Europe pulls the energy loop around its own neck

LONDON, December 17th (Reuters Breakingviews) – Germany has just pulled the energy loop around the neck of the European Union. The Berlin energy regulator announced on Thursday that the Nord Stream 2 gas pipeline, which runs from Russia across the Baltic Sea to its coasts, will only get the green light in the second half of 2022. The delay is likely to harm European citizens more than the Kremlin.

In an ideal world, the 1,230-kilometer Nord Stream 2 would not exist. The $ 11 billion pipeline will deliver 55 billion cubic meters of carbon-emitting natural gas to Europe annually, at a time when the block aims to cut emissions by 55% by 2030. The diversion of gas across the Baltic Sea could historically afford Ukraine some protection as a main transit route, even more vulnerable to Russian invasion. Read More And the numbers seem to support the stopping. In 2020 Russia exported 175 billion m³ to Europe. Theoretically, 146 billion cubic meters can pass through Ukraine, while pipes through Belarus and Turkey can transport another 70 billion cubic meters.

In the real world, the West Siberian gas fields and pipelines that feed the route in central Ukraine are being dismantled or shut down, according to the Oxford Institute For Energy Studies. Under Ukraine’s 2019 transit agreement with Russia, only 40 billion cubic meters will flow through the country per year by 2024. Russian President Vladimir Putin may be deliberately withholding additional supplies, but Europe is feeling the shortage.

Gas for delivery to Europe’s most important TTF price hub in the first quarter of 2022 costs 130 euros per megawatt hour, eight times as much as a year ago. The German electricity prices for the same date are four times as high as in August. If the coming winter gets particularly cold and liquefied natural gas continues to flow into Asia, prices could rise even further.

A pipeline standstill is no big deal for Gazprom. Much of the $ 105 billion worth of Russian guest Titan contracts are signed months in advance, meaning it won’t fully benefit from the increased prices until the first half of next year. The losers will be European consumers, who pay higher bills longer. JPMorgan analysts believe prices could drop 40 to 50% if German regulators allow gas to flow through Nord Stream 2 while the pipeline is certified. If Europe approves the project anyway, it can do so sooner rather than later.

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CONTEXT NEWS

– Germany’s energy regulator said on December 16 that its decision to fully certify the Nord Stream 2 gas pipeline will not be made in the first half of next year.

– “In the first half of the year (2022) there will be no decisions,” said Federal Network Agency (BNetzA) President Jochen Homann.

– The Russian Foreign Ministry hoped the Gazprom pipeline would be certified in the spring, the RIA news agency reported.

– The Federal Network Agency announced that the operating company of Nord Stream 2 had started to set up a subsidiary in Germany in accordance with German law.

– The certification process – originally planned until January 8th – was discontinued by the company in November until the German subsidiary was legally founded.

– As soon as the BNetzA has made a decision, it goes to the European Union, which then has a further two months to review it, a period that can be extended by a further two months if necessary.

– Nord Stream 2 said it started with the establishment of the subsidiary in order to comply with all rules and regulations.

– Elena Burmistrowa, the head of Gazprom Export, told Reuters it was “difficult to answer” when asked when Nord Stream 2 would start selling gas.

Editing by Peter Thal Larsen and Karen Kwok

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