwhile, bipartisan efforts in the U.S. Congress led to the development of targeted sanctions packages aimed at stopping the physical construction of the pipeline outright. By December 2019, those sanctions had been refined into a single section of the 2020 National Defense Authorization Act (NDAA), which called for a limited, technology-calibrated sanctions action targeting vessels and technologies actively facilitating the physical construction of Nord Stream Two (Congress.gov, December 20, 2019). The package included in the 2020 NDAA was the culmination of years of consistent U.S. opposition to Nord Stream Two, fine-tuned in such a way as to mitigate the negative national security impact of the project on Ukraine in particular, and Europe more broadly. Importantly, by limiting the scope and maximizing the impact of the sanctions, the NDAA legislation avoided the inevitable widespread diplomatic condemnation that a sweeping gas-sector sanction might have drawn.

U.S. Sanctions Derail Nord Stream Two Construction Schedule

Thus, after years of buildup, the sequence of events that led to the pipeline’s current deployment stoppage was extraordinarily swift. In the lead up to the 2020 NDAA vote, governments and firms that supported the project made numerous statements aimed at painting the project as inevitable, and that the limited sanctions would not pack enough punch to stop the project in its tracks. This was done to persuade project opponents in Washington and Europe that their efforts to stop Nord Stream Two were in vain and that they should, in turn, abandon regulatory actions and sanctions. Ultimately, that pro–Nord Stream Two disinformation campaign failed. On December 11, the U.S. House of Representatives passed the NDAA, followed by the Senate on December 17, both by an overwhelming bipartisan consensus; the law was brought into force following a White House signing ceremony at Joint Base Andrews, on December 20 (The White House, December 20, 2019).

For regular observers of European energy security, and Nord Stream Two in particular, what happened next was a fairly dramatic, real-time scene in the Baltic Sea that played out across an array of publicly available online ship-tracking platforms (Marine Traffic, March 12). Just minutes before the signing took place, the principal Nord Stream Two pipelaying vessel, Pioneering Spirit, owned and operated by the Swiss firm Allseas, slowed to a halt from its pipe deployment path in the Danish Exclusive Economic Zone (EEZ) south of the island of Bornholm. Allseas announced shortly thereafter that it had suspended its previous Nord Stream Two deployment operations in order to avoid a possible sanctions designation by the U.S. Department of the Treasury against its vessels working on the project. Over the ensuing days, the Pioneering Spirit rapidly exited the Baltic Sea.

Nord Stream Two—for the time being at least—had been stopped. That decisive moment left in its wake a stunning array of “Dewey Defeats Truman”–styled headlines littering the cyber landscape declaring that it could not be done—perhaps none more infamous than the December 17 Bloomberg headline: “U.S. Concedes Defeat on Nord Stream Two Project, Officials Say” (History, November 4, 2019; Bloomberg, December 17, 2019). The United States Government had not conceded defeat, however, and immediately helped Europe avoid a gas crisis at the beginning of 2020. The timely stoppage of Nord Stream Two resulted in an agreement for continued gas transit via Ukraine between Gazprom and Naftogaz, which would have otherwise been unlikely to conclude before the existing contract was set to expire at the end of December 2019 (RFE/RL, December 27, 2019).

Options for Russia to Complete Pipeline

Of course, while Gazprom has made no progress in advancing the project over the past several months, it would be untrue to argue that it is entirely impossible for Moscow to complete Nord Stream Two. Though, the difficulty is now significantly heightened; and even if possible, delays are inevitable. The Russian Federation does not currently possess a large-scale vessel featuring a full complement of advanced pipelaying technologies of similar class to the Allseas’ vessel Pioneering Spirit. The head of Russia’s United Shipbuilding Corporation estimated in December that it could take up to six years for Russia’s domestic industry to develop, build, and deploy a specialized pipelayer of the scale and sophistication of the Pioneering Spirit, which is among the largest pipelaying vessels in the world (Kyiv Post, December 25, 2019).

