“With regard to recent developments, we need to reassess the situation also with regard to Nord Stream 2. It seems very technocratic but it is a necessary administrative step to stop the certification of the pipeline,” said Chancellor Olaf Schultz in Berlin.
The 750-mile pipeline was completed in September, but it has yet to receive final certification from German regulators. Without it, natural gas could not flow through the Baltic Sea pipeline from Russia to Germany.
The United States, the United Kingdom, Ukraine and several European Union countries have opposed the pipeline since it was announced in 2015, warning that the project would increase Moscow’s influence in Europe.
Nord Stream 2 can produce 55 billion cubic meters of gas annually. This represents more than 50% of Germany’s annual consumption and could be worth up to $15 billion for Gazprom, the Russian state-owned company that controls the pipeline.
As Russia’s largest gas customer, Germany has tried to keep Nord Stream 2 out of world politics. But Berlin found it more difficult to defend the project as its allies discussed how to punish Moscow if it ordered an invasion of Ukraine.
Russian President Vladimir Putin’s decision to send troops to eastern Ukraine has put the German government in a difficult position. US officials have made clear that they will move to suspend Nord Stream 2 in the event of a Russian invasion, without providing details on how this will be achieved.
Gas prices are skyrocketing. what happened after that?
Energy is a major political issue in Central and Eastern Europe, with gas supplies from Russia playing an essential role in power generation and home heating. Natural gas prices set new records this winter in Europe, and the conflict in Ukraine could bring more pain to consumers.
On Tuesday, the record price for natural gas for delivery in Europe next month jumped to around 79 euros ($89.54) per megawatt-hour, up from 71.50 euros ($81.04) at Monday’s close, according to data from the independent Commodity Intelligence Services.
Prices have fallen from their highs just before Christmas. However, it is still much higher than it was a year ago, when gas was traded at €16.30 ($18.47) per megawatt-hour.
Analysts said the fight over Nord Stream 2 should not significantly alter price expectations for this winter. Tom Marzik Manser, head of gas analytics at ICIS, noted that the pipeline was not expected to go online until the second half of the year.
However, Dmitry Medvedev, deputy head of the Russian Security Council, warned after Germany’s announcement that prices in Europe would rise sharply.
“Welcome to the brave new world where Europeans will soon pay 2,000 euros for 1,000 cubic meters of natural gas,” he wrote on Twitter.
That would equate to roughly 215 euros ($243.75) per megawatt-hour, Marzec-Manser said, nearly 20% higher than the record set in December.
Europe is in a better position than it was a few months ago after ramping up LNG imports in January and early February, according to Henning Gloesten, director of energy, climate and resources at Eurasia Group. The weather was also relatively mild.
However, there is a lot of riding around what happens next.
LNG from the United States and Qatar would help the bloc withstand any disruptions to gas flows though Ukraine, which accounts for about 10% of total supplies to the European Union, should pipelines be damaged during the fighting.
But if Moscow, which has already reduced its gas exports to Europe, decides to stifle them further in response to Western sanctions, this could dramatically escalate the situation.
“If Russia stops sending any gas to Europe, there won’t be enough LNG to deal with that,” Gloesten said.
He said that Russia is not expected to take such a drastic step as it would also harm Gazprom, but it remains a possibility given Putin’s recent aggression.
Lindsey Isaac contributed to this story.
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