Germany Halts Russia's Nord Stream 2 in Response To Moves Against Ukraine

The pipeline project was completed in September but whether it will flow is now as uncertain as ever as both Germany and the US seek to shut the project down.

The Nord Stream pipeline originates in Vyborg near the Russian/Finnish border while Nord Stream 2 enters the Baltic Sea at Ust-Luga near the Estonian border. The two lines meet in Germany at Greifswald.
Source: Gazprom.

The future of the $11-billion Nord Stream 2 pipeline is once again facing peril after German Chancellor Olaf Scholz ordered a halt to the final certification process.

"That sounds technical, but it is the necessary administrative step so there can be no certification of the pipeline and without this certification, Nord Stream 2 cannot begin operating," Scholz said at a press conference in Berlin on 22 February.

He explained that the decision to stall the pipeline indefinitely is a response to Russia’s recognition of two self-proclaimed republics in eastern Ukraine—a move that has been met with wide international condemnation. Scholz has also directed Germany’s ministry of economics to begin reassessing alternatives to securing the nation’s energy supply.

Russia’s majority state-owned gas producer Gazprom is the operator of Nord Stream 2. Its partners include Germany’s Uniper, BASF’s Wintershall Dea, Shell, Austria’s OMV, and French energy company Engie.

Immediate market reactions to the halting of Nord Stream 2 included a 10% jump in European spot gas prices. Natural gas represents about a quarter of Germany’s net energy use, with about half sourced from Russia. This makes Germany the biggest international consumer of Russian gas.

Completed in September, the 1230-km subsea pipeline project was designed to supply European markets with 55 billion m3/D (5.3 Bcf/D) of Russian gas. With the first Nord Stream pipeline having an identical capacity, Nord Stream 2 has the potential to double Russia’s gas export capacity to Germany via the Baltic Sea.

Because of its ability to feed gas-hungry Europe, Nord Stream 2 has been referred to by commentators as a “geopolitical prize” for Russian President Vladimir Putin. As such, the pipeline has been the target of international scrutiny ever since the first section of pipeline was laid down in 2018. The following year, the US Senate approved a bipartisan defense spending bill that included sanctions aimed at limiting which service providers could work on the pipeline project.

Some of those sanctions were waived in May 2021 by US President Joe Biden. Though he publicly opposes the Nord Stream 2 project, the waivers eased the pipeline's completion and were considered to be a gesture of goodwill meant to improve US-German relations.

The German government was initially critical of the US sanctions that slowed the progress of the Nord Stream 2 pipeline. However, the deepening crisis in Ukraine has changed the calculus.

Speaking last week to CNBC at the Munich Security Conference, Germany’s Scholz suggested that both the EU and the US are too reliant on Russian energy sources. “So, we all have to work very hard to produce a situation where we have alternatives,” he said.

Scholz added in the interview that his government is working to ensure Russian gas shipments continue to flow through Ukraine.

With the completion of the Nord Stream 2, it was estimated that Ukraine stood to lose almost $3 billion in annual transit fees for the Russian gas to meet European markets. Ukraine holds a gas-transit agreement with Russia that expires in 2 years.

Dmitry Medvedev, the former president and prime minister of Russia who now sits on the Kremlin’s security council, took to Twitter to issue his response to the German chancellor’s decision: “Welcome to the brave new world where Europeans are very soon going to pay €2.000 for 1.000 cubic meters of natural gas!”

In the weeks leading up to its recognition of the independence of two breakaway regions, Russia positioned an estimated 190,000 soldiers around Ukraine’s borders.

US officials have remained steadfast in their prediction that a full-scale Russian invasion of Ukraine could come at any time. More sanctions against Russia and its energy companies are expected if that happens.

Update: Following Germany's move to block the Nord Stream 2 certification, the White House announced on 23 February new sanctions targeted at its builder and operator, Nord Stream 2 AG. The firm is a subsidiary of Gazprom and the sanctions include the corporate officers of Nord Stream 2 AG.

"Through his actions, President Putin has provided the world with an overwhelming incentive to move away from Russian gas and to other forms of energy," US President Biden said in a prepared statement.

Sign up for the JPT Weekly Newsletter to stay updated on the latest in the E&P industry.