Germany’s energy regulator said it had “temporarily suspended” certification of the Nord Stream 2 pipeline, defeating the Kremlin-backed gas project and pushing gas prices up in the UK and mainland Europe .
The regulator said it could not yet approve the project, led by Russian Gazprom, because its owners had not yet properly set up an operational subsidiary in accordance with German law.
The suspension comes at a critical time for European gas supplies, with prices soaring across the continent. Gazprom has been accused by some countries of restricting exports to Western Europe in order to increase pressure on Germany and speed up approval of the project.
UK gas contracts for December delivery rose nearly 10% to £ 2.24 per therm on the news while the European benchmark gained 8% to € 87.80 per megawatt hour, with both contracts trading near their highest level of last month.
The Switzerland-based Nord Stream 2 project created a German subsidiary to own and operate the German section of the pipeline. This unit “must then meet the requirements of the Energy Industry Act for an independent transmission system operator,” said the regulator on Tuesday.
“The certification process remains suspended,” said the regulator. He said that Nord Stream 2 would be able to continue with certification within the four-month deadline set by law.
Nord Stream 2 would send 55 billion cubic meters of gas per year under the Baltic Sea, allowing Kremlin-controlled gas exporter Gazprom to reach customers in Germany and elsewhere in Europe without using pipelines crossing Ukraine.
Gas traders are looking for signs that Russia will increase its exports to Western Europe, but have seen only fragmentary increases in recent weeks, with flows well below the level of a year ago.
Russian President Vladimir Putin has always linked the increase in exports to the approval of the Nord Stream 2 pipeline. Any delay is likely to increase fears that Russian flows will remain at relatively low levels this winter.
“Any remaining hopes that this pipeline would be available for the winter are now completely dashed,” said James Waddell of Energy Aspects, a consulting firm. “More and more, it looks like it might not start until the second half of next year.”
“The lack of gas in storage and the lack of Russian supplies mean that we must essentially reduce industrial demand in order to preserve essential gas supplies for the electricity and heat networks. Europe needs to sharply reduce demand for industrial gas in a way we have not seen in decades.
Waddell said Russia could increase supplies to Western Europe via the Ukrainian pipeline system that Russia has relied on since Soviet times, but said this was unlikely given the insistence of Moscow on the fact that Nord Stream 2 is the key to boosting exports.
Ukrainian officials have warned that they believe Russia is in fact blackmailing Europe by restricting gas supplies, and that reducing its dependence on Ukraine could make it easier for Moscow to launch an invasion.
British Prime Minister Boris Johnson warned on Monday that the EU faces “a choice” between “defending Ukraine” and approving the Nord Stream 2 pipeline.