Germany halts Nord Stream 2 pipeline amid Ukraine crisis, increases supplies

In Europe, following the German announcement, natural gas prices rose 10% to €80, which equates to $91.65 per MWh. Oil prices – another big Russian export to Europe – rose 1.5%, with futures for Brent crude hitting a high of $99.50 a barrel, their highest level since 2014. US natural-gas prices also rose on Tuesday, although the move was less clear. in Europe. Futures rose 1.5% to about $4.50 per million British thermal units. The prices of aluminum, nickel and wheat produced in large quantities in Russia or Ukraine also rose.

Germany froze the Russian-German Nord Stream 2 gas pipeline on Tuesday, a day after Russian President Vladimir Putin recognized the independence of two Russian-controlled regions and Russian officials sent troops there as part of a peacekeeping mission. .

The submarine pipeline, which was close to operation but was awaiting the final green light from Berlin, was expected to double Russian gas exports directly to Germany. Some allies in the US and Germany have argued that the project, costing €10 billion, would serve to increase Russia’s leverage on European gas supplies. The Trump administration imposed sanctions on the project, although the Biden White House removed them. Germany has argued that the pipeline is a private, not political, effort that is vital to boosting Germany’s gas supply.

German certification was not expected until the end of this year, so Tuesday’s announcement does not affect existing gas supplies. EU chief Ursula von der Leyen said on Saturday that the bloc had secured a substantial shipment of liquefied natural gas, which, combined with existing reserves, would allow it to get through the winter.

Germany had so far backed away from threatening the project’s future in recent weeks as tensions between Moscow and the West escalated over Ukraine. German Chancellor Olaf Scholz’s decision surprised some project observers.

“Looking at what happened in the last days, there will be a new assessment of the security of our energy supply,” said Mr. Scholz.

Russian Foreign Ministry spokeswoman Maria Zakharova said the West’s stance on the pipeline was contrary to what has been described by Western countries as long-declared principles. Russian Security Council deputy chairman and former Russian President Dmitry Medvedev said any suspension of the pipeline could cause gas prices in Europe to skyrocket.

“Welcome to the brave new world where Europeans are very soon going to pay €2,000 for 1,000 cubic meters of natural gas!” He wrote on Twitter.

Traders and analysts said on Tuesday there was no blockage in the flow of Russian gas through separate pipelines into Europe. The worry, he said, is that Russia will stop gas in the coming months, now Nord Stream 2 is on hold.

In recent months, Russian state gas giant Gazprom PJSC has fulfilled its contractual commitments in Europe but did not go ahead, limiting supplies and helping to drive prices to record highs. Traders say Europe will struggle to supply enough gas before next winter if state suppliers stick to that strategy.

European gas prices began rising in the fall and are nearly five times higher than a year ago, a rally that is feeding into higher bills for consumers and companies leading to cut production in energy-intensive industries such as fertilizer and aluminum. Is. ,

Some traders geared up for retaliation by Russia, which could turn off the tap on Europe’s other pipelines. However, Mr Putin told an energy conference on Tuesday that Russia would not stop supplying gas to Europe.

Nord Stream 2 reflects Europe’s growing reliance on Russian natural gas over the past decade, as governments shut down coal-fired power stations and shut down domestic gas production amid a broader push toward renewable energy. Increasing hostilities in Ukraine – a major gas crossroads – threaten major economic losses if they cut off supplies of fuel widely used to generate electricity, heat homes and fire factories. More broadly, if European gas prices remain high, it could affect distant markets by diverting supply and pushing prices elsewhere.

Russia is the largest supplier of gas, crude oil and coal to Europe. Delivered through a vast pipeline network and on ships carrying supercooled gas, Russian gas exports met about 38% of EU demand in 2020, according to the most recent official figures.

In any military escalation by Russia, pipelines carrying Russian gas through Ukraine to Eastern Europe and beyond are the most likely flashpoints.

Yuri Vitrenko, chief executive of Ukraine’s state gas company, Naftogaz, said in the weeks before the mobilization of troops in the Ukrainian provinces of Moscow that if hostilities broke out, the government would have to cut parts or even the whole for security reasons. The network must be turned off. In a war zone, high-pressure gas pipes can cause explosions that destroy entire cities, he said in an interview.

The sanctions imposed by the West against Moscow could make it difficult to finance, pay for and transport Russian oil and gas in the coming months. President Biden on Tuesday imposed new sanctions on Russia and said he would take steps to lessen the impact of the crisis on gasoline prices. The UK froze the assets of five banks – none of them major funders of the oil and gas industry – and the EU proposed a ban on lending to the Russian government, among other measures. Lawyers say a sanctions regime is likely to evolve.

US and European officials have scrambled in recent weeks to ramp up supplies. If Russian flows are cut off, Europe could import large amounts of liquefied natural gas, or LNG, as well as fuel from pipelines connecting the continent to Norway, Azerbaijan and Algeria. It could also release gas held in a strategic stockpile in Italy.

However, analysts say that making up for the lost Russian supplies will prove impossible and will come at a heavy cost. An additional complication is the uneven distribution of LNG terminals in Europe. According to analysts at S&P Global Platts, a third of Europe’s LNG-import capacity sits in Spain and Portugal. Another 24% are in the UK

Nord Stream 2 AG, the Switzerland-based company behind the pipeline, is owned by Gazprom. In return, the Russian government owns more than 50% of the shares of the gas producer and exporter. Nord Stream 2 spokesman Jens Müller said Tuesday that the German gas regulator had not contacted the company about the suspension of the approval process. He declined to comment on Mr Scholz’s decision.

Five Western energy companies—Shell plc, France’s Engie SA, Austria’s OMV AG and Germany’s Uniper SE and Wintershall Holding GmbH—helped finance the 1,230-km pipeline. Each stumped up to €950 million, according to Nord Stream 2 AG, which did not provide further details on the nature of the funding. Four companies declined to comment on the suspension, while Wintershall did not respond to questions.