Russia deepens Europe’s energy squeeze with new gas freeze

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

FRANKFURT/LONDON, Aug 31 (Reuters) – Russia cut off gas supplies via Europe’s main supply route on Wednesday, intensifying an economic battle between Moscow and Brussels and raising the prospect of recession and energy rationing in some of the region’s richest countries.

European governments fear Moscow could extend the blackout in retaliation for Western sanctions imposed after it invaded Ukraine and have accused Russia of using energy supplies as a “weapon of war”. Moscow refuses to do this and has given technical reasons for supply cuts.

Russian state energy giant Gazprom ( GAZP.MM ) said Nord Stream 1, the largest pipeline carrying gas to top customer Germany, would be out for maintenance from 0100 GMT 31 August to 0100 GMT on September 3. read more

The president of the German grid regulator said Germany was now better prepared for the blackouts as gas storage was almost 85% full and it was securing supplies from other sources.

“We can take gas from storage in the winter, we save gas (and must continue to do so!), the LNG terminals are coming, and thanks to Belgium, the Netherlands, Norway (and soon France), gas is flowing”, said Klaus Mueller on Twitter.

Further restrictions on European gas supplies would deepen an energy crisis that has already triggered a 400% rise in wholesale gas prices since last August, squeezing consumers and businesses and forcing governments to spend billions to ease the burden. read more

In Germany, inflation rose to an almost 50-year high in August, and consumer sentiment worsened as households braced for a rise in energy bills. read more

LOWER supplies

Unlike last month’s 10-day maintenance for Nord Stream 1, the latest work was announced less than two weeks in advance and is being carried out by Gazprom instead of the operator.

Moscow, which cut supply via the pipeline to 40% of capacity in June and to 20% in July, blames maintenance problems and sanctions that it says prevent the return and installation of equipment.

Russia said on Wednesday that the German government, not the Kremlin, was doing everything it could to destroy energy relations with Moscow. read more

Gazprom said the latest shutdown was necessary to carry out maintenance on the pipeline’s only remaining compressor at the Portovaya station in Russia, and said the work would be carried out in cooperation with Siemens specialists.

Siemens Energy ( ENR1n.DE ), which has carried out maintenance work on compressors and turbines at the station in the past, said on Wednesday it was not involved in the maintenance but stood ready to advise Gazprom if needed. read more

Russia has also stopped supplying Bulgaria, Denmark, Finland, the Netherlands and Poland, and reduced flows via other pipelines since it launched what Moscow calls its “special military operation” in Ukraine. read more

Gazprom said on Tuesday it would also halt gas supplies to its French contractor due to a payment dispute, which France’s energy minister called an apology, but added that the country had expected a loss of supply. read more

German Economy Minister Robert Habeck, on a mission to replace Russian gas imports by mid-2024, said earlier this month that Nord Stream 1 was “fully operational” and that there were no technical problems as claimed by Moscow.

‘ELEMENT OF SURPRISE’

The reduced flows via Nord Stream have complicated efforts across Europe to save enough gas to see them through the winter months, when governments fear Russia could cut off flows altogether.

“It is something of a miracle that gas filling levels in Germany have continued to rise nonetheless,” Commerzbank analysts wrote, noting that the country has so far been able to buy enough at higher prices elsewhere.

Meanwhile, some Europeans are voluntarily cutting back on energy consumption, including limiting the use of electrical appliances and showering at work to save money as businesses prepare for possible rationing. read more

With storage tanks filled at 83.65%, Germany is already close to the 85% target set for October 1, but it has warned that reaching 95% by November 1 would be a stretch unless businesses and households reduce consumption.

The European Union as a whole reached 80.17% of its storage capacity, already ahead of the 80% target set for October 1, when the continent’s heating season starts.

Analysts at Goldman Sachs said their baseline scenario was that the latest Nord Stream 1 break would not be extended.

“If it did, there would be no more element of surprise and reduced earnings, while low flows and occasional dips to zero have the potential to keep market volatility and political pressure on Europe higher,” they said.

Nina Chestney and Christoph Steitz report; Additional reporting by Matthias Inverardi, Bharat Govind Gautam and Eileen Soreng; Editing by Veronica Brown, Carmel Crimmins, Lincoln Feast and Tomasz Janowski

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