Economy

Russian gas deliveries to Europe halted for three days

Russia halted gas supplies via a major pipeline to Europe, intensifying an economic battle between Moscow and Brussels and raising the prospects of recession and energy rationing in some of the region’s richest countries.

The outage for maintenance on Nord Stream 1 means that no gas will flow to Germany between 2am this morning and 2am on Friday, according to Russian state energy giant Gazprom.

Data from the Nord Stream 1 operator’s website showed flows at zero between 5am and 6am, the third hour in a row of no flows.

European governments fear Moscow could extend the outage in retaliation for Western sanctions imposed on it after its invasion of Ukraine and have accused Russian President Vladimir Putin of using energy supplies as a “weapon of war”. Moscow denies doing this.

Further restrictions to European gas supplies would heighten an energy crunch that has already sent wholesale gas prices soaring over 400% since last August, creating a painful cost-of-living crisis for consumers and businesses and forcing governments to spend billions to ease the burden.

In Germany, inflation hit its highest level in almost 50 years in August and consumer sentiment is projected to hit a record low for the third month in a row next month as households brace for higher energy bills.

Unlike last month’s 10-day maintenance for Nord Stream 1, the upcoming work was announced less than two weeks in advance and is being carried out by Gazprom not Nord Stream AG, focusing on the last operating turbine at the station.

Moscow, which slashed supply via Nord Stream 1 to 40% of capacity in June and to 20% in July, blames maintenance issues and sanctions it says prevent the return and installation of equipment.

Gazprom said the latest shutdown is needed to perform maintenance on the pipeline’s only remaining compressor.

Yet Russia has also cut off supply to Bulgaria, Denmark, Finland, the Netherlands and Poland completely, and reduced flows via other pipelines since launching what Moscow calls its “special military operation” in Ukraine.

Gazprom is just using an excuse to switch off natural gas deliveries to its French contractor, the energy minister in Paris said with regard to a separate dispute over payments, but added that the country had anticipated the loss of supply.

Yesterday, the Minister for Environment Eamon Ryan emphasised the impact the war in Ukraine is having on gas market prices and, in turn, the impact on “both gas and electricity bills over the coming winter and beyond”.

“Gas supplies from Russia to Europe have been severely reduced over the last year and continue to be a cause for concern for Europe’s energy security. This has resulted in natural gas prices that are approximately ten times the levels seen just two years ago,” Mr Ryan said.

However, he said the continued supply of natural gas to Ireland has not, to date, been reduced or interrupted as a result of the war in Ukraine.

“The UK, from where 75% of gas comes, is at a strategic advantage compared to other European countries with a diverse source of gas supplies,” he said.

‘Element of surprise’

German Economy Minister Robert Habeck, on a mission to replace Russian gas imports by mid-2024, earlier this month said Nord Stream was “fully operational” and there were no technical issues as claimed by Moscow.

Klaus Mueller, president of Germany’s network regulator, said while a resumption of flows would help Germany’s security of supply, no one was able to say what the consequences would be if flows remained at zero.

Europe’s largest economy is making better progress than expected in filling its gas storage facilities, but it’s not enough to get the country through winter, he said.

The reduced flows via Nord Stream have complicated efforts across Europe to fill up vital gas storage facilities, a key strategic goal to make it through the winter months, when governments fear Russia may halt flows altogether.

“It is something of a miracle that gas filling levels in Germany have continued to rise nonetheless,” Commerzbank analysts wrote, adding Germany had so far been successful at buying sufficient volumes at higher prices elsewhere.

In the meantime, however, some Europeans are voluntarily cutting their energy consumption, including limiting their use of electrical appliances and showering at work to save money while companies are bracing for possible rationing.

At 83.26%, Germany is already within reach of an 85% target for its national gas storage tanks by 1 October, but it has warned reaching 95% by 1 November would be a stretch unless companies and households drastically cut consumption.

For the European Union as a whole, the current storage level is 79.94%, just short of an 80% target by 1 October, when the continent’s heating season starts.

Analysts at Goldman Sachs said their base case assumption was that this outage would not be extended.

“If it did, there would be no more element of surprise and reduced revenues, while low (Nord Stream 1) flows and the occasional drop to zero have the potential to keep market volatility and political pressure on Europe higher,” they said.

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