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Russia indefinitely suspends Nord Stream gas pipeline to Europe

Kremlin says supplies will not resume until ‘collective West’ drops sanctions on Russia

Russia has indefinitely suspended natural gas flows through the Nord Stream 1 pipeline, citing technical issues. Photograph: Odd Andersen/AFP via Getty Images

David Sheppard
Max Seddon
Mon Sep 5 2022 - 08:11

Russia’s gas supplies to Europe will not resume in full until the “collective West” lifts sanctions against Moscow over its invasion of Ukraine, the Kremlin has said.

Dmitry Peskov, president Vladimir Putin’s spokesman, blamed EU, UK, and Canadian sanctions for Russia’s failure to deliver gas through the key Nord Stream 1 pipeline.

“The problems pumping gas came about because of the sanctions western countries introduced against our country and several companies,” Mr Peskov said, according to the Interfax news agency. “There are no other reasons that could have caused this pumping problem.”

Mr Peskov’s comments were the most stark demand yet by the Kremlin that the EU roll back its sanctions in exchange for Russia resuming gas deliveries to the continent.

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Gazprom, Russia’s state-run gas monopoly, said on Friday it would halt gas supplies through Nord Stream 1 because of a technical fault, which it blamed on difficulties repairing German-made turbines in Canada.

The EU has already rolled back some sanctions against Russia explicitly to allow the turbines to be repaired. European leaders have said there is nothing to prevent Gazprom from supplying the continent with gas and has accused Russia of “weaponising” its energy exports.

The euro dropped on Monday to a 20-year low after Russia’s decision to shut a major gas pipeline to Europe intensified the energy crisis that has dealt a heavy blow to the region’s economy. The common currency fell as much as 0.7 per cent to $0.988, its lowest level since 2002 – later trimming its declines to trade down 0.2 per cent.

In energy markets, Dutch TTF gas futures, the benchmark European contract, jumped by more than a third to as much as €284 per megawatt hour, rising back towards all-time highs that hit above €340 just under two weeks ago. Later in the day, the contract was up 17 per cent at €246.

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Mr Peskov said Russia could not resume supplies in full until the West lifted the sanctions. He accused western countries of causing “turmoil” by denying Gazprom legal guarantees that the turbines sent for repair would be returned.

But Russian officials have made little secret in recent weeks of their hope that the growing energy crisis in Europe will sap the bloc’s support for Ukraine. “Obviously life is getting worse for people, businessmen and companies in Europe,” Mr Peskov said. “Of course, ordinary people in these countries will have more and more questions for their leaders.”

Friday’s stoppage came hours after the G7 countries said they were pushing ahead with a plan to try to impose a price cap on Russia’s oil exports as part of an attempt to lower revenues flowing to Moscow that can be used to fund its invasion of Ukraine. It will heighten fears in European capitals that Russia aims to further cut supplies before the winter.

“Gazprom’s announcement this afternoon that it is once again shutting down Nord Stream 1 under fallacious pretences is another confirmation of its unreliability as a supplier,” Eric Mamer, the European Commission’s chief spokesman, wrote on Twitter on Friday.

“It’s also proof of Russia’s cynicism, as it prefers to flare gas instead of honouring contracts.”

Russia’s president Vladimir Putin has made little attempt to hide his goal to undermine western sanctions and stop attempts by Ukraine’s allies to reduce their dependence on Moscow’s oil and gas exports.

Gazprom had already cut capacity on Nord Stream 1 since June, curtailing volumes to just 20 per cent of normal levels and triggering a more than doubling in European gas prices.

The company said the shutdown was because of an oil leak discovered in the main gas turbine at the Portovaya compressor station near St Petersburg, which feeds the line that runs through the Baltic Sea to Germany.

However, Siemens Energy, which manufactures and maintains the turbines that power the pipeline, cast doubt on this explanation.

“Such leakages do not usually affect the operation of a turbine and can be sealed on site,” the German company said. “It is a routine procedure during maintenance work. In the past, the occurrence of this type of leakage has not resulted in a shutdown of operations.

“Irrespective of this, we have already pointed out several times that there are enough additional turbines available at the Portovaya compressor station for Nord Stream 1 to operate,” Siemens Energy said.

After jumping last week to an all-time high, European gas prices have slid in recent days, declining by a third to €209 per megawatt hour – though that is still about 10 times the average level of the past decade.

Prices eased partly as the EU hit its target of filling storage sites to 80 per cent of capacity in advance of the winter heating season. But gas stocks in storage alone are not enough to meet winter demand without normal Russian export flows.

Sergei Vakulenko, an independent energy expert, said that Russia hoped that winter shortfalls might force Europe to plead for gas and agree to at least some of its terms on Ukraine.

“Every bit counts,” Mr Vakulenko said. “Therefore Russia most likely has decided, that as much as it likes the revenue and creating uncertainty, it’s time for it to create as much of a shortage as possible.”

Germany and other large European economies aim to cut their gas demand by 15 per cent to avoid severe shortages, though they may still need to introduce rationing. Blackouts are a possibility. Before its full-scale invasion of Ukraine, Russia met about 40 per cent of Europe’s gas demand.

Simone Tagliapietra, a senior fellow at the Bruegel think tank, said the latest announcement was an indication that a winter with “zero Russian gas” should be treated as the central scenario for Europe. He added: “There is only one way to prepare for that: reducing gas and electricity demand. This must be Europe’s key policy priority.”

EU member states have also been seeking to diversify their gas supplies, including by purchasing more seaborne liquefied natural gas from countries including the US. The complete halt of Nord Stream leaves just two significant pipeline routes supplying Russian gas to the EU: one through Ukraine and another across the Black Sea and through Turkey.

A representative for the German economy ministry said it had already seen Russia’s unreliability as a supplier and that “as a result, we are much better prepared than we were a few months ago”.

“We will reach our target of getting [storage facilities] 85 per cent full by October already in the first few days of September,” the ministry representative added. “We are also making good progress in finding alternative supply routes to the Russian ones and building import capacities for LNG.”

In Washington, the White House National Security Council said that as a result of US-Europe collaboration, gas storage would be full by the winter heating season. But it added: “These efforts alone will not suffice.”

EU energy ministers are due to meet in an emergency session in Brussels next Friday to further discuss their preparations for the winter, including the ways of mitigating the impact of soaring gas prices on electricity costs.

In an internal policy paper this week, the commission said member states could funnel a share of inflated profits generated by power companies to consumers as part of a plan to cushion soaring wholesale electricity prices in Europe.

– Copyright The Financial Times Limited 2022

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