Move follows mounting political pressure to scrap project in setback to Kremlin-backed project
Germany has suspended its approval process for the controversial Nord Stream 2 gas pipeline which would double its reliance on Russian gas following growing geopolitical pressure to scrap the project.
Energy markets across Europe surged after the German energy regulator suspended its certification process, in a big setback to Kremlin-backed Gazprom’s plans to extend Russian gas dominance via a new pipeline across the Baltic Sea.
UK gas prices for next month surged 9.3% on Tuesday to 223p a therm, an almost three-week high, while the Netherlands – which is one of the biggest gas markets in Europe – suffered an increase of 7.9% to 88.05 euros a megawatt hour.
The German energy regulator said it would not continue its approval process until the Nord Stream 2 company, which is registered in Switzerland, transfers its main assets and staffing budget to its German subsidiary.
“A certification for the operation of Nord Stream 2 will only be considered once the operator is organised in a legal shape compliant with German law,” the regulator said.
Germany’s decision to delay Nord Stream 2, which bypasses current pipelines that run through Russia’s nearest neighbours in Ukraine and Belarus, follows calls from western leaders to scrap the plan or risk destabilising the region.
Boris Johnson warned Germany that it would have to choose between “mainlining ever more Russian hydrocarbons in giant new pipelines” and “sticking up for Ukraine” and “championing the cause for peace and stability” in eastern Europe.
Critics of the project fear Russia will use the pipeline as a geopolitical weapon in Europe amid the global gas crisis, while weakening Ukraine which relies heavily on revenues from shipping Russian gas to Europe via its gas transit network. Moscow denies this.
“When we say that we support the sovereignty and integrity of Ukraine, that is not because we want to be adversarial to Russia, or that we want in some way strategically to encircle or undermine that great country,” Johnson said in a speech to City of London dignitaries at Mansion House on Monday.
The US secretary of state, Antony Blinken, warned earlier this year that Nord Stream 2 represented “a Russian geopolitical project intended to divide Europe and weaken European energy security”.
Europe faces a looming winter gas crisis, which has fuelled fears of a widespread industrial slowdown due to factory shutdowns and potential power outages. It is also expected to drive a cost of living crisis for homes and small businesses.
Gas prices have reached record highs in recent months, ignited by a global surge in demand after the Covid-19 economic slowdown last year, and fuelled by Russia’s reluctance to export extra supplies to Europe to help meet demand despite rocketing market prices.
Some countries have accused Russia, which is Europe’s largest gas supplier, of withholding extra gas supplies to Europe in order to pressure Germany to approve the gas project. The Kremlin has denied this.
The boss of commodities trading giant Trafigura, Jeremy Weir, warned that Europe could face “rolling blackouts” this winter due to tight gas supplies and low gas storage levels.
“We haven’t got enough gas at the moment quite frankly; we’re not storing for the winter period. So hence there’s a real concern that there’s a potential if we have a cold winter that we could have rolling blackouts in Europe,” Weir told an industry conference.
Weir warned that there was “an issue looming on oil prices on a long-term basis” because of a slowdown in new oil production, and that it was “very possible” that global oil prices, which have climbed by 60% since the start of the year to more than $80 a barrel, could reach $100 a barrel for the first time since 2014.