Russia once again threatens to use the gas weapon against Europe

Author

Valery Moiseev

The closing price of natural gas in Europe jumped 12% on the London ICE exchange on July 25. The price on the Dutch TTF hub rose to $1890 per thousand cubic meters, or €179 per MWh.

The surge in prices was caused by Russia’s announcement of a reduction of the gas flow through the Nord Stream 1 pipeline to 33 million cubic meters a day from July 27, 7:00 AM, compared to the current 67 million cubic meters, from 40% of its capacity to 20%.

The drop in the flow was said to be due to the expiration of the time between overhauls of another gas turbine engine at the Portovaya compressor station (CS).

The first turbine from the CS was being serviced in Canada and wasn’t at first allowed to leave the country because of the sanctions. In response, Gazprom reduced the flow through NS1 to 40% of its capacity. In a few days, the West decided to make an exception and allow the return of the turbine to Russia.

The repaired turbine is now in Germany, but Gazprom isn’t in a rush to take it.

In early July, the flow through NS1 was completely stopped for 10 days of scheduled maintenance. It was restored only on July 21 at a level of 40%.

The German Ministry of Economy said on July 25 evening that there were no technical reasons to cut gas supplies via NS1.

Ukraine’s gas transit capacities

The natural gas transmission system of Ukraine (GTS) can supply over 200 million cubic meters of gas to Europe per day. "This route can completely substitute the problematic NS1, which repeatedly signals malfunctions or tests the solidarity of the Europeans," said Sergiy Makogon, CEO of the Gas Transmission System Operator of Ukraine.

The technical capacity of the Sudzha gas metering station (GMS) is 244 mcm per day, which is enough to ensure reliable gas supplies to Europe, a decrease in prices, and an opportunity to prepare for the heating season efficiently.

The Russians are deliberately capping gas supply not only via the NS1, which they control, but also via Ukraine. Of the 109 mcm contracted capacity of the Ukrainian GTS, they use only 42 mcm.

How Europe reacts to Russian gas blackmail

European officials and companies say that the Kremlin uses the turbine holdups as a diversion. Moscow cuts supplies to put pressure on Europe’s economy and force the leaders to give up military and financial assistance to Ukraine. The Wall Street Journal wrote that Nord Stream, the operating company of the NS1, has an elaborate contingency system with at least one spare turbine available at all times.

Dynamics of gas prices and gas flow over the NS1

The new reduction of gas supplies complicates Europe’s efforts to fill up its gas storage ahead of winter. Governments say that without enough gas in the higher-demand cold months, they are likely to have to ration energy. Analysts and officials warn that the continent’s economy could sink into recession.

The German government has drawn up plans to distribute gas among consumers, hospitals, and other critical sectors while potentially leaving industry short of supplies. For many companies in sectors reliant on gas, such as the chemical industry, rationing would mean halting production altogether, risking job cuts and upending supply chains.

Last week, amid the confrontation around the NS1 flow, the EU published its plans to cut gas demand by 15%. The program would start as a series of voluntary reductions through changing fuels, factory closures, and diminished energy consumption in office blocks and public buildings. However, the plan has been met with strong opposition from many countries and is likely to be rejected.

The system of "eastern" pipelines supplying natural gas to Europe

What’s the purpose of Russia’s "games" of gas supplies to Europe?

Many European countries rely on the transit of Russian gas via Germany. Therefore irregular or dwindling supplies through NS1 would be felt across the continent.

Some experts think that Russia obtains more leverage over the Europeans by making Europe constantly try to figure out its plans.

"Sending flows, but at capped levels, runs in Russia’s favor," Tim Partridge, head of energy trading at DB Group Europe, said. "It allows the Kremlin to continue to use the pipeline as a way of increasing volatility, while still reaping immense profits on inflated energy prices."

"Russia is playing a strategic game here," said Simone Tagliapietra, a senior fellow at Brussels-based economic think tank Bruegel. "Fluctuating already low flows is better than a full cutoff as it manipulates the market and optimizes geopolitical impact."