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There's nothing like a regulatory standoff beset by geopolitical tension to threaten whether you freeze in your apartment in the dead of winter. Welcome to 2021 in Germany, put on your winterhandschuhe (yes, they call gloves "hand shoes").
On Tuesday, the country's energy regulator suspended the approval of the Nord Stream 2 natural gas pipeline, a Kremlin-backed project that would bring sorely needed supply to the European Union.
The Perfect Storm
The EU and Britain are severely short on energy supplies — demand shot up as pandemic restrictions lifted, while a reduced supply of gas on global markets means there's not enough to go around. At least 13 British energy suppliers and one Danish power trading company have gone bankrupt under the financial pressure. Europe's benchmark gas price rose from €16 megawatt per hour in January to €88 by late October — in other words, customers are paying 450% more in less than a year.
The Nord Stream 2 pipeline, owned by Russian state oil company Gazprom, was supposed to ease this problem by doubling the capacity Russian gas fields can pipe down the Baltic Sea. But German authorities on Tuesday insisted it set up a domestic subsidiary and has halted approval of the pipeline until all the paperwork is completed. The indefinite delay — once the new entity is set up it will take at least another four months to go through approvals — rocked markets:
- UK gas contracts set for December delivery rose 15% to £2.36 per therm following the news. (A therm is equal to 100,000 British thermal units, or BTU).
- The European benchmark gained 13% to €92 per megawatt-hour and the EU and UK contracts were at their highest level in the past month.
The Night the Lights Went Out in Glasgow: "There is a real concern potentially, if we have a cold winter, we could have rolling blackouts in Europe," Jeremy Weir, CEO of Swiss commodity trader Trafigura, told the Financial Times' Commodities Asia Summit on Tuesday.
License to Shill: Complicating matters are US and UK officials, who have variously opposed Nord Stream 2, claiming it would give Russian President and part-time Bond villain Vladimir Putin dangerous leverage over Europe.