The German government declared that it will suspend the certification of the Nord Stream 2 gas pipeline after Russian President Vladimir Putin announced the recognition of the self-proclaimed republics of Donetsk and Lugansk, in eastern Ukraine—a violation of the Minsk agreement. Hours after Putin’s speech, Russian troops began advancing on the new self-proclaimed republics to guarantee their independence.
The German government’s decision involves abandoning a project that transports gas from Russia’s Narva Bay to Europe through Germany across the Baltic Sea. The suspension of the Nord Stream 2 licensing comes in the midst of an energy crisis, for which the cost of energy has risen 25% in 2021.
Nord Stream 2: the gas pipeline that would replace the line crossing Ukraine
The $11 billion project runs parallel to the original gas pipeline, Nord Stream 1, and extends for more than 1,200 km in the Baltic Sea. The pipeline is made up of more than 100,000 interconnected pipes, each weighing more than 24 tons.
The pipeline was to supply more than 55 billion cubic meters of natural gas annually, enough to feed the energy consumed by 26 million households, which constitutes one-third of Europe’s energy imports at present.
Since 2016, gas shipments through the central line have been decreasing, while the flow of gas through the first line of Nord Stream increased significantly, affecting the revenue of the Ukrainian economy.
One-third of the project was financed by Russia’s state-owned gas company Gazprom, while the rest was financed by five other European companies: Engie, OMV, Uniper, Royal Dutch Shell and Wintershall DEA.
The project took two years to build, and by 2019 the pipeline was almost ready, however, concerns over Europe’s growing dependence on Russia to supply hydrocarbons have had Nord Stream 2’s licensing on hold.
Although in July 2021, Germany and the United States reached an agreement on the licensing of the pipeline, German regulators halted this process in November as tensions between Ukraine and Russia escalated.
The crisis between Russia and Ukraine has also affected the price of a barrel of oil
In recent months, the price of gas escalated, with the cost of natural gas equivalent to a $200 barrel of oil. Sanctions from Germany have also been joined by sanctions from the United States and the United Kingdom.
President Joe Biden has also issued an executive order banning future investments by any person or institution in the United States in the self-proclaimed Donetsk and Lushankan people’s republics.
“To be clear: these measures are separate from and would be in addition to the swift and severe economic measures we have been preparing in coordination with allies and partners should Russia further invade Ukraine,” White House press secretary Jen Psaki said following the announcement of the executive order.
The price of oil has also risen and could continue to rise in the coming months, as up to 48% of Russian oil exports go to Europe and specifically to refineries in Poland, Germany and the Netherlands.
Some analysts are worried about the consequences of losing Russian oil, according to Tim Kool, who wrote on the energy news portal Oilprice.com “The World Cannot Afford To Replace Russian Oil.” At present, the price of a barrel of oil is paying an extra $15 premium stemming from the crisis in Ukraine, with the price of a barrel of crude oil hovering around $100.