Nord Stream 1: Russia goads Europe with high gas prices

Sopuruchi Onwuka

International prices for natural gas surfs highest levels in the energy market as Europe remains in limbo over its gas supply deals with highly isolated and angry Russia  which is strongly asserting its status as a world  economic factor.

Russia is obviously taunting the European Union and the members of the Western military alliance in retaliation for a string of diplomatic and trade sanctions over Kremlin’s invasion of Ukraine. And since the Ukrainian invasion in February this year, Western support for Ukraine and the associated punitive sanctions on Russia have escalated the conflict from battlefield to economic and diplomatic policies.  

The latest in the intrigues is Russia’s maintenance work on the Nord Stream 1 gas pipeline to Europe which has translated to 80 percent supply cut, leaving the economies of industrial Europe grappling with acute gas shortages to homes and businesses.

Consequently, reliance on highly limited cargoes of liquefied natural gas imported from distant countries comes with cost escalation and high energy bills.

The Oracle Today reports Rystad Energy as calculating gas supply from the Nord Stream 1 pipeline as falling to just 20% of capacity due to ongoing maintenance and leading to record gas prices which currently soar above $60 per million British Thermal Units (MMBtu). The trending gas prices are the highest in the past four months.

The industry advisory firm also noted that prices would further rise if Russia’s indication of halting supply to Europe eventually comes to reality.

Russia blames the drop in flows on European nations for their imposition of sanctions, which has made it more difficult to maintain pipeline equipment. It claims trade and diplomatic sanctions have made it difficult to keep equipment maintenance contracts with German Siemens.

But Siemens Energy which maintains gas pipeline equipment for Russian Gazprom said it had no reason to assume the turbines were broken, without having access to turbines or damage reports from Gazprom.  

Russia recently halted gas supplies to Latvia and made an order for payments for Sakhalin-2 LNG volumes to be made via a Russian bank.  Gazprom had already stopped sending gas to Latvia on July 30, and Latvia has already decided to ban Russian gas starting from January 1, 2023.

Russia asked Shakhalin-2 LNG customers to make payments through a Russian bank, as the rights to the project are being transferred from Bermuda-registered Sakhalin Energy to a new Russian limited liability company.  

The difficult demands from Russia on its customers who stand the risk of violating regional sanctions, Rystad said, are further tightening the market.

The 27 European Union (EU) countries agreed on July 26 to reduce gas demand by 15% from 1 August 2022 to 31 March 2023, compared with their average consumption in the same period of the years 2016 to 2021, which amounts to about 42.5 billion cubic meters (Bcm) of gas.

Only Hungary is still opposing the plan and stated earlier this month it was not going to export fuel to other countries in the bloc.

The agreement, which also includes provisions for sharing gas in the event of a supply crisis, is a critical measure that is now set to last a year.

The individual EU countries are expected to fix the practicalities of this agreement soon.

Member states will need to send gas to neighboring states whose household or essential services face severe shortages, for which countries will need to arrange bilateral deals.

The deal is a sign of solidarity between the countries and is set to avoid a panicked response in the event of a severe gas supply crisis. It also prevents countries from hoarding gas and refusing to help neighbors.

Germany has so far been the most active member state in seeking agreements with its neighbors.

It has already made a deal with Austria and is expected to make another with the Czech Republic, while it is also in negotiations with Poland and Italy.

Germany is Europe’s biggest gas consumer, with more than 50% of its gas supplies in 2021 coming from Russia before the invasion of Ukraine – and with as-yet unfinished liquefied natural gas (LNG) terminals, Germany is desperate to secure supplies in case gas supplies are fully cut off.  

A serious gas shortage in one of the biggest European economies could cause a major economic crisis in the country and negative impacts on other EU member states. 

France’s President Emmanuel Macron on 28 July met with Saudi Arabia’s Crown Prince Mohammed bin Salman asking for help with diversifying Europe’s energy supplies.