Germany says Nord Stream 2 gas pipeline certification cannot now go ahead

German Chancellor Olaf Scholz said Feb. 22 that the Nord Stream 2 gas pipeline from Russia could not now be certified after Russian President Vladimir Putin late Feb. 21 publicly recognized eastern Ukraine's Donetsk and Luhansk regions as breakaway states.

Halting the certification process means the 55 Bcm/year pipeline -- which was completed in September -- will be unable to begin commercial operations.

"We now have to reassess this dramatically changed situation -- this also applies to Nord Stream 2," Scholz wrote on Twitter in response to the latest developments on Ukraine.

"I have asked the economy ministry to re-analyze [our] security of supply. The certification cannot take place now," he said.

Speaking at a press conference in Dusseldorf Feb. 22, German economy minister Robert Habeck confirmed the decision, saying Putin had violated international law.

"Our support for Ukraine cannot be in question," Habeck said. "Therefore we have withdrawn our request to the [German regulator] on a review of security of supply requirements for Nord Stream 2," he said.

"This report is a pre-condition for certification of Nord Stream 2."

Habeck also said the move by Putin would result in sanctions to be coordinated between the EU and the US.

A spokesperson for Nord Stream 2 AG said the company had taken note of the reports citing Scholz on the suspension of the certification procedure. "We cannot comment on this news reporting and have to wait for appropriate information from the authorities," the spokesperson said.

Neither Russia's Gazprom -- 100% owner of Nord Stream 2 AG -- nor the Russian energy ministry could be reached for immediate comment.

However, former Russian president Dmitry Medvedev, now deputy head of Russia's Security Council, wrote on Twitter: "German Chancellor Olaf Scholz has instructed to stop the certification of the Nord Stream 2 gas pipeline. Well. Welcome to a new world where Europeans will soon pay 2,000 euros for a thousand cubic meters of gas!" Medvedev wrote.

High prices

S&P Global Platts Analytics said it expected lower Russian gas flows to Europe as a result of the decision to halt the certification process.

"With Germany freezing the approval process for Nord Stream 2, S&P Global Platts Analytics is removing the pipeline from our forecast, previously assumed to start up in October 2022, and hence reducing our assumption for Russian gas flows to Europe," Platts Analytics' managing analyst James Huckstepp said.

"This will lead to an increase in Platts Analytics global gas and LNG price forecasts over the next two years, with reverberations across the wider commodity complex, including power, coal, and oil," Huckstepp said.

The protracted certification process for Nord Stream 2 has been a significant contributor to the recent gas price strength in Europe.

The Kremlin has repeatedly said that approval of Nord Stream 2 and gas flows through the new pipeline would help ease the tightness in the European gas market.

Market observers have also suggested that Russia was withholding gas from Europe in an attempt to secure approval from the project.

Russia and state-controlled Gazprom have repeatedly denied deliberately causing shortages of gas on the European market despite flows being well down on recent years, storage levels at Gazprom's own sites in Europe being very low and no spot sales since October on its own Electronic Sales Platform.

The TTF day-ahead price hit an all-time high of Eur182.78/MWh on Dec. 21, an increase of 985% year on year, according to S&P Global Platts assessments.

The TTF day-ahead was assessed on Feb. 21 at Eur71.60/MWh, but prices surged again on Feb. 22 after Putin's recognition of the Donetsk and Luhansk regions as breakaway states and Scholz's comments on Nord Stream 2.

Ministry analysis

The German economy ministry's first security of supply report -- required in the certification process -- was submitted to the German regulator in October in which it was stated that Nord Stream 2 would not affect Germany's security of supply.

"Geopolitics have changed that assessment in my view," Habeck said Feb. 22.

The ministry was required under German law to examine the supply security implications of the potential certification of Nord Stream 2 as an independent transmission operator as part of the certification process.

In its October report, it said it had come to the conclusion that "the issuing of a certification does not endanger the security of gas supply to Germany and the EU."

The ministry added that its analysis was preceded by consultations with neighboring EU states, which were also included in the analysis.

The process for certifying the operator of Nord Stream 2 was suspended in mid-November after the regulator asked the Switzerland-based company to set up a German subsidiary and transfer assets to the new unit in order to comply with German law.

Nord Stream 2 said on Jan. 26 that it had founded the new German subsidiary -- Gas for Europe GmbH -- which was to become the owner and operator of the 54-km section of the pipeline located in German territorial waters.

Under the amended EU Gas Directive, which came into force in May 2019, new non-EU gas pipelines must comply with regulatory requirements on ownership unbundling, third-party access and tariff transparency.

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