Natural gas prices soared in the UK and Europe today after Germany’s energy regulator announced it has ‘”temporarily suspended” approval of Nord Stream 2 – the Russian pipeline bringing gas to the continent.
Nord Stream 2, which critics have coined “the world’s most controversial gas pipeline”, stretches for 1,200 kilometres from Vyborg in Russia through the Baltic Sea to Lubmin in north Germany, bypassing Ukraine and Poland. Although the pipeline was completed in September, Nord Stream 2 needs regulatory approval from Germany before it can start pumping 55 billion cubic meters of natural gas to Europe every year.
The decision to suspend the €10bn Kremlin-backed project has sent wholesale gas prices to a three-week high, piling further pressure on businesses and households already grappling with soaring bills.
It’s not yet clear why the Germans have taken such a controversial decision as they have been big supporters of the project.
The official explanation from the German energy market regulator is a technical one: that it was unable to certify Nord Stream 2 as an independent operator because the company was based in Switzerland, not Germany. However, commentators have pointed out that the real reason may be far more political than technical.
It’s no coincidence that the suspension comes amid rising tensions between Moscow and Brussels over Ukraine, and the growing Belarus-Poland border crisis.
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Nord Stream 2, which is owned by Russia’s state-owned Gazprom, was planning to establish a German subsidiary to own and operate the German section of the pipeline. If approved, it would double Moscow’s gas exports to Germany. However, it would also circumvent Ukraine, potentially leading to fewer natural gas flows via Ukrainian pipes, dealing a heavy blow to the country’s already fragile economy.
Unsurprisingly, Ukrainian President, Volodymyr Zelensky, has condemned the project as a “dangerous geopolitical weapon”. Even allowing for the impact on Kiev, many critics are reluctant to increase Europe’s dependency on Russia for energy.
Taking a surprisingly outspoken stand on such a sensitive issue, Boris Johnson said last night that the EU faces “a choice” between standing with Ukraine or approving the pipeline.
Yet the majority of natural gas entering Europe already comes from Russia. In 2020, gas imports represented about 43% of the total gas imports to the bloc, according to Eurostat.
The US has opposed the pipeline project for years because of fears that it will extend President Putin’s influence, and President Biden has been criticised for not doing enough to halt the project from across the political spectrum. Those backing the pipeline argue the US is itself motivated by commercial interests, and a desire to sell more of its own liquified natural gas across the continent.
The Kremlin has of course refuted claims that Putin is using energy as a geopolitical weapon, insisting the project is “purely commercial” and an efficient way to provide natural gas to Europe. This comes amid accusations that Russia has deliberately withheld gas supplies to the continent in recent months in order to stoke fears about winter shortages and gain political leverage.
Today’s decision from Germany is likely to set the project back a few months. What’s more, even when – or if – the pipeline gets the green light from Germany, it still requires approval from the European Commission. Bloc members such as Poland – which is fiercely opposed Nord Stream 2 and insists that it is a threat to European energy security – will no doubt do their best to stop it from going through.
Even so, much is at stake by refusing to approve the project. Nord Stream 2 will create a shorter route to Europe than through the older Ukrainian pipelines and it’s also cheaper to maintain. Many German businesses have heavily invested in the project.
Natural gas plays a key role in power generation and home heating, and skyrocketing energy prices this year are already threatening to derail post-pandemic economic recovery.
Leading industry experts are now voicing fears once again of the risk of rolling blackouts across Europe if it proves to be a cold winter.
The question now being asked is whether the urgency to curb a winter energy crisis is enough to risk approving a Kremlin-backed project which could cost more further down the line?