Germany’s energy regulator suspended approval for a major new pipe that would bring Russian gas into Europe. This is a new obstacle to the controversial project and drives up gas prices in the region.
On Tuesday, the watchdog stated that it had temporarily halted certification because Nord Stream 2, a Swiss-based consortium, first needed to create a German subsidiary company according to German law in order to obtain an operating license.
European prices rose 9% after the news that the hold-up was announced. The Dutch front-month contract traded briefly at 89.00 euros/MWh for a brief period.
“This does push back the expected timelines quite some,” stated Trevor Sikorski, an analyst at Energy Aspects. He also said that it was not clear how long it would take to establish a new company or reapply for certification.
He said that the first flow through the pipeline is very unlikely to occur in the first half of 2022.
Nord Stream 2 is facing stiff resistance from the United States as well as some European countries. They claim it will make Europe more dependent on Russian gas. Other European governments insist that the link is essential to ensure energy supplies. With gas prices rising in recent weeks, and the threat of power cuts this winter, other European countries have said they support the project.
Nord Stream 2 stated that it was notified by regulators about the certification decision. It stated that it was not able to comment on details of the certification process, its duration or impact on the start of pipeline operations.
Konstantin Kosachyov (deputy chairman of Russia’s parliament’s upper chamber), stated to the TASS news agency that any delays in pipeline certification, especially on the eve winter, are not in the European Union’s interests.
Bundesnetzagentur, the regulator, stated that it would only consider an application if there was a transfer of significant assets or budgets for staffing to a German affiliate.
It stated that Nord Stream 2 certification will not be granted unless the operator has been organized in a legal manner that is compliant with German law.
It said that it would continue to assess the submission during the remaining four-month period after these conditions had been satisfied. This period was supposed to last until January before the suspension.
One country that is strongly opposed to the pipeline is Ukraine. This has led to wider tensions between Kyiv, Moscow and Washington when the United States accuses Russia of building troops near Ukraine in preparation for a possible attack. A claim the Kremlin dismissed.
Russia annexed Ukraine’s Crimean peninsula in 2014. Moscow-backed separatists also took control of eastern Ukraine’s Donbass region that year.
Reuters was told by Naftogaz, the head of Ukraine’s energy company, that he appreciated the German energy regulator’s decision.
Yuriy Viktorenko stated that the answer was “Good”. “This is an important point that suggests that the German regulator agrees with our position that certification should not only be applied to the pipeline in Germany but also to the entire pipeline, from the Russian Federation to Germany.
If Russia supplies gas to Kyiv, it will cut its revenues. Kyiv also accuses Moscow that it uses energy to attack Europe’s security.
Moscow denies this, stating that Nord Stream 2 was a purely commercial venture and that it complies with European energy regulations.
Ukraine successfully applied for certification of the pipeline through the consultation process.
Moscow already used a route through the Baltic Sea to transport Nord Stream 1 – its predecessor to Nord Stream 2 – which has a capacity equivalent to half of Germany’s annual gas consumption.
Nord Stream 2 will double this and make Germany a central hub for European gas volumes.
According to the German regulator, the notice was sent to Nord Stream 2 by the European Commission and Berlin’s economy ministry.
Two months have passed since the German regulator decided to evaluate the application.
“Under current circumstances, there are further downsides for the timing of Nord Stream 2’s start-up because, even though Germany is friendlier towards this project than the EU, the pipeline’s regulatory certification could face more hurdles during EU commission review stage,” stated Carlos Torres Diaz from Rystad Energy, head of power markets and gas.
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