What of smaller scale pipelaying and construction vessels?  At first glance, one might assume that even if it took longer, a more rudimentary, brute force method with smaller vessels could be the answer for Moscow. After all, Russia is a technically advanced nation, not devoid of maritime construction experience. The current CEO of the project company Nord Stream 2 AG, Matthias Warnig, a close confidant of Russian President Vladimir Putin and an ex-Stasi officer, alluded to one such scenario in a November 2019 interview with German magazine Der Spiegel (The Guardian, August 13, 2014;  Der Spiegel, November 14, 2019). In that exchange, Warnig suggested that the remaining pipe segments—of which there are likely over 13,000 twelve-meter long pipes still to be installed along the remaining 160 kilometers of its route—could be “[pre-]welded on land, transported to sea, and installed by divers” (Nord Stream Two). Even if technically feasible by divers connecting segments using underwater welding techniques—a rigorous undertaking in the best of conditions—the depth and morphology of the Baltic seabed would likely present a development hurdle that would add significant time and cost, if it could even be achieved on a reasonable timescale (Science Direct).

The other main problem with this method, is that any lay barge involved in such a pipelaying scheme would need to have a vessel equipped with advanced nautical technology known as a dynamic positioning system (DPS). A DPS is a fully-integrated maritime control system that is able to feed real-time ship motion information resulting from current, wind and wave action into a central computer system capable of calculating the forces needed to be applied by the ship’s stern propeller and rudder, as well as port, starboard, and azimuthal thrusters to hold the position of the vessel within a required positional tolerance (Offshore Engineering). A pipelaying vessel featuring an advanced DPS is thus able to provide a steady platform for pipe deployment operations, which would otherwise only be achievable by a configuration consisting of anchorage, mooring lines and tugs.

Any scenario requiring anchorage or mooring lines that could come into contact with the seabed are undesirable given the large-scale dumping of chemical and conventional munitions throughout the Baltic Sea following the Second World War and during the Soviet-era. The German Federal Maritime and Hydrographic Agency (BSH), reported that 58,300 tons of chemical munitions were dumped on the Baltic seabed east of the Danish island of Bornholm alone, with the seabed surrounding Bornholm designated as a “risk area” by the Baltic Marine Environment Protection Commission, HELCOM (BSH; HELCOM, 2007; Coastal Wiki; HELCOM). The threat posed by the dumped munitions around Bornholm is well-documented: HELCOM reported Danish records that showed hundreds of chemical munitions–related incidents resulting from maritime operations east of Bornholm (HELCOM, 2007). These are precisely the areas in which Russia would need to attempt to complete the Nord Stream Two pipelaying operations in the Danish EEZ.

Such a risk scenario is what drove the Danish Energy Agency (DEA) to stipulate the use of a vessel featuring DPS in its October 2019 permit for Nord Stream 2 AG to engage in pipelaying activities in the Danish EEZ (Danish Energy Agency, October 30, 2019). In that permit, the DEA stated that “it is assumed that the pipe-laying will be carried out using a lay-vessel with dynamic positioning […] due to the greater risk of contact with UXO [unexploded ordinance] if a lay vessel with anchors is used.”  With this stipulation in mind, the expert commentary over the past few months has turned to the question of whether the Russian Federation had a pipelaying vessel—of large or small scale—that had an on-board DPS that could meet the DEA requirement.

The Akademik Cherskiy: Gazprom’s Pipelayer Solution or Disinformation Smokescreen?

Enter the Akademik Cherskiy, a Russian-flagged pipelayer of smaller scale compared to Allseas’ Pioneering Spirit, that had been anchored in Russia’s Far East port of Nakhodka, near Vladivostok, since October 2019 (Euractiv, March 11; Vessel Finder, March 27). The Cherskiy was ordered by the Dutch-Nigerian firm Sea Trucks Group, and completed in Singapore in 2015 following earlier work in China. The ship was initially named Jascon-18, with a puzzling web of ownership reports including Sea Trucks Group and Walvis International, a Lagos, Nigeria–based affiliate of West African Ventures, LTD. Legal disputes between Sea Trucks Group and Walvis allegedly contributed to the January 2016 arrest of the vessel in Singapore, and the liquidation of Sea Trucks Group in 2018 (Slideshare, December 28, 2016; Baltic Shipping; Waventures;  Offshore Energy Today, January 14, 2016; Maritime Journal, February 15, 2018). As this legal drama was brewing, however, it was announced as early as 2015 that the ship had been purchased by a then-unnamed company. It was not until May 2016 that the buyer was revealed to be MRTS, a Moscow-based subsea technical construction firm and a longtime Gazprom maritime industrial partner. MRTS had apparently purchased the vessel using a $1 billion loan it received from Gazprombank (MRTS; Steel Guru, May 23, 2016). The pipelayer’s ownership was reportedly later transferred to Gazprom subsidiary Gazprom Flot (Biznes Alert, February 28). At the time, Gazprom Deputy Chairman Vitaly Markelov stated that the purchase of the Cherskiy was intended to support offshore oil and gas development operations in the Sea of Okhotsk, where the vessel could “be used not only as a pipe-layer but also as a lift crane for heavy constructions” (Steel Guru, May 23, 2016). Ironically, the intention was to have a vessel that might be able to support operations in the offshore of the Russian Far East, skirting the sanctions that had hit the region in 2014 by the U.S. government in response to Moscow’s illegal annexation of Crimea and aggression in southeastern Ukraine.

