Russians Shut Off European Gas

September 5, 2022

Interesting deep dive from Aljazeera above features spokesman for Russian point of view.
Little discussion of longer term transition to renewables – focus on immediate crisis.
Strong point that sanctions against Russia have backfired, at least in the energy sector, by spiking prices so high that Russia’s revenues have not suffered as much as hoped.

Austerity measures and storage on the European side were making things look brighter for a brief minute last week, Russia noticed, and dropped the hammer.

Reuters:

European gas prices rocketed as much as 30% higher on Monday after Russia said one of its main gas supply pipelines to Europe would stay shut indefinitely, stoking renewed fears about shortages and gas rationing in the European Union this winter.

The benchmark gas price surged as high as 272 euros per megawatt hour (MWh) when the market opened after Russia said on Friday that a leak in Nord Stream 1 pipeline equipment meant it would stay shut beyond last week’s three-day maintenance halt.

The Dutch TTF October gas contract had eased to 256 euros, up 23% on the day by 0723 GMT but almost 400% higher than a year ago. This year’s price surge has squeezed struggling already consumers and forced some industries to halt production.

Europe has accused Russia of weaponising energy supplies in retaliation for Western sanctions imposed on Moscow over its invasion of Ukraine. Russia says the West has launched an economic war and sanctions have hampered pipeline operations.

Bloomberg:

Germany is unlikely to meet its target for filling natural gas storage sites to 95% by the start of November following the latest Russian supply cut, according to people familiar with the matter. 

While Europe’s largest economy is ahead of schedule in its efforts to boost winter reserves, Russia’s decision last week to keep the key Nord Stream pipeline halted jeopardizes further refilling, the people said, asking not to be identified because the matter isn’t public. 

Failure to hit the target would be a blow to Germany’s efforts to secure sufficient power for its industries and households and ease worsening inflationary pressures. Klaus Mueller, president of the Federal Network Agency energy regulator, warned last month that even with storage at the target level, that would cover only 2 1/2 months of demand if Russia stopped flows.  

It’s still unclear whether Germany will reach its November gas-storage goal, a spokeswoman of the Economy Ministry acknowledged. “We will have to see that in the coming weeks.” 

Swelling gas inventories in Germany and fellow European Union states had been a relief to the market, raising hopes the continent could build a working buffer for this winter. Germany’s gas storage sites are almost 86% full, just ahead of its intermediate target of 85% by Oct. 1. 

But while that helped push down elevated gas and power prices last week, the situation changed after Russia’s Gazprom PJSC announced that it had again halted Nord Stream flows indefinitely. Benchmark gas futures in Europe soared as much as 35% early on Monday, as the region risks plunging deeper into a crisis that could push major economies into recession and force energy rationing. 

In response to Moscow’s tightening supply squeeze, the EU is weighing new gas benchmarks and price caps as the 27-nation bloc looks at drastic measures to combat spiking energy costs. Ministers are due to debate on Friday the form of a planned emergency intervention in the energy market.

The EU has already created a voluntary 15% demand reduction target for gas, with the option of making it obligatory if needed. The European Commission has warned that an unusually cold winter or lower gas imports from alternative sources would boost the risk of “further drastic reductions.” Germany has its own emergency plan mapped out. The last stage — yet to be enacted — includes rationing.

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