Price of European gas surges as Russia pipeline suffers setbacks

European gas prices surged again on Wednesday after a delay in the approval process for a major new pipeline from Russia, which German government sources said might not now be commissioned until March next year.

Germany’s energy regulator suspended the process for getting the Nord Stream 2 pipeline up and running on Tuesday, dimming hopes that it will provide any significant gas supplies to Europe in the crucial winter months.

Delays in the approval process have raised fears that Europe, which gets a third of its gas from Russia, could face power outages due to low supplies.

Nord Stream 2 has faced stiff opposition from the United States and some European states, which say it will make Europe too reliant on Russia for gas.

But other European governments say the new link is vital to secure energy supplies, with higher prices already ramping up inflation rates. On Wednesday the price of gas next month in the Netherlands, considered a benchmark for Europe, jumped 8% to 101.60 euros per megawatt-hour (MWh).

The contract has risen almost 60% in November, although it is still well below a 155 euro peak on Oct. 6.

“I expect that the start of Nord Stream 2 could be delayed until March 2022,” one German government source told Reuters.

The German-Eastern Business Association said it trusted the regulator’s independence even if it regretted that the decision would cause delays. The group added that it was in the interests of European gas customers as well as the pipeline operator that the project was “legally unassailable and can deliver energy to Europe reliably and safely”.

The price of gas at the beginning of next year also rose, with the market not now expecting any major flows through Nord Stream 2 until late in the winter heating season, by which time demand may have already peaked.

The Dutch contract for gas in January leapt 7.8% to 101.61 euros per MWh, while the British wholesale gas price contract for the first three months of 2022 surged almost 12% to 2.45 pounds per therm.

Some analysts said the certification process could drag on for months because Brussels will still need to give it the green light once German regulators have made their recommendations.

“We now estimate that the certification can only be completed around April next year at the earliest, with ample potential for an extension through to August 2022, given the likelihood of an even more stringent evaluation at the next review stage of the European Commission,” Rystad Energy’s gas markets analyst Zongqiang Luo said.

Inflation

Europe’s governments are scrambling to soften the blow for consumers and businesses with measures such as price caps and subsidies.

Higher energy prices in Europe and around the world are already feeding through to inflation, which may in turn push policymakers to raise interest rates sooner than expected.

Data published on Wednesday showed inflation rates in both the European Union jumped above 4% in October, more than double central bank targets, with gas prices paid by British consumers, for example, sky-rocketing 28%.

Gas prices in Europe were also buoyed by a decline in exports this week from Norway, another key supplier to Britain and the EU, due to maintenance work on its infrastructure.

Germany’s energy regulator said it had halted the certification of Nord Stream 2 because the Swiss-based consortium behind the pipeline needed to form a German subsidiary under German law to secure an operating licence.

In its first comments since news of the delay, the Kremlin said certification was a “complicated process” and that it did not see politics behind the decision.

Spokesperson Dmitry Peskov said the consortium deals with requests from the German regulator in a timely fashion and Russia must be patient.

Interfax quoted Russian Foreign Ministry spokesperson Maria Zakharova as saying that Moscow expects no change to the deadline for the certification process.

Meanwhile, Russian gas flows through the Yamal-Europe pipeline to Germany were steady and above levels at the weekend, data from German network operator Gascade showed.

The pipeline, which runs through Belarus, which is in the midst of a migrant crisis and a stand-off with the West, is one of the major routes for Russian gas exports to Europe.

Adding to concerns about possible interruptions of gas exports from Russia, Belarusian leader Alexander Lukashenko has warned that he may shut the pipeline in a row with the EU.

Flows through the Yamal-Europe pipeline into Germany at the Mallnow metering point on the Polish border were running at an hourly volume of over 12,500,000 kilowatt-hours (kWh) on Wednesday, roughly the same as Tuesday, the data showed.

[Reuters]