Of particular relevance to Nord Stream Two, the Cherskiy is the only Russian-flagged pipelaying vessel featuring the DPS needed to undertake the work required to complete the pipeline within the Danish EEZ. Specifically, the vessel has a class-three DPS (DP3), meaning that the Cherskiy includes significant redundancies in its DPS control and computer systems. This allows the vessel to maintain DPS control in difficult maritime conditions even in the event of a major fault in one of the systems (Slideshare, December 28, 2016; Konsberg). In spite of this advanced DPS platform, the Cherskiy reportedly still would require additional technology upgrades, welding equipment and retrofitting before it could undertake the deep-water offshore pipelaying operations required to complete Nord Stream Two (RFE/RL, March 7).

With its status as Moscow’s last hope to complete Nord Stream Two solidified, the Akademik Cherskiy set sail from Nakhodka in early February, bound for the Port of Singapore, where it was to undergo upgrades after its scheduled arrival on February 22 (Bloomberg, February 14; DW, February 17). Before it would arrive at its planned stop in Singapore, the Cherskiy altered its route, with public ship tracking data instead plotting a course via the Straits of Malacca for the Port of Columbo, Sri Lanka, featuring shipyards that could potentially have aided in the upgrade of the vessel (Natural Gas World, February 25). However, instead of making a major port call in Columbo for retrofitting, the Cherskiy again altered course, with ship tracking data showing that the ship had updated its intended destination on March 6 to transit the Suez Canal by March 25 (Natural Gas World, March 6). There, the Cherskiy was joined by a number of Russian naval vessels, presumed to be part of an escort for the vessel to transit the western Indian Ocean and the piracy-prone Gulf of Aden en route to the Suez Canal (Communal News, March 10).

Surprisingly, once again the Cherskiy betrayed its intended route, instead veering south along the Eastern coast of Africa, before entering the Mozambique Channel, off the western coast of Madagascar, with an announced port call scheduled for Maputo, Mozambique, on March 23 (Natural Gas World, March 18). The announcement of a port call in Maputo was of particular interest given the significant investments that Russian entities have made in the Port of Maputo, including a $35 million shipyard loan from Russia’s VTB in 2016. Russian investments in Mozambique more broadly have brought condemnation by U.S. authorities and the International Monetary Fund for potential bribery and corruption schemes over the past few years (Club of Mozambique, June 16, 2016; The Moscow Times, January 7). In this light, perhaps Maputo was to be the port of call that would support the needed upgrades of the Cherskiy? But could the benefit of performing the work in Maputo outweigh the significant delay in reaching the Baltic by rounding the Cape of Good Hope rather than proceeding through the Suez Canal?

Again, any hope of revealing the reason for the Akademik Cherskiy’s circuitous route were dashed when, on March 23, the vessel remained roughly 100 nautical miles offshore, and proceeded south along the coast of Mozambique and South Africa without a drop in velocity (Marine Traffic, March 27). Since passing Maputo, the Cherskiy once again announced a port call, this time at for Cape Town, South Africa, which was scheduled for March 27, but once again it passed without stopping (Natural Gas World, March 25). Now the ship has announced its next port call for Pointe Noire, in the Republic of the Congo, though given its track record, it may be a safe assumption that the ship will simply bypass the port and proceed en route to Europe via the West African coastline (MarineTraffic, March 30).

