Page 5 - FSUOGM Week 08 2022

FSUOGM COMMENTARY FSUOGM

Germany pauses NS2 certification

Germany's government has withdrawn a key document needed for the certification

GERMANY THE Germany government has withdrawn a key
document needed to certify the Nord Stream 2
WHAT: gas pipeline, making it impossible to complete
Germany's chancellor has the process, AP reported on February 22.
paused the certification The document is part of a package of doc-
of Nord Stream 2. uments that allowed for the construction and
use of the pipeline. However, now that this doc-
WHY: ument has been withdrawn the package of Germany has also resisted the call to ban
He cites the current crisis documents is incomplete, making regulatory Russia from the SWIFT messaging service. That
in Ukraine. approval impossible, according to reports. remains unlikely, as analysts say that could spark
German Chancellor Olaf Scholz said that a financial crisis because the volume of money
WHAT NEXT: Nord Stream 2 cannot be certified, as “the situ- involved is so large.
Nord Stream 2 was set ation has fundamentally changed,” Interfax and
to increase Gazprom's Bloomberg reported. Market reaction muted
EBITDA by $1bn annually. The decision follows Russian President Vladimir Analysts were underwhelmed by the annouce-
Putin’s decision to recognise the breakaway repub- ment saying that it would affect the bottom line
lics of Donetsk and Luhansk on February 21. of Russia’s state owned gas behemoth Gazprom,
The Kremlin has been pushing for the cer- but not by much.
tification of the pipeline that was completed in “We view this development as negative but
September but still requires the German author- not overtly so for Gazprom. According to the
ities to give regulatory permission for it to go into company, the benefit of Nord Stream 2 is that it
operation. should bring Gazprom c. $1bn in EBITDA sav-
Kyiv has been actively lobbying against the ings per year, which is equivalent to about 2% of
pipeline which would allow Russia to by-pass our EBITDA forecast for 2021 and 2-3% of our
the country completely. Ukraine earns around forecasts until 2026. We had these savings in our
$2bn a year in transit fees from Russia – money model starting from 2024,” Sova Capital said in
it desperately needs. a note.
Following Russia’s recognition of Ukraine’s “If approved, Nord Stream 2 would have
breakaway republics Ukrainian President Volod- likely faced capacity restraints anyway, as the
ymyr Zelenskiy repeated his calls to the interna- OPAL pipeline (Nord Stream’s onshore pipe-
tional community to immediately impose harsh line) is operating at limited capacity due to an
sanctions. EU decision. This means it used EUGAL (Nord
He said that Kyiv believes that Russia is try- Stream 2’s offtake pipeline) to keep Nord Stream
ing to create a legal basis for further aggression operating at full capacity, according to our
against Ukraine. "Sanctions should include a understanding,” Sova Capital’s analst Mitch Jen-
complete shutdown of Nord Stream 2," Zelen- nings added.
skiy added. Taking Nord Stream 2 offline permanently
Chancellor Angela Merkel oversaw the con- will also not affect Gazprom’s trade with Europe
struction of the pipeline, which she said was as there is plenty of spare capacity via the
an “economic project” and not political. While Ukraine to export the 200bcm to Europe per
the shutting down of the pipeline has long been year that Russia sells to Europe.
discussed as a possible sanction, analysts had “However, if Ukraine, with which Gazprom
assumed that it would be one of the last and more has a prepayment contract, were taken out of the
severe sanctions to be imposed, not the first. equation, we calculate total capacity via other
According to previous remarks, Nord Stream routes to Europe at 190bcm per year, based on
2 was to be shuttered if there was a full-scale Gazprom data. The issue, however, could be
invasion of Ukraine by Russia. The Kremlin moving gas around continental Europe if there
ordered peacekeepers into the Donbas yester- were no supplies to Hungary and Slovakia via
day as part of Putin’s decision, which is not an Ukraine,” says Sova Capital.
invasion, but it was the first time that the Krem- Russia is not expected to retaliate by cutting
lin has openly moved its servicemen into what is or squeezing gas supplies to Europe to punish the
still considered to be Ukrainian territory by the German decision. Since the busienss was estab-
rest of the world. lished in the 1970s Gazprom has been at pains to
The EU and US are considering their portray itself as a reliable energy supplier. Even
response to Putin’s decision and more sanctions after Scholz annoucement, President Vladimir
are expected to be announced today, including Putin said later the same day that Russia would
possible sanctions on Russia’s financial system continue its uninterrupted supply of gas to the
and its ability to issue bonds. international market, Interfax reported. ™

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