Europe on edge as Russia’s Nord Stream gas link set to be shut down

Pipes from the landing facilities of the ‘Nord Stream 1’ gas pipeline are pictured in Lubmin, Germany March 8, 2022. REUTERS/Hannibal Hanschke

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  • Nord Stream 1 maintenance will run from July 11-21
  • Feared the outage will be prolonged
  • Kremlin says shutdown a regular occurrence
  • Prolonged shutdown would hurt economies and raise prices

LONDON/FRANKFURT, July 11 (Reuters) – Russia’s biggest gas pipeline to Germany begins annual maintenance on Monday, with flows set to stop for ten days, but governments, markets and businesses fear the closure is extended due to the war in Ukraine.

The Nord Stream 1 gas pipeline transports 55 billion cubic meters (bcm) per year of gas from Russia to Germany under the Baltic Sea. It will be undergoing maintenance from July 11 to July 21.

Last month, Russia cut flows to 40% of the pipeline’s total capacity, citing the delayed return of equipment maintained by Germany’s Siemens Energy (ENR1n.DE), to Canada. Read more

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Canada said over the weekend it would return a repaired turbine, but it also said it would extend sanctions against Russia’s energy sector. Read more

Europe fears Russia will extend scheduled maintenance to further restrict European gas supplies, upending plans to fill storage for the winter and worsening a gas crisis that has prompted emergency measures to from governments and painfully high bills for consumers.

German Economy Minister Robert Habeck said the country would face the possibility of Russia suspending gas flows through Nord Stream 1 beyond the scheduled maintenance period.

“Based on the pattern we’ve seen, it wouldn’t be very surprising now if a little technicality is found and then they could say ‘now we can’t turn it on’,” he said. declared at an event at the end of June.

Kremlin spokesman Dmitry Peskov dismissed claims that Russia was using oil and gas to exert political pressure, saying the shutdown for maintenance was a regular, scheduled event and no one was “inventing” repairs. Read more

There are other major pipelines connecting Russia to Europe, but flows have gradually declined, particularly after Ukraine halted a gas transit route in May, blaming interference by Russian occupying forces .

Russia has completely cut gas supplies to several European countries which have not complied with its demand for payment in roubles.

“The last few months have shown one thing: Putin knows no taboos. A complete shutdown of the gas supply via the Nord Stream gas pipeline can therefore not be ruled out,” said Timm Kehler, managing director of the industry association. German Zukunft Gas.

TURBINE PROBLEM

Germany over the weekend welcomed Canada’s decision to issue a “time-limited and revocable permit” to allow the return of equipment for the Nord Stream 1 gas pipeline.

But Ukraine’s energy and foreign ministries said in a statement they were “deeply disappointed” and urged Canada to reverse a decision they said amounted to adjusting sanctions on Moscow “to whims of Russia”.

Siemens Energy said it was working on further official approvals and logistics to get the equipment in place as soon as possible. Read more

Zongqiang Luo, a gas analyst at consultancy Rystad Energy, said it was “not impossible” that Gazprom could use any delay as justification to extend the maintenance period.

In previous years, the annual maintenance period on Nord Stream 1 lasted around 10-12 days and ended on time.

It is not uncommon for additional faults to be detected during routine maintenance of pipelines or gas infrastructure and operators can extend outages if necessary.

Although a complete gas shutdown is considered unlikely, Gazprom has not re-routed flows through other pipelines, meaning a prolonged reduced flow is likely, Goldman Sachs analysts said.

MULTI-BILLION ECONOMIC HIT

Germany has moved to the second stage of a three-tier emergency gas plan, which is one step before the government rations fuel consumption.

He also warned of recession if Russian gas flows are interrupted. The hit to the economy could be 193 billion euros ($195 billion) in the second half of this year, according to data from the Bavarian state industry association vbw last month.

“The abrupt end of Russian gas imports would also have a significant impact on the workforce in Germany (…) around 5.6 million jobs would be affected by the consequences”, said the managing director of vwb , Bertram Brossardt. Read more

The effects would be even broader. A complete shutdown would keep European gas prices, which have already stung industry and households, higher for longer.

Wholesale prices for Dutch gas, the European benchmark, have risen by more than 400% since last July.

“If Nord Stream is cut off, or if Germany loses all its Russian imports, then the effect will be felt across North West Europe,” said Dutch Energy Minister Rob Jetten.

In an interview with Reuters on Thursday, he said Dutch gas field Groningen could still be called upon for help from neighboring countries in the event of a complete cut in Russian supplies, but increased production would risk causing earthquake. Read more

Meanwhile, a supply shutdown through Nord Stream 1 would hurt Russia as well as Western Europe as it would lose revenue.

Russia’s Finance Ministry said in June it expected to receive 393 billion rubles ($6.4 billion) in additional oil and gas revenue over the amount projected in its budget plan. Read more

For July, he expects 259 billion rubles more than his budget plan.

Prolonged maintenance could also lead to more Russian gas production shutdowns, compared to Gazprom’s 9% year-on-year decline in output reported so far, Goldman Sachs said.

($1 = 0.9898 euros)

($1 = 61.5000 rubles)

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Reporting by Nina Chestney in London and Vera Eckert in Frankfurt; additional reporting by Tom Kaekenhoff in Frankfurt, Steve Scherer in Ottawa, Toby Sterling in Amsterdam and Miranda Murray and Riham Alkousaa in Berlin; edited by Veronica Brown and Barbara Lewis

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