How Nord Stream 2 got stuck because of Russia, Ukraine

The newly completed Nord Stream 2 pipeline under the Baltic Sea has come tantalisingly close to being able to pump billions of cubic metres of Russian gas to the European Union. The link between Russia and Germany runs parallel to the existing Nord Stream pipeline that’s been fully operational since 2012 and has a ready-made market. But its startup was already delayed by earlier US efforts to block its completion, and now Russia’s recognition of two separatist republics in eastern Ukraine has further stalled the project, putting approval on ice as Europe prepares new sanctions aimed at Russia.

1. What’s suspended it for now?

German Chancellor Olaf Scholz said Russian President Vladimir Putin’s recognition of the breakaway republics in Ukraine had materially changed the situation so that “no certification of the pipeline can happen right now.” Without it, he told reporters, the gas link “cannot go into operation.” Scholz effectively froze the approval process by having the Economy Ministry withdraw its assessment that the project does not pose a threat to security of supply. Economy Minister Robert Habeck, a co-leader of Germany’s Green party, which has been a vocal opponent of the pipe, said that the political conflict between Russia and the Ukraine will be taken into account in reevaluating energy security.

2. Is this separate from sanctions?

“It is not a sanction in the classic sense, it is a political decision that Nord Stream 2 cannot come,” Habeck told Deutschlandfunk radio in an interview on Feb 23. “I say explicitly that this can still happen depending on developments in the war between Russia and Ukraine.” The EU separately proposed a package of sanctions on Russia for its moves relating to the Donetsk and Luhansk regions of Ukraine, targeting those behind the decision, as well as banks that finance Russian operations in the territories. Member states need to approve those measures for them to take effect. Scholz has said that should Russia take further steps on Ukraine, Germany and the EU could apply more penalties.

3. What was holding it up before?

Russian gas producer Gazprom PJSC needed to restructure its Nord Stream 2 operations to comply with the requirements of the German energy watchdog BNetzA and EU law. Only then would the intricate approval process, which started in September and was suspended in mid-November, be able to resume. The German regulator would have as long as four months to reach a preliminary conclusion and the EU, which has a more advisory role, could take another two to four months to express its opinion. BNetzA then would have a further two months to make a final ruling. Its president, Jochen Homann, already said in December that a decision would not be made in the first half of 2022.

4. Why was Nord Stream 2 certification halted earlier?

The approval process was first halted at the end of 2021 as the German energy regulator asked the pipeline operator, a Swiss company, to set up an entity in the country to comply with EU regulations. The company has now set up Gas for Europe GmbH, but it still needs to transfer the main assets and human resources to the Schwerin-based unit. BNetzA suspended its review until the new entity was established and could prove it met all the legal requirements.

5. When could the regulator resume deliberations?

If the German government rescinds its objection at some point, then once the new unit submits the application documents to BNetzA, the watchdog could pick up the approval process from where it left off. Since the regulator has already been considering the Nord Stream 2 case for just over two months, it would have a similar amount of time left to complete the study before the European Commission, the EU’s executive arm, starts its own review. The German regulator is obliged to take into “utmost account” the opinion voiced by the Commission, but is not required to follow it entirely.