© Reuters. FILE PHOTO: Workers are seen at the construction site of the Nord Stream 2 gas pipeline, near the town of Kingisepp, Leningrad region, Russia, June 5, 2019. REUTERS/Anton Vaganov/File Photo
By Sarah Marsh and Madeline Chambers
BERLIN (Reuters) -Germany on Tuesday halted the Nord Stream 2 Baltic Sea gas pipeline project, designed to double the flow of Russian gas direct to Germany, after Russia formally recognised two breakaway regions in eastern Ukraine.
Europe’s most divisive energy project, worth $11 billion, was finished in September, but has stood idle pending certification by Germany and the European Union.
The pipeline had been set to ease the pressure on European consumers facing record energy prices amid a wider post-pandemic cost of living crisis, and on governments that have already forked out billions to try to cushion the impact on consumers.
But on Tuesday the European benchmark gas price, currently the Dutch March contract, was up 9.2% to 78.50 euros per megawatt hour (MWh) at 1337 GMT.
Dmitry Medvedev, Russia’s former president and now deputy chairman of its Security Council, tried to rub salt in that wound.
“Welcome to the new world where Europeans will pay 2,000 euros for gas!” he said, according to the news agency RIA.
Germany obtains half its gas from Russia and had argued that Nord Stream 2 was primarily a commercial project to diversify energy supplies for Europe.
But despite the potential benefits, it had faced opposition within the European Union and from the United States on the grounds that it would increase Europe’s energy dependence on Russia as well as denying transit fees to Ukraine, host to another Russian gas pipeline, and making it more vulnerable to Russian invasion.
“This a huge change for German foreign policy with massive implications for energy security and Berlin’s broader position towards Moscow,” said Marcel Dirsus, non-resident fellow at Kiel University’s Institute for Security Policy.
“It suggests that Germany is actually serious about imposing tough costs on Russia.”
Ukrainian Foreign Minister Dmytro Kuleba tweeted his approval.
“This is a morally, politically and practically correct step in the current circumstances,” he said. “True leadership means tough decisions in difficult times. Germany’s move proves just that.”
Chancellor Olaf Scholz said he had asked the economy ministry to make sure certification could not take place at the moment.
“The appropriate departments … will make a new assessment of the security of our supply in light of what has changed in last few days,” he said.
Economy Minister Robert Habeck said Germany’s gas supply was secured even without Nord Stream 2.
But he told journalists in Duesseldorf that gas prices were indeed likely to rise further in the short term.
The Federal Network Agency – which regulates Germany’s electricity, gas, telecommunications, post and railway sectors – suspended the certification process in November, saying Nord Stream 2 must register a legal entity in Germany.
Analysts had expected it to pick up the procedure in mid-year after the operator did as requested.
But the regulator said on Tuesday that the required positive assessment by the economy ministry was no longer available. The Nord Stream 2 operating company said it was waiting to be properly notified of the halt.
Germany blocks Nord Stream 2 gas project as Ukraine crisis deepens