Germany’s energy market regulator announced on Nov. 16 that it has suspended the certification process for a major new pipeline connecting the country and Russia, after ruling that its operator within Germany doesn’t comply with conditions set by German law.
The Bundesnetzagentur said it temporarily halted the certification process because the Swiss company behind Nord Stream 2 had decided not to turn itself into a German company, but had instead created a subsidiary under German law to deal with the section of the pipeline on German territory.
The Swiss-based consortium first needs to form a German subsidiary company under German law to secure an operating license, the regulator said.
“Nord Stream 2 AG, which is based in Zug (Switzerland), has decided not to transform its existing legal form but instead to found a subsidiary under German law solely to govern the German part of the pipeline. This subsidiary is to become the owner and operator of the German part of the pipeline. The subsidiary must then fulfil the requirements of an independent transmission operator as set out in the German Energy Industry Act,” the regulator said in a statement.
“Following a thorough examination of the documentation, the Bundesnetzagentur concluded that it would only be possible to certify an operator of the Nord Stream 2 pipeline if that operator was organised in a legal form under German law.”
The construction of Nord Stream 2, which stretches about 760 miles through the Baltic Sea from Russia to Germany, began in 2018, and by 2019, it was complete in Russian, Finnish, and Swedish waters, with the majority of the work also complete in German and Danish waters.
However, pipe-laying was suspended in December 2019 due to the threat of U.S. sanctions against individuals and firms backing the construction of the natural gas pipeline. The sanctions were later described by the European Commission as a breach of international law, and the laying of the pipeline was eventually continued. In early September, construction was completed.
In August, U.S. authorities announced sanctions on one Russian vessel and two Russians involved in the pipeline, which the Biden administration opposes, fearing it could be exploited by Moscow to weaponize energy deliveries against European allies.
The Bundesnetzagentur said on Nov. 16 that the certification procedure will remain suspended until “the main assets and human resources have been transferred to the subsidiary and the Bundesnetzagentur is able to check whether the documentation resubmitted by the subsidiary, as the new applicant, is complete.”
Only once those requirements have been fulfilled will the Bundesnetzagentur be able to resume its examination “in the remainder of the four-month period set out in law, produce a draft decision and deliver it to the European Commission for an opinion, as provided for in the EU legislation on the internal market.”
The Federal Ministry for Economic Affairs and Energy (BMWi) and the European Commission were informed of the energy regulator’s decision in advance, the Bundesnetzagentur said.
The announcement has subsequently driven up the price of regional natural gas.
European prices jumped following the announcement on Nov. 16.
The controversial $11 billion pipeline is a joint project involving five major companies: Gazprom international projects LLC (PJSC Gazprom subsidiary), Wintershall Dea AG, PEG Infrastruktur AG (E.ON), N.V. Nederlandse Gasunie, and ENGIE.
The pipeline would double Nord Stream’s capacity to ship Russian Arctic natural gas to Germany; it’s opposed by Ukraine over fears it could be used by Russia as a weapon against it.
Relations between Ukraine and Russia collapsed after Moscow’s annexation of Crimea in 2014 and support for separatist forces battling Ukrainian troops in the eastern part of the country. Kyiv is also concerned about losing fees that it benefits from as a transit point for Russian gas flowing to Europe, which Moscow has denied.
Meanwhile, the United States and some countries in Europe fear that the pipeline will make Europe too reliant on Russian gas.
The head of the Ukrainian energy firm Naftogaz said that he welcomed the German energy regulator’s decision.
“Good,” Yuriy Vitrenko said. “This is an important point, which suggests that the German regulator shares our position that certification cannot only apply to the pipeline in Germany, but should apply to the entire pipeline from the territory of the Russian Federation to the territory of Germany.”
Reuters contributed to this report.