Policy & Regulation

14 Dec 2021

Germany’s New Chancellor May Let Red Tape Delay Nord Stream 2 Start

14 Dec 2021  by Bloomberg News   

German Chancellor Olaf Scholz, under pressure from the U.S. to halt the Nord Stream 2 pipeline project over Russian aggression toward Ukraine, may quietly delegate the task to the country’s bureaucracy.

Before gas can flow through the pipeline at the bottom of the Baltic Sea, Germany’s regulator and the EU Commission, two institutions not known for their speed, have to give the green light. Certification from Germany’s Bundesnetzagentur, or Federal Network Agency, must undergo EU scrutiny before a final sign off by Germany -- a back-and-forth that could take six to eight months.

The approval clock stopped in mid-November, though, when the network agency froze the process to allow pipeline operator Nord Stream 2 AG, owned by Russia’s Gazprom PJSC, to set up a German company to comply with local and EU regulations. The decision sent European natural gas prices soaring, an indication of how much Europe is betting on the potential for greater Russian supplies. Nord Stream 2 is slated to double the capacity of the existing undersea route from Russian gas fields to Europe.

The process, which started in September, can only resume once Gazprom brings its Nord Stream 2 operations into compliance. The German agency has so far had no indication when the necessary documents will arrive, a spokesman said.

Scholz, a lawyer and a 40-year veteran of German politics, knows how slowly the wheels of the country’s bureaucracy can turn. For Nord Stream 2, this may work to his advantage: the longer the certification takes, the less pressure he’ll feel to intervene on the political side.

U.S. intelligence calculates that Russia could invade Ukraine with as many as 175,000 troops in early 2022, possibly at the end of January -- or several months before the Bundesnetzagentur is expected to have completed its deliberations.

That’s given Scholz, in just his first week in office, some breathing room. And like Angela Merkel, whose tactics he studied for years, Scholz is known for his ability to not cave in to pressure.

A German government official denied U.S. claims that Berlin has signaled to Washington it would halt Nord Stream 2 if Russian President Vladimir Putin invades Ukraine. There’s no need for such a assurance at this point, the official said, under the condition of anonymity because the talks are confidential: as long as the fate of the pipeline lies with the regulators, Scholz’s government has no mechanism to intervene.

It’s not the first time the U.S. has tried to exert pressure on Germany over Nord Stream 2. But since the conflict between Washington and Berlin was resolved in July, there’s been a sense that the Biden administration may look for another way -- such as the current Ukraine crisis -- to kill the project once and for all, the official said.

President Joe Biden’s facing bipartisan criticism for waiving sanctions on the pipeline’s parent earlier this year. Lawmakers continue to call on Biden to sanction the pipeline, especially given Russia’s troop buildup.

Biden and Scholz spoke on Friday. U.S. Treasury Secretary Janet Yellen also spoke with Germany’s new finance minister, Christian Lindner, about ways the U.S. could “impose severe costs on Russia’s economy” should tensions between Ukraine and Russia worsen.

While Transatlantic relations have thawed compared with the Trump era, pressure points remain, feeding into the view in Berlin that Germany must first and foremost look after its own interests.

Here, too, Scholz is in line with his predecessor. As vice chancellor, he witnessed Merkel’s lengthy struggle with the U.S. over Nord Stream 2.

There’s no indication so far that Scholz will break with Merkel’s position. In fact, while some in Merkel’s Christian Democratic party had qualms about the pipeline, Scholz’s Social Democrats almost unequivocally support it.

One wild card, though, is the Green Party, the second biggest partner in Scholz’s three-way coalition. In the past, Green co-leader Annalena Baerbock called for an end to Nord Stream 2 -- but since becoming Germany’s first female foreign minister she’s been mostly silent on the subject.

Surveys have shown most Germans approve of the pipeline, but that supporters of the Greens are the least enthusiastic.

The other Green co-leader, Robert Habeck, has recently suggested the situation in Ukraine should be part of the certification considerations -- something officials in the economy ministry he now leads reject.

Adding further drama, Scholz has a long history with the country’s biggest Nord Stream 2 backer, Gerhard Schroeder of Scholz’s own SPD -- Germany’s chancellor before the Merkel era.

Today, Schroeder is chairman of the Russian state oil company Rosneft and of Nord Stream AG, and a personal friend of Putin -- but still takes deep interest in his former party ally.

He watched from the VIP gallery in the Bundestag as Scholz took the oath of office on Dec. 8. Later, the 77-year-old gave TV interviews where he defended Nord Stream 2 and praised Scholz for his “patience and determination.”

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