In the midst of a natural gas supply crisis, the Federal Network Agency suspends certification of Nord Stream 2. US Liquefied gas deliveries in decline. Moscow develops alternatives to gas sales to EU.
In the midst of the current natural gas supply crisis, Germany's Federal Network Agency (FNA) has suspended its certification process for the Nord Stream 2 pipeline, delaying its commissioning at least until well into the coming year. The reason given by the FNA yesterday is that Nord Stream 2 is based in Switzerland, not in Germany. A specially planned German-based branch of the company, responsible for the operation of the German sector of the pipeline, must first receive all its assets, before the certification can proceed. Yesterday's announcement has skyrocketed natural gas prices. Germany and the EU are suffering under a natural gas supply shortage, due particularly to a clear decline in the supply of liquefied gas in comparison to 2020: Currently more lucrative profits can be made in Eastern Asia than in Europe. Particularly the importation of US liquefied gas ("freedom gas") has declined. Moscow, which is helping Europe to overcome its gas shortage is, however, also developing, in light of the harassment, such as with Nord Stream 2, alterative markets - particularly in China.
Yesterday, Germany's Federal Network Agency (FNA) temporarily suspended the certification procedure of the Nord Stream 2 pipeline, giving formal objections as the reason. According to the statement, the FNA is of the opinion that a natural gas pipeline can only be certified, if the operator is an organization registered in Germany. The Nord Stream 2 AG is based in Switzerland. The operating company is in the process of creating a firm under German law, to own the German section of the pipeline. However, according to the FNA, the transfer of assets and personnel to the new company must be completed before the certification process can resume. Because the pipeline cannot be put into operation without a certification, the export of this raw material through the pipeline, completed in September, will again be postponed. This is even more the case, given the fact that following the completion of the German certification process, it will be submitted to an examination by the EU Commission, which, could take another four months.
Natural Gas Shortage
The FNA's decision comes in the midst of a natural gas crisis, which has several causes. Gas consumption in East Asia has risen rapidly, on the one hand, due to the industry's rapid recovery following the first wave of the Covid-19 pandemic, and on the other, due to China’s growing conversion from coal to natural gas energy. The higher demand has significantly increased prices in East Asia, thereby attracting liquefied gas exporters mainly to that region. At the same time, due to an extremely cold phase in a prolonged winter, last spring, the natural gas storage facilities were to a large extent exhausted. Because of the high gas prices, Germany's natural gas suppliers hesitated with refilling their storage facilities, in the hopes that prices would drop. Consequently, at the beginning of November, they were not, as is customary at this time of the year, refilled to at least 90 percent capacity, but rather to little more than 70 percent. Experts are not excluding serious supply bottlenecks, should the coming winter be colder than usual.
Specialist publications show that - contrary to what politicians and media reports allege - these supply difficulties were not caused by Russia. In fact, Germany and the EU main natural gas supplier, Russia's Gazprom, was able to again increase its exports to Europe, during the first semester of 2021 to the level of the first semester 2019, even though the company - like the entire industry - had been forced to reduce production in 2020, due to the pandemic. This has been confirmed in statistics published by the renowned Oxford Institute for Energy Studies (OIES). Not everyone had managed to do as well. For example, during the first semester of 2021, the natural gas exports from Norway and Great Britain to other European countries remained below their 2019 levels. Exports from the Netherlands are in any case diminishing, because the country is phasing out natural gas production. Europe’s import of liquefied natural gas has particularly shrunk. According to OIES statistics, in the period from January to September 2021, 65 billion m³ had been imported - a drop of around 10.8 billion m³ in comparison to the same period in 2020.
The Call of Money
The main reason for this is the significant decline in the deliveries of US liquefied gas. The USA has dramatically increased its production of liquefied gas and nearly doubled its export capacities from 2019 to 2021, according to the OIES statistics, from 55 - 97 billion m³ annually. However, the lion's share is delivered to Eastern Asia, where the highest prices can currently be obtained. US companies are also exporting significantly more to South America. Liquefied natural gas exports to Europe, on the other hand, have significantly slumped. During the first semester of 2021, they declined by nearly 16 percent, in comparison to the same period the previous year.
Currently, it is primarily Russia that is contributing toward plugging Europe's supply gap., For example, once Gazprom had refilled Russia’s gas storage facilities by November - in the course of the year they too were nearly exhausted - it significantly increased its supply to Europe. According to its own statistics, its exports were expanded by around 14 percent in the second week of November, compared to the previous week. Gazprom declares its willingness, in principle, to increase exports, but wants to conclude long-term and, therefore, more reliable supply contracts. The company's willingness to make concessions to Germany and the EU is hardly likely to be bolstered by the FNA's decision to again delay Nord Stream 2's certification. An implicit threat - to ruin a major project, worth tens of billions of euros, after it is completed and just before its commissioning, is in no way liable to enhance the cooperative willingness of the aggrieved party.
Ways out of Dependence
Especially given the fact that Russia’s natural gas industry is having growing success in finding sales alternatives to the European market. For decades, Russia's existing pipeline network was largely focused on selling its natural gas to Europe. On the one hand, the country has also developed a booming liquefied gas production. In 2020 it joined the "Big 4" of the industry (alongside the USA, Qatar, and Australia) and continues to expand its production. In addition, Gazprom is expanding its gas pipelines to China. An initial ("Power of Siberia") pipeline is rapidly supplying growing quantities of gas to the People's Republic of China. A second ("Power of Siberia 2") is in planning. Experts are already speculating that the latter, unlike "Power of Siberia," could tap the same gas fields as the pipelines serving Europe. This gives Russia new leverage to "switch from one market to the other," according to a recent analysis of the European Council on Foreign Relations (ECFR). Gazprom would then no longer have to endure such harassment as in the case of the Nord Stream 2. Germany and the EU, on the other hand, would be highly dependent on US liquefied natural gas, which this year has proven unreliable.
 Verzögerung von Nord Stream 2 lässt Gaspreise steigen. faz.net 16.11.2021.
 Gaspreis auf Berg- und Talfahrt. sueddeutsche.de 01.11.2021.
 Vitaly Yermakov: Big Bounce: Russian gas amid market tightness. Key Takeaways for 2021 and Beyond. The Oxford Institute for Energy Studies. September 2021.
 Quarterly Gas Review: Short- and Medium-Term Outlook for Gas Markets. The Oxford Institute for Energy Studies. October 2021.
 US supplies of LNG to Europe have not been stable for two years, says Gazprom Export. tass.com 24.09.2021.
 Actual gas supplies for EU. gazprom.com.
 Filip Medunic: Russia's 'gas pivot' to Asia: How Europe can protect itself and pursue the green transition. ecfr.eu 27.10.2021.