Russia says it is ready to ship gas to Europe and describes ongoing concerns over disruption as a “man-made crisis” caused by Europe.
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Russia is ready to temporarily shut down the Nord Stream 1 pipeline – the European Union’s largest gas import infrastructure – for annual maintenance. The work has fueled fears of a further gas supply disruption, which would undermine the block’s efforts to prepare for winter.
Some fear the Kremlin could use planned maintenance to turn off the taps for good.
Summer maintenance work on the pipeline, which runs under the Baltic Sea from Russia to Germany, will take place from July 11 to July 21.
It comes as European governments scramble to stockpile underground storage facilities to provide households with enough fuel to keep lights on and homes warm during the winter.
The EU, which gets about 40% of its gas through Russian pipelines, is seeking to rapidly reduce its reliance on Russian hydrocarbons in response to President Vladimir Putin’s months-long onslaught in Ukraine.
We cannot rule out that gas transport will not be resumed afterwards for political reasons.
Head of the German Energy Regulatory Authority
Klaus Mueller, the head of Germany’s energy regulator, told CNBC that Russia could continue to put pressure on European gas supplies beyond the planned end of maintenance.
After the start of the annual inspection, it is expected that no more gas will be transported via the pipeline, said Müller from the Federal Network Agency, adding: “We cannot rule out that gas transport will not be resumed afterwards for political reasons.”
Analysts at political risk consultancy Eurasia Group agree.
If the supply “doesn’t come back after the maintenance because President Putin is playing games or wants to hit Europe while it hurts, then the plan to fill up the gas storage facilities by the end of the summer is unlikely to work,” said energy director Henning Gloystein. Climate and resources at Eurasia Group, CNBC said by phone.
The Nord Stream 1 pipeline is majority owned by the Russian gas company Gazprom. The state-backed energy giant did not respond to a CNBC request for comment.
A major concern for EU politicians and the energy sector at large is that they have “virtually no idea what’s going to happen” because most communications with Gazprom have now broken down, Gloystein said.
They had previously been relatively open and frequent until May.
Prospects for the winter supply
Gas pipeline flows from Russia to Europe have been the focus in recent weeks amid rising concerns over disruptions.
Russia has reduced its gas flows to Europe by about 60% and it is not yet known when or if Nord Stream 1 gas flows will return to normal levels. Gazprom has cited the delay in returning equipment serviced by Germany’s Siemens Energy in Canada due to reduced flows through the pipeline.
Kremlin spokesman Dmitry Peskov has previously claimed Russia is ready to ship gas to Europe, describing the situation as a “man-made crisis” created by Europe.
German Economics Minister Robert Habeck and German Chancellor Olaf Scholz are pictured during a weekly cabinet meeting on July 1, 2022.
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German Economics Minister Robert Habeck has dismissed this claim, saying Russia’s supply restrictions are a “political decision” intended to unsettle the region and drive up gas prices.
At the end of last month, Germany switched to the second so-called “warning level” of its emergency gas plan. The measure means Europe’s largest economy sees a high risk of long-term gas supply shortages but believes the market can still handle the disruption without the need for intervention.
Eurasia Group said that if Putin orchestrated a full gas supply disruption beyond the scheduled end of maintenance on the Nord Stream 1 pipeline — in a scenario Gloystein described as “maximum economic warfare” — Germany would likely be forced to move to that stage three of its three-stage emergency gas plan.
At this level, the Federal Network Agency would have to decide on the nationwide distribution of gas supplies.
“A hotspot for the whole EU”
“Germany has become a hotspot for the entire EU,” said Gloystein. “Germany has Europe’s largest population, it is the largest economy, it is the largest gas consumer, it is the largest single importer of Russian gas and it has nine land borders.
In fact, not only the German authorities are deeply concerned about the prospect of a further cut in deliveries.
In Italy, the EU’s second-biggest buyer of Russian gas, the government announced last week that it was lending 4 billion euros ($4.2 billion) to state-owned Gestore dei Servizi Energetici to buy gas to power the to increase inventories.
Germany, Italy, Austria and the Netherlands have also all indicated that coal-fired power plants could be used to offset a disruption in Russian gas supplies.
“But that’s actually the reason…we think Russia will come back a little bit,” Gloystein said. “They want a bit of bargaining chip if the Europeans tighten the sanctions further, so that the Russians can then retaliate.”
Russian President Vladimir Putin takes part in Moscow on July 1, 2022 via video link. Forum of regions of Russia and Belarus.
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Gloystein said a complete halt to gas supplies via the Nord Stream 1 pipeline for the remainder of the year is unlikely, particularly because such a move would contradict Moscow’s own account.
The Kremlin has previously argued that the current reduction in supplies was 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, possibly in retaliation for proposed western oil or gas price caps.
German grid data shows that in previous years, Russian gas flows via the Nord Stream 1 pipeline returned after summer maintenance work by the end of July.
Thomas Rodgers, a European gas analyst at energy consultancy ICIS, said he did not expect the power to be cut completely – and pointed to separate maintenance work being completed in a timely manner.
“We currently see no resolution to the alleged compressor issues that have pushed NS1 flows to these low levels, but do not expect a full cessation once this work is complete,” he told CNBC.
“Recent work on the Turkstream pipeline, which will transport Russian gas to south-eastern Europe via the Black Sea and Turkey, was recently completed on schedule and without further disruption.”