So what is the motivation for Gazprom to attract media attention regarding the Cherskiy’s curious voyage thus far, rather than simply announcing its intention to have the vessel head for the Baltic Sea to attempt to carry out the remaining work on Nord Stream Two? Some analysts have asserted the idea that the Cherskiy is in fact not Gazprom’s preferred pipelayer to complete Nord Stream Two, but instead is attracting media attention to act as a “smokescreen” to distract from other vessels that have already operated in support of Nord Stream Two in the Baltic Sea. The most likely lay-barge candidates would be a number of smaller vessels supporting the Fortuna, a Russian-flagged pipelay crane vessel owned by MRTS that was assisting with Nord Stream Two construction and is now docked in the port of Mukran, Germany (MRTS).

Unlike the Cherskiy, the Fortuna does not have a DPS, and therefore would need to either undergo a lengthy retrofit, operate in a configuration tethered to other vessels with DPS, or use multiple anchorages in order to hold sufficient positional tolerance to complete the work. The use of anchorages or mooring lines is unlikely given the construction permit stipulation by the Danish Energy Agency. Using the Fortuna tethered to ships with DPS is possible, but would be more technically difficult than operating a single-vessel DPS pipelaying operation; and, like anchor and mooring line use, that may be outside the scope of the current allowances conceded by the Danish government. This would mean that the DEA permit would need to be updated or resubmitted in order to obtain approval for this option, costing time even were it approved. Moreover, the involvement of other vessels featuring DPS would possibly require the participation of ships from Western firms that may be unwilling to undertake the associated sanctions risk. Finally, deploying a DPS to Fortuna also is unlikely since the Cherskiy already has DP3 and would likely need comparatively less retrofit than the Fortuna under these circumstances.

With these options in mind, the idea of the Cherskiy being a diversion for other vessels waiting in the wings to complete the work does not seem to be the most likely scenario right now. Instead, the Cherskiy will probably continue its baffling journey to the Baltic and undergo renovation in either Kaliningrad or St. Petersburg—expected candidates for the retrofit, given reports of tenders announced via Gazprombank’s Electronic Trading Platform for technical equipment that could support the vessel upgrade work sent to these ports (Biznes Alert, February 28).

All that said, what, if any, impact could the 2020 U.S. NDAA sanctions have on the ability of the Cherskiy to perform the work itself once upgraded? If the Cherskiy undertakes pipelaying activities that run afoul of the U.S. sanctions law, it would likely be designated by the U.S. Departments of State and Treasury in short order. Thus far, the Cherskiy reportedly has never been used in a pipelaying operation like the one that is needed to complete Nord Stream Two, leading to questions of the availability of Russian personnel who could operate the vessel for the pipe deployment (EurActiv, March 11). Should Gazprom require personnel supplied by a Western firm to provide the know-how and operational support to complete the pipeline, this could be a major bottleneck for the project given the sanctions risk tolerance of the respective Western firms. Even if the Cherskiy, Fortuna or some other vessel is used to complete the project work, any Western bank, insurance institution, engineering support firm or other service provider will likely pause before providing assistance or services of any kind to an entity engaged in deep-water offshore pipelaying related to the construction of Nord Stream Two. Furthermore, any Russian company will also be forced to seriously evaluate its future business plans before supporting a Russian deep sea pipelaying vessel. A sanctions designation for supporting Nord Stream Two would be disastrous for any company in any way touching the U.S. financial system. And that is simply considering the impact of existing U.S. sanctions authorities: it remains a possibility that additional U.S. sanctions actions could be passed to further restrict the possibility for the project to be completed (RFE/RL, March 7).

Conclusion

For the time being, these uncertainties will continue to hamper Moscow’s ability to use Nord Stream Two to harm Europe’s energy security. They stem from first regulatory and then sanctions actions that arose on both sides of the Atlantic as responses to a common cause for concern. For all of the foreign policy and Transatlantic security discontinuities that have emanated from Washington in recent years, one core area of healthy cooperation has been the United States’ continuous approach to support European energy security, including its consistent opposition to Nord Stream Two. That firm policy spanned the Barack Obama Administration as well as the Donald Trump Administration, and it was equally taken up by Democrats and Republicans on Capitol Hill. The national security of the entire Transatlantic community, and especially Ukraine, would almost certainly have been significantly degraded were this not the case. And given this track record, the Transatlantic community should be able to continue to take actions to ensure that Nord Stream Two is stopped for good.


Source:Ocnus.net 2020

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