Nord Stream 2 delays cause European natural gas prices to skyrocket

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The controversial Russian Nord Stream 2 pipeline faces another delay after Germany suspended a key step in the approval process, pushing European gas prices up to 12%.

Germany’s energy regulator has halted the certification process needed before the new link from Russia can begin, he said in a statement. The suspension will allow time for Nord Stream 2 AG, the operator of the gas pipeline owned by Gazprom PJSC, to create a German subsidiary with the aim of meeting European Union rules requiring that gas producers be legally separated from transporting entities. fuel.

The pipeline, which is expected to double the capacity of the existing submarine route from Russian gas fields to Europe, has for several years been a major source of friction in transatlantic relations. Chancellor Angela Merkel’s government has consistently backed the project in the face of criticism from EU member states and the US, who claim that Nord Stream 2 will only increase Europe’s dependence on it. Russian energy resources.

“If one thinks that the flows could only start once the certification is complete, this means that the flows via Nord Stream 2 will be further delayed, with negative implications for the European gas balance during the winter”, said Katja Yafimava, principal researcher at Oxford. Institute of Energy Studies.

The announcement pushed up benchmark prices for European gas as traders fear the move will mean Europe will not get the gas it badly needs to ease tight supplies this winter. The continent is facing an energy crisis, having started the winter season with the lowest stocks in more than a decade, leaving the region vulnerable when cold waves hit.

“There is potentially real concern, if we have a cold winter, we could have blackouts in Europe,” Jeremy Weir, CEO and chairman of trader Trafigura, said at the Financial Times commodities summit. in Asia on Tuesday.

Approval deadlines

The certification process remains suspended until the transfer of critical assets and human resources to the subsidiary is completed. If these conditions are met, Germany can continue its review for the remainder of the four-month statutory period. While this was supposed to end on January 8, the shutdown now means a delay until the regulator can resume processing the demand.

“Gas prices have been clearly linked to the certification of Nord Stream 2, which puts more pressure on the European side to hurry up and approve the start of operations,” said Ronald Smith, senior oil analyst. and gas at BCS Global Markets in Moscow. “I expect Germany to work extremely quickly to catch up as soon as the new documents are submitted.”

The United States has claimed that Nord Stream 2 could give Russia further leverage over Europe. While Germany has pledged to retaliate with sanctions against Russia if President Vladimir Putin “arms” the pipeline – for example by depriving Ukraine of lucrative gas flows – the Berlin government has not threatened to put an end to the Baltic Sea project.

The two small parties in talks to form a new German government, the Greens and the Free Democrats, have taken a tougher line on the pipeline. Greens co-leader Robert Habeck said earlier this month he did not believe the pipeline was following EU rules. Yet Olaf Scholz’s Social Democrats have supported the project throughout, making a more aggressive stance by the new government less likely.

Ukrainian Naftogaz, who on Monday obtained approval to join the pipeline certification process, said the creation of a new subsidiary was akin to “legal tricks” from Gazprom. CEO Yuriy Vitrenko urged the United States 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 begins to act in accordance with European rules,” he said.

UK Warning

The United States has already imposed sanctions targeting the project, but Joe Biden’s administration has softened the American position, reaching a deal with Germany earlier this year to end a long-standing rupture on the pipeline.

British Prime Minister Boris Johnson on Monday urged European countries to oppose Nord Stream 2, warning that it risks undermining stability in the region.

“We hope that our friends will recognize that a choice presents itself soon – between keeping more and more Russian hydrocarbons in giant new pipelines, and defending Ukraine and defending the cause of peace and stability,” said Johnson in a speech in London. “Let me put it that way. “

Nord Stream 2 AG said it was setting up the subsidiary to “ensure compliance with applicable rules and regulations”.

“We are unable to comment on the details of the procedure, its possible duration and its impacts on the timing of the commencement of pipeline operations,” the operator said in response to questions from Bloomberg.

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