Russia’s controversial Nord Stream 2 pipeline faces another delay after Germany suspended a key step in the approval process, sending European gas prices surging as much as 12%.
German energy regulator halted the certification process necessary before the new link from Russia can start, it said in a statement. The suspension will allow time for Nord Stream 2 AG, the operator of the pipeline owned by Gazprom PJSC, to set up a German subsidiary in a bid to meet European Union rules requiring gas producers to be legally separate from entities transporting the fuel.
The pipeline, which is slated to double the capacity of the existing undersea route from Russian gas fields to Europe, has been a major source of friction in trans-Atlantic relations for several years. Chancellor Angela Merkel’s government consistently supported the project in the face of criticism from EU member states and the U.S., which says Nord Stream 2 will only increase Europe’s dependence on Russian energy resources.
“If one believes that flows could only start after certification has been completed, this means that flows via Nord Stream 2 will be further delayed, with negative implications for European gas balance over winter,” said Katja Yafimava, a senior research fellow at the Oxford Institute for Energy Studies.
The announcement sent benchmark European gas prices surging as traders fear the decision means Europe won’t get much needed gas to ease tight supplies this winter. The continent is facing an energy crunch, having started the winter season with the lowest stockpiles in more than a decade, leaving the regional vulnerable when cold spells hit.
“There is a real concern potentially, if we have a cold winter, we could have rolling blackouts in Europe,” Jeremy Weir, chief executive officer and chairman of trader Trafigura, said at the Financial Times’ Commodities Asia Summit on Tuesday.
The certification process remains suspended until the transfer of the essential assets and human resources to the subsidiary has been completed. If these requirements are met, Germany can continue its examination within the remainder of the four-month period provided by law. While that was scheduled to end on Jan. 8, the halt now means a delay until the regulator can start processing the request again.
“Gas prices have been clearly tied to the certification of Nord Stream 2, putting more pressure on the European side to hurry up and approve the launch of operations,” said Ronald Smith, senior oil and gas analyst at BCS Global Markets in Moscow. “I expect Germany to work extremely rapidly to catch up as soon as the new documents are submitted.”
The U.S. has claimed Nord Stream 2 could give Russia new leverage over Europe. While Germany has committed to retaliating with sanctions against Russia if President Vladimir Putin “weaponizes” the pipeline – for example by starving Ukraine of lucrative gas flows – the government in Berlin has stopped short of threatening to halt the Baltic Sea project.
The two smaller parties in talks to form a new German government, the Greens and the Free Democrats, have taken a harder line on the pipeline. Greens’ co-leader Robert Habeck said earlier this month he didn’t think the pipeline met European rules. Still, the Social Democrats under Olaf Scholz have backed the project throughout, making a more aggressive stance in the new government less likely.
Ukraine’s Naftogaz, which on Monday got approval to join the pipeline’s certification process, said that the creation of a new subsidiary amounts to “judicial tricks” by Gazprom. Chief Executive Officer Yuriy Vitrenko urged the U.S. to impose sanctions on the new subsidiary.
“These new sanctions must be in place at least until Russia stops using natural gas as a weapon and starts acting in line with European rules,” he said.
The U.S. has previously imposed sanctions targeting the project, but Joe Biden’s administration softened the U.S. stance, reaching a deal with Germany earlier this year to end a longstanding rift over the pipeline.
U.K. Prime Minister Boris Johnson on Monday urged European nations to oppose Nord Stream 2, warning that it risks undermining stability across the region.
“We hope that our friends may recognize that a choice is shortly coming — between mainlining ever more Russian hydrocarbons in giant new pipelines, and sticking up for Ukraine and championing the cause of peace and stability,” Johnson said in a speech in London. “Let me put it that way.”
Nord Stream 2 AG said it was creating the subsidiary to “ensure compliance with applicable rules and regulations.”
“We are not in the position to comment on details of the procedure, its possible duration and impacts on the timing of the start of the pipeline operations,” the operator said in response to Bloomberg questions.”