Canadian sanctions exemption allows for the return of up to six Nord Stream 1 gas turbines

A sanctions exemption issued by the Canadian government to enable the return of a Siemens turbine to Russia’s Nord Stream pipeline will last for up to two years from now, making possible the import and re-export of a further five turbines to the project, Canada’s Global and Mail reported on July 12.

However, Russian state-owned gas behemoth Gazprom poured cold water on hopes that the compressor equipment would be returned to Russia that would allow it to increase gas flows to Europe on July 13, saying it had not received any document allowing for the re-import of the equipment.

“Gazprom does not possess any documents that would enable Siemens to get the gas turbine engine for the Portovaya CS out of Canada, where that engine is currently undergoing repairs. In these circumstances, it appears impossible to reach an objective conclusion on further developments regarding the safe operation of the Portovaya CS, a facility of critical importance to the Nord Stream gas pipeline,” Gazprom said in a statement.

Canada provided the exemption as a result of pressure from Germany, as Russia had said that Nord Stream could not resume full operations until the turbine had been returned. However, the arrangement was not previously disclosed to be so extensive.

Kyiv reacted angerly to the announcement that the equipment would be exempted, claiming the move breaks sanctions on Russia.

"The sanctions forbid the transfer of any equipment related to gas," Ukraine’s energy ministry source said, reported Reuters.

"If, God forbid, this decision is approved, we will undoubtedly appeal to our European colleagues that their approach must be reassessed. Because if countries do not follow decisions they have agreed about sanctions, how can we talk about solidarity?"

The European Commission issued a statement saying that the return of the equipment did not violate the sanctions regime.

Germany faces an energy crisis

Government officials told the Globe and Mail on July 12 that Global Affairs Canada had granted Siemens an exemption under Canada’s Russia sanctions for two years. One of the officials noted, though, that Canada would be able to revoke the exemption at any time.

Germany is currently on energy crisis “alert” status, the middle of the EU’s three-tier warning system, and is actively preparing for a possible halt to gas deliveries from Russia as it scrambles to refill gas storage tanks ahead of winter.

Russia reduced flows of gas to Europe by 60%  through the Nord Stream 1 gas pipeline last month, citing technical difficulties as a result of Siemens’ failure to return the turbine that had been sent off for repairs. This prompted Germany and several other European countries to complain of cuts in their contractual Russian gas flows. The pipeline is offline anyway now for scheduled annual maintenance, which Gazprom has said will last until July 21.

The turbine in question is currently stranded in Montreal as a result of sanctions. According to the Moscow-based Kommersant newspaper, even with the sanction’s exemption now in place, the unit will not get shipped to Europe until July 14. It will be transported first to Germany, and then to Russia – a journey which is anticipated to take at least two weeks. A few more days will be needed to install the turbine at the Portovaya compressor station that handles Nord Stream’s gas.

This means that even if Nord Stream 1 comes back on stream on July 21, its capacity will remain constrained for the rest of the month.

A further five Nord Stream turbines are due to be sent off to Siemens Canada for repairs over the next two years.

However, Gazprom’s statement will only stoke fears that it will take even longer to increase the gas flows through Nord Stream, as many are afraid the Kremlin is simply looking for excuses to reduce those flows to put pressure on Europe ahead of the heating season. Nord Stream 1 went offline on July 11 for its annual 10 days of maintenance work, but if it is not restarted, or restarted at even lower gas flows, Europe could be facing a major energy crisis at the end of summer.

Ukraine lobbies against gas imports

The status of the equipment remains up in the air. Approached by the Globe and Mail, Siemens Energy spokesperson Ann Adair said the company had no comment to make on the sanctions exemption. The press secretary to Canadian Foreign Affairs Minister Melanie Joly could neither confirm or deny the two-year timeframe, but said “these turbines follow a regular maintenance schedule, which was passed due to sanctions.” “The maintenance schedule now restarts for a limited period of time. However, the minister can revoke the permit at any time,” the press secretary said.

Ukraine’s ambassador to Canada, Yulia Kovaliv, expressed disappointment, noting that “the revenues from gas and oil are directly supporting the Russian military. To waver even for two years, and showing Gazprom can get what it wants, is a dangerous precedent,” she said in an interview on July 12. “They are stamping the status quo on weaponising energy.” Ukrainian advocacy group, the Ukrainian World Congress, has filed a legal challenge to the government’s decision in federal court. In the challenge, the group said that the permit was “unreasonable, unjustifiable and contrary to the stated purpose of Canada’s sanction regime.”

Europe remains conflicted over imports on Russian energy, on the one hand hoping to put the Russian budget under extreme pressure by cutting off the imports, and on the other being heavily dependent on the import of Russian fuels to power many economies.

Kyiv has been calling on Europe to bite the bullet and completely cut off Russian oil and gas imports.

Ukrainian Energy Minister German Galushchenko in June lobbied Canada not to return the turbine to the Russian natural gas giant, according to a letter seen by Reuters.

"There are seven turbines, this is only one of them, and those that are now operating are sufficient for full capacity," the energy ministry source said.

Ukraine has accused Moscow of using natural gas supplies as a weapon to put pressure on Kyiv's European allies to dampen their support for Ukraine as it fends off Russia's February 24 invasion.

End of coal imports

Berlin took another step closer to completely ending its dependence on Russia’s hydrocarbons on July 13, announcing that it would end all coal imports on August 1 and the import of oil and gas by the end of this year.

"We will be off Russian coal in a few weeks," Joerg Kukies, state secretary in the German federal chancellery, said at the Sydney Energy Forum, co-hosted by the Australian government and the International Energy Agency (IEA), reported Reuters.

Russian previously supplied 40% of Germany's coal and 40% of its oil, he said.

"Anyone who knows the history of the Druzhba pipeline, which was already a tool of the Soviet empire over eastern Europe, ridding yourself of that dependence is not a trivial matter, but it is one that we will achieve in a few months," Kukies said.

A ban on coal imports to Europe was part of the fifth package of sanctions introduced earlier this year and the first time that Russian energy exports were targeted. However, even banning coal imports proved controversial, and several EU members resisted the sanctions in an effort to protect their economic interests.

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