The move is the latest setback for the 10-billion-euro project ($12 billion), which has been dogged by delays and become a geopolitical hot potato.
The Baltic Sea pipeline is set to double Russian gas supplies to Germany, which the EU’s top economy says is needed to help it transition away from coal and nuclear energy.
But opponents say the recently completed pipeline will increase Europe’s energy reliance on Russia.
Crucially, the pipeline also bypasses Ukraine’s gas infrastructure, depriving the country of much-needed transit fees.
The dispute comes as Europe, which receives a third of its gas from Russia, is battling surging energy prices just as the continent heads into the colder winter season.
German consumers have been warned that prices for energy are at their highest levels – and will increase further.
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Germany’s energy regulator said in a statement that “it would only be possible to certify an operator of the Nord Stream 2 pipeline if that operator was organised in a legal form under German law.”
The certification procedure “will remain suspended until the main assets and human resources” have been transferred from the Nord Stream 2 parent company to its German subsidiary, that will own and operate the German part of the pipeline, it added.
Critics have accused Moscow of intentionally limiting gas supplies to Europe and driving up prices in an effort to hasten the launch of Nord Stream 2, a claim Russia denies.
Russian gas giant Gazprom said last week that it had begun implementing a plan to restock European gas storage facilities.
Germany’s energy regulator has four months, until January 2022, to give its green light for Nord Stream 2.
After that, the European Commission still needs to give its recommendation.