23/08/2022
Key Points
The unscheduled maintenance works on the Nord Stream 1 pipeline, which runs from Russia to Germany via the Baltic Sea, deepens a gas dispute between Russia and the European Union.
Gas flows via the Nord Stream 1 pipeline will be suspended for the three-day period from Aug. 31 to Sept. 2.
Holger Schmieding, chief economist at Berenberg Bank, said Gazprom’s announcement was an apparent attempt to exploit Europe’s dependence on Russian gas.
The greatest piece of gas infrastructure in Europe will be shut down for three days starting at the end of the month, Russia's state-owned energy behemoth Gazprom announced on Monday.
Unplanned maintenance on the Nord Stream 1 pipeline, which connects Germany and Russia via the Baltic Sea, deepens a conflict over gas between Russia and the European Union and raises the likelihood of both a winter shortage and a recession.
A benchmark for natural gas trading in Europe, the front-month gas price at the Dutch TTF hub increased 19% on Monday to reach 291.5 euros ($291.9) per megawatt hour.
The contract reached a new high on Friday, closing at 244.55 euros per megawatt hour, marking its fifth straight weekly gain.
The shutdown, according to a statement from Gazprom on Friday, was necessary for maintenance on the pipeline's sole remaining compressor. From August 31 to September 2, gas flows through the Nord Stream 1 pipeline will be halted for three days.
When the repair work is finished, gas transmission will continue at a rate of 33 million cubic metres per day, according to Gazprom, "provided that no problems are discovered."
In an effort to have enough fuel to keep households warm throughout the upcoming months, European governments are rushing to fill underground storage facilities with natural gas supplies as the temporary shutdown was announced.
Russian natural gas exports to Europe have substantially decreased in recent weeks, with the Nord Stream 1 pipeline currently carrying only 20% of the pre-agreed capacity.
Moscow has previously attributed the sudden decrease in gas supplies to faulty and delayed equipment. Germany, on the other hand, believes that the supply cut is a political ploy meant to raise energy prices while creating uncertainty inside the EU amid the Kremlin's offensive against Ukraine.
Two grave risks
Germany formerly obtained more than half of its gas from Russia. Additionally, the government of the biggest economy in Europe is currently working to secure winter gas supply despite mounting concerns that Moscow may soon entirely shut off the taps.
Additionally, Europe is attempting to conserve enough gas at a time when gas costs are soaring. Rising energy costs are increasing household expenses, causing inflation to reach its highest point in decades, and reducing people's purchasing power.
The most recent announcement from Gazprom, according to Berenberg Bank Chief Economist Holger Schmieding, appears to be an attempt to take advantage of Europe's reliance on Russian gas.
“On its own, a brief closure of the pipeline would not make a major difference, especially as Russia has reduced its gas exports through NS1 to 20% of capacity since 27 July anyway,” Schmieding said in a research note.
“But it highlights two grave risks: (i) Russia may falsely claim that it cannot re-open the pipeline afterwards because of a ‘technical issue’ that could only be resolved if Western sanctions were lifted, and (ii) Russia may also shut down its other pipelines to Europe later on,” he added.
Schmieding said higher prices for even scarcer gas supplies would “worsen the serious recession into which Europe is falling already” and warned an immediate further cut in Russian flows would raise the likelihood that Germany may face a winter shortage.
Comments