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Germany fears Russian gas flows are about to come to a complete halt


Russia says it is ready to supply gas to Europe, describing ongoing disruption problems as a “man-made crisis” created by Europe.

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Russia is set to temporarily close the Nord Stream 1 gas pipeline – the European Union’s largest gas import infrastructure – for annual maintenance. The work has fueled fears of a further gas supply disruption that would undermine the bloc’s efforts to prepare for winter.

Some fear that the Kremlin will use planned maintenance work to permanently shut off the taps.

Summer maintenance activities on the pipeline, which runs under the Baltic Sea from Russia to Germany, are scheduled to take place from July 11 to July 21.

It comes as European governments scramble to fill underground storage with natural gas in a bid to provide households with enough fuel to keep lights on and homes warm through the winter.

The EU, which receives around 40% of its gas via Russian pipelines, is trying to rapidly reduce its dependence on Russian hydrocarbons in response to President Vladimir Putin’s months-long assault on Ukraine.

We cannot exclude the possibility that gas transport may not subsequently resume for political reasons.

Klaus Muller

Director of the energy regulator in Germany

Klaus Mueller, the head of Germany’s energy regulator, told CNBC that Russia could continue to cut gas supplies to Europe beyond the scheduled end of maintenance work.

No gas should be transported through the pipeline once the annual inspection has started, said Mueller of the Bundesnetzagentur, adding: “We cannot exclude the possibility that gas transport may not subsequently resume for reasons policies”.

Analysts at political risk consultancy Eurasia Group agree.

If the supply “doesn’t come back after maintenance because President Putin is playing games or wants to hit Europe when it hurts, then the plan to fill gas storage by the end of summer probably won’t work,” Henning Gloystein, Eurasia Group’s director of energy, climate and resources, told CNBC by phone.

The Nord Stream 1 gas pipeline is majority owned by the Russian gas company Gazprom. The state-backed energy giant did not respond to a CNBC request for comment.

One of the main concerns of policy makers in the EU and the energy sector in general is that they have “virtually no idea what is going to happen” because most communications with Gazprom have now been interrupted. , Gloystein said.

They had previously been relatively open and frequent until May.

Winter supply outlook

Gas pipeline flows from Russia to Europe have been the focus of concern in recent weeks, given growing concerns about disruptions.

Russia has reduced its gas flows to Europe by around 60%, and it is not yet clear when or if Nord Stream 1 gas flows will return to normal levels. Gazprom cited the delayed return of equipment maintained by Germany’s Siemens Energy to Canada for its reduced flows through the pipeline.

Kremlin spokesman Dmitry Peskov has previously claimed that Russia is ready to supply gas to Europe, describing the situation as a “man-made crisis” created by Europe.

German Economy Minister Robert Habeck and Chancellor Olaf Scholz are pictured during a weekly cabinet meeting on July 1, 2022.

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German Economy Minister Robert Habeck dismissed the claim, saying Russia’s supply restrictions were a “political decision” intended to disrupt the region and raise gas prices.

At the end of last month, Germany moved to the second “alert level” of its emergency gas plan. The move means Europe’s biggest economy sees a high risk of long-term gas supply shortages, but believes the market is still able to handle the disruption without the need for intervention.

Eurasia Group said that if Putin orchestrated a complete gas supply cut beyond the scheduled end of maintenance work on the Nord Stream 1 gas pipeline – in what Gloystein described as a “maximum economic warfare” scenario – Germany would probably be forced to upgrade to level three of its three-stage gas emergency plan.

At this level, the German Bundesnetzagentur should decide how to allocate the gas supply nationwide.

“One access point for the whole EU”

“Germany has become a hotspot for the whole EU,” Gloystein said. “Germany has the biggest population in Europe, it’s the biggest economy, it’s the biggest consumer of gas, it’s the biggest importer of Russian gas and it has nine land borders. So, everything that happens in Germany affects the rest of Europe.”

Indeed, the German authorities are not the only ones to be deeply concerned about the prospect of another cut in supply.

In Italy, the EU’s second biggest buyer of Russian gas, the government announced last week that it was lending state-owned Gestore dei Servizi Energetici 4 billion euros ($4.2 billion) to buy gas to increase inventory.

Germany, Italy, Austria and the Netherlands have also all indicated that coal-fired power plants could be used to offset a reduction in Russian gas supply.

“That’s actually why … we think Russia will come back a bit,” Gloystein said. “They want some bargaining chip in case the Europeans tighten the sanctions further so the Russians can retaliate with that.”

Russian President Vladimir Putin attends the IX Forum of Regions of Russia and Belarus via video link in Moscow, July 1, 2022.

Mikhail Metzel | AFP | Getty Images

Gloystein said a complete shutdown of gas supply through the Nord Stream 1 pipeline for the rest of the year seemed unlikely, particularly because such a move would contradict Moscow’s own narrative.

The Kremlin has previously argued that the current cut in supplies is due to “technical factors” and economic sanctions.

Maintaining at least some flows would also allow Russia to benefit from high prices and retain the option of more drastic cuts later in the year, Gloystein said, potentially in retaliation for proposals to cap oil prices. or western gas.

Data from the German network shows that in previous years Russian gas flows through the Nord Stream 1 gas pipeline returned at the end of July after summer maintenance works.

Thomas Rodgers, European gas analyst at energy consultancy ICIS, said he did not expect flows to be completely cut – and pointed to separate maintenance work which was completed on time.

“We currently don’t see any resolution to the supposed compressor issues that pushed NS1 flows to this low level, but we don’t expect a full shutdown once this work is complete,” he told CNBC.

“Recent work on the Turkstream gas pipeline which carries Russian gas to southeastern Europe via the Black Sea and Turkey was recently completed on schedule and without further disruption.”

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