The largest single pipeline carrying Russian gas to Germany begins annual maintenance today, with flows expected to stop for 10 days, but governments, markets and companies fear the shutdown may be extended due to the war in Ukraine.
Most important points:
- Pipeline maintenance runs from 11 to 21 July
- The Kremlin says the closure is a regular event
- But Europe fears it could take longer and prices could rise
The Nord Stream 1 pipeline transports 55 billion cubic meters of gas annually from Russia to Germany under the Baltic Sea. Maintenance will take place from 11 to 21 July.
Last month, Russia cut flows to 40 percent of the pipeline’s total capacity, citing the delayed return of equipment maintained by Germany’s Siemens Energy in Canada.
Canada said over the weekend it would return a repaired turbine, but it also said it would extend sanctions against Russia’s energy sector.
Europe fears Russia will extend scheduled maintenance to further curtail European gas supplies, shattering plans to fill storage for the winter and exacerbating a gas crisis that has led to emergency measures from governments and painfully high bills for consumers.
German Economy Minister Robert Habeck has said the country must face the possibility that Russia will suspend gas flows through Nord Stream 1 outside the planned maintenance window.
“Based on the pattern we’ve seen, it wouldn’t be very surprising now if a small, technical detail is found and they could say, ‘Now we can’t turn it on anymore,'” he said at an event the end of June.
Kremlin spokesman Dmitry Peskov rejected claims that Russia was using oil and gas to exert political pressure, saying the maintenance shutdown was a regular, scheduled event and no one was “inventing” repairs.
There are other major pipelines from Russia to Europe, but flows have gradually declined, especially after Ukraine shut down a gas transit route in May and blamed it for interference by Russian forces.
Russia has completely stopped gas supplies to a number of European countries that did not meet the requirement for payment in rubles.
“The past few months have shown one thing: Putin knows no taboos,” said Timm Kehler, director of the German trade association Zukunft Gas.
“A complete cessation of gas supply through the Nord Stream pipeline can therefore not be ruled out.”
Abrupt gas shutdown could cost billions of dollars
Germany last weekend welcomed Canada’s decision to issue a “time-limited and revocable permit” allowing the return of equipment for the Nord Stream 1 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 against Moscow “to the whims of Russia”.
Siemens Energy said it was working on further formal approvals and logistics to get the equipment in place as soon as possible.
Zongqiang Luo, a gas analyst at consultancy Rystad Energy, said it was “not impossible” that Gazprom could use any delay as a justification for extending the maintenance period.
In previous years, the annual maintenance period on Nord Stream 1 lasted about 10-12 days and ended on time.
It is not uncommon for additional failures to be detected during routine maintenance on pipelines or gas infrastructure and operators can extend outages if necessary.
While a complete shutdown of gas is considered unlikely, Gazprom has not diverted flows through other pipelines, meaning a prolonged reduced flow rate is likely, Goldman Sachs analysts said.
Germany has warned of a recession if Russian gas flows are halted. The blow to the economy could be 193 billion euros (286 billion dollars) in the second half of this year, according to data from the trade association vbw of the state of Bavaria last month.
“The abrupt end of Russian gas imports would also have a significant impact on the workforce in Germany … about 5.6 million jobs would be affected by the consequences,” said VBW director Bertram Brossardt.
The effects would be even greater. A complete shutdown would keep European gas prices, which have already hurt industry and households, high for longer.
The Dutch wholesale price for gas, the European benchmark, has risen by more than 400 percent since July last year.
“If Nord Stream is cut off, or if Germany loses all of its Russian imports, the effect will be felt across Northwest Europe,” said Energy Minister Rob Jetten.
A cessation of supply via Nord Stream 1 would hurt both Russia and Western Europe as it would lose revenue.