Nord Stream back up and running, but flow remains low
Russia’s Nord Stream 1 pipeline has finished its annual maintenance period on time and is now back in operation, triggering a modest drop in gas prices. But like before the downtime, the pipeline is running at well under its full capacity, which the Kremlin has blamed on sanctions that have impeded the return of equipment sent off for repairs.
“Nord Stream AG has successfully completed all planned maintenance works on its twin gas pipelines within the scheduled period. Gas transmission resumed on July 21, 2022,” the pipeline’s Russian-owned operator said in a statement.
The head of Germany’s network regulator, Klaus Mueller, said on Twitter that Gazprom had notified his agency that the pipeline would be running at a mere 30% of its 55 bcm per year capacity.
Nord Stream serves as a vital route for Siberian gas headed to Germany and other European markets. But Gazprom cut gas flow via the stream by 60% in June, blaming Siemens’ failure to return a turbine that had been shipped off to Canada for repairs. Canadian sanctions initially blocked Siemens from returning the unit, but authorities in Ottawa subsequently provided a special exemption to the sanctions regime, allowing Russia to receive that turbine and others sent for repair in the future.
A number of European countries subsequently reported reductions in their Russian gas supply, including Germany and France. And several have declared their intention to restore coal-fired power generation in order to save gas for winter, underpinning climate ambitions. A number of European energy utilities are also at the brink of bankruptcy and in bailout talks with their respective governments, most notably Germany’s Uniper.
According to the Moscow-based Kommersant newspaper, the turbine was dispatched from Canada to Germany via plane on July 17. But the newspaper said it would take a further five or seven days for the turbine to arrive at the Portovaya compressor station in Russia that handles Nord Stream’s gas, and that is assuming that there are no logistical or customs issues. To reinstall and commission the unit will take a further three or four days, implying that Nord Stream will not be capable of running at full capacity until the end of July or the start of August.
Further complicating matters, Gazprom claims it has not yet received any official documents from Siemens relating to the turbine’s delivery.
This is all assuming that Russia’s claims about technical difficulties at the compressor station are accurate. A number of European leaders have accused Russia of political motives for cutting gas flow via Nord Stream. But regardless, the matter is somewhat of a red herring. If Nord Stream’s capacity really is as constrained as Russia claims, Gazprom could have easily pumped much of the gas via alternative routes, including the Yamal-Europe pipeline through Poland and the transit system of Ukraine. In other words, there is little reason why Gazprom’s customers had to endure cuts in their supply.
The August contract at the Dutch TTF hub dropped to €145 ($148)/MWh when the market opened on July 21, down from a weighted average of €155/MWh for the previous session, signalling modest relief among traders that Nord Stream came on stream on time. Nevertheless, the sharp reduction in the pipeline’s flow has Europe spooked. While the EU is so far still on track to meet its target of filling gas storage facilities to 80% of capacity by October 1 and 90% by November 1, versus 65% at present, the task of stocking up has become much harder in light of recent reductions in Russian gas supply. This has been compounded by supply outages in Norway and the US.
Recognising the severity of the situation, the European Commission urged member states on July 20 to slash their gas consumption by 15% from August 1, in order to safeguard against the threat of a total cut-off in gas deliveries from Russia. It wants to see governments switch from gas to other fuels, even coal and oil when necessary, and limit heating and cooling in buildings, among other measures.
Whether or not Russia will take such a step will depend on developments in Ukraine and the broader standoff between Moscow and the West. But this is a trigger that Gazprom can only pull once, at great loss to Moscow’s funds, at a time when it needs them to finance the war in the Donbas. While Europe would have to endure a “long, very hard” winter, as the International Energy Agency (IEA) said, and some economies could lose as much as 6% of their GDP, according to the IMF, it may nevertheless harden EU resolve to severe all energy ties with Russia.