Germany fears that Russian gas flows may be stopping forever

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

Bloomberg | Bloomberg | Getty pictures

Russia is ready to temporarily shut down the Nord Stream 1 pipeline – the EU’s largest piece of gas import infrastructure – for annual maintenance. The work has created fears of further disruption of gas supplies, which would undermine the block’s efforts to prepare for winter.

Some fear the Kremlin could use scheduled maintenance work to shut off the taps forever.

The summer maintenance activities on the pipeline running under the Baltic Sea from Russia to Germany are scheduled to take place from 11 July to 21 July.

It comes as European governments struggle to fill underground warehouses with natural gas supplies in an attempt to provide households with enough fuel to keep the lights on and homes warm in the winter.

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

We cannot rule out that gas transport will not be resumed subsequently for political reasons.

Klaus Mueller

Head of Germany’s energy regulator

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

No gas is expected to be transported via the pipeline when the annual inspection begins, Bundesnetzagenturs Mueller said, adding: “We cannot rule out the possibility that gas transport will not be resumed subsequently for political reasons.”

Analysts at political risk advice Eurasia Group agree.

If the supply “does not come back after maintenance because President Putin is playing games or wants to hit Europe while it hurts, then the plan to fill up the gas depot before the end of the summer is unlikely to work,” said Henning Gloystein, energy director. climate and resources at Eurasia Group, told CNBC by telephone.

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

A major concern for EU policy makers and the energy sector more generally is that they “have virtually no idea what will happen” because most of the communication with Gazprom has now broken down, Gloystein said.

They had previously been relatively open and frequent until May.

Winter supply prospects

Gas pipeline flows from Russia to Europe have been in sharp focus in recent weeks due to growing concern about disruption.

Russia has reduced its gas flows to Europe by around 60%, and it is not yet known when or if the Nord Stream 1 gas flows will return to normal levels. Gazprom has cited the delayed return of equipment serviced by German Siemens Energy in Canada due to its reduced flow 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 government meeting on July 1, 2022.

Image Alliance | Image Alliance | Getty pictures

German Economy Minister Robert Habeck has rejected this claim, saying Russia’s supply constraints are a “political decision” designed to upset the region and raise gas prices.

At the end of last month, Germany moved to the second so-called “emergency level” in its emergency gas plan. The measure means that Europe’s largest economy sees a high risk of long – term gas supply shortages, but believes the market is still able to deal with the disruption without the need for intervention.

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

At this level, the German Bundesnetzagentur must decide how the gas supplies are to be distributed nationwide.

‘A hotspot for the whole EU’

“Germany has become a hotspot for the whole of the EU,” Gloystein said. “Germany has Europe’s largest population, it’s the largest economy, it’s the largest gas consumer, it’s the largest single importer of Russian gas, and it has nine national borders. So no matter what happens in Germany, it runs out in the rest of Europe.”

In fact, it is not only the German authorities who are deeply concerned about the prospect of a further cut in supply.

In Italy, the EU’s second-largest buyer of Russian gas, the government said last week that it had lent state-owned company Gestore dei Servizi Energetici 4 billion euros ($ 4.2 billion) to buy gas to increase stocks.

Germany, Italy, Austria and the Netherlands have also all indicated that coal-fired plants could be used to compensate for the cut in Russian gas supply.

“That’s actually why … we think Russia will come back a little bit,” Gloystein said. “They want a bit of a bargaining chip if Europeans tighten sanctions further so Russians can retaliate.”

Russian President Vladimir Putin will participate in the IX Forum for the Regions of Russia and Belarus via a video link in Moscow on July 1, 2022.

Mikhail Metzel | Afp | Getty pictures

Gloystein said a total shutdown of gas supplies via the Nord Stream 1 pipeline for the rest of the year seemed unlikely, especially since such a move would contradict Moscow’s own narrative.

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

Maintaining at least some flows will also allow Russia to take advantage of high prices and retain the potential for more drastic cuts later in the year, Gloystein said, potentially in retaliation for proposed Western oil or gas price caps.

German grid data show that Russian gas flows via the Nord Stream 1 pipeline in previous years have returned by the end of July after summer maintenance work.

Thomas Rodgers, a European gas analyst at energy consultancy firm ICIS, said he did not expect power to be completely cut off – pointing to separate maintenance work being completed on time.

“We do not currently see any solution to the presumed compressor problems that have pushed NS1 flows down to this low level, but we do not expect a complete cessation after this work is completed,” he told CNBC.

“The most recent work on the Turkstream pipeline, which brings Russian gas to Southeastern Europe via the Black Sea and Turkey, was recently completed on schedule and without further interruptions.”

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