In the most recent Capital Letter, I noted this:
“A number of EU countries have already been encouraging users to cut back on [natural gas] consumption, with a view to making it easier to fill [their storage] depots. It is, shall we say, far from clear that they will reach that target. Putin, meanwhile, will continue to play games [with the natural gas supply], as a none-too-subtle reminder of who is really calling the shots, or could be.”
Bloomberg:
“Putin has indicated that flows could fall to 20% as soon as next week. Only two turbines at a compressor station in Russia, which feeds the pipeline, are currently working, he said, and one of them needs to go for maintenance this month. Flows could drop unless a replacement component sent from Canada arrives in Russia soon, following sanctions-related delays, according to Putin.
But if this report from Reuters is correct, the games being played may also include Russia delaying the return of that turbine:
“A missing turbine that Moscow says has caused the Nord Stream 1 pipeline to pump less gas to Europe is stuck in transit in Germany because Russia has so far not given the go-ahead to transport it back, two people familiar with the matter said.””
Well, whatever the backstory, it appears that Putin has now made his next move.
Russia will slash gas supplies through its largest pipeline to Germany to just a fifth of capacity later this week in a move that threatens to leave the continent short of critical supplies ahead of the winter.
State-owned energy group Gazprom said it would cut existing flows on the Nord Stream 1 pipeline in half to just 20 per cent of capacity from Wednesday, having already lowered them to 40 per cent last month. European politicians have decried Russia’s “weaponisation” of gas supplies.
The Gazprom move came as German business confidence fell to its lowest level for more than two years in the latest sign that Europe’s largest economy is teetering on the brink of recession…
Germany has been hard hit by inflation and the Russian gas crisis. Gazprom has blamed the availability of turbines for its cuts to supply but a spokeswoman for Germany’s economy ministry said there was “no technical reason” for the reduction…
Gazprom has put the volume cuts down to problems with turbines maintained by Germany’s Siemens Energy at a factory in Canada. However, Berlin and gas market analysts say Russia is using the issue of turbine repairs as a pretext for cutting flows.
European politicians and industry analysts have questioned whether any such problems would cause so steep a drop in gas flows. Russia has also declined to use alternative pipeline routes to maintain supplies.
Laurent Ruseckas, an analyst at S&P Global Commodity Insights, said Gazprom’s move fitted a “pattern that has been on display for months and months, which is continuing reductions of pipeline flows to keep supplies tight and complicate storage”.
By “complicating storage” Ruseckas means complicating European efforts to build up gas reserves ahead of the winter, an effort that could easily fail if Russia’s mischief-making succeeds. The consequences of that may well be very serious indeed (see the Capital Letter, but also the comments from Germany’s foreign minister quoted below).
Meanwhile, keeping supplies tight means gas prices go up, something that also benefits Gazprom.
The FT:
European gas prices shot higher after Gazprom signalled that the volume of gas flowing to the continent would be cut. They rose 10 per cent on Monday to trade at €177 per megawatt hour — five times higher than the price a year ago.
For Putin this is, I fear, a win-win.
The FT:
Gazprom blamed Siemens Energy, the turbine provider, for the problems. It said the company still had “open questions” about British and EU sanctions.
Canada this month waived sanctions restrictions on providing equipment to Gazprom in order to allow the return of the turbine to the company.
Now go to Canada, and this story from the Globe and Mail (my emphasis added):
Germany’s Foreign Minister said Berlin warned Ottawa that the EU country could be forced to suspend military and economic aid to Ukraine if a Russian gas pipeline turbine stranded in Montreal, a result of Canadian economic sanctions, wasn’t returned.
Annalena Baerbock said the German government told Canada that if the missing turbine led to a stoppage of natural gas from Russia, it could spark popular uprisings and force Berlin to halt support for Ukraine. The Ukrainian government is largely dependent on Western aid as it fights off a military assault by Russia that began in late February.
Baerbock was pressed on her claims about popular uprisings. She replied that it was “perhaps a bit exaggerated,” but said she was speaking of a scenario where “we had no more gas.”
What “no more” means is not altogether clear. It could be a reference to Putin turning off the taps, but it’s more likely that Baerbock was talking about a situation in which Putin switched off the taps for long enough that Germany’s reserves dropped to such a low level that keeping things ticking over on a basis roughly approximating to normal becomes an impossibility.
My best guess continues that Putin will turn off the taps, but not yet. For now, he is tightening the vise. Maybe he will loosen it again. And then tighten it again. Cat. Mouse.
Interestingly, Baerbock is not the only prominent European figure to warn of political trouble to come.
Frans Timmermans, the second most senior official in the EU, said the threat of unrest this winter, a deliberate outcome of Vladimir Putin’s invasion of Ukraine, must take precedence over the climate crisis.
He said: “If our society descends into very, very strong conflict and strife because there is no energy, we’re certainly not going to make our [climate] goals. We’re certainly not going to get where we need to get if the lack of energy leads to strong disruption in our societies, and we need to make sure people are not in the cold in the coming winter.
Meanwhile, the German ambassador has been walking back some of what Baerbeck had said (sort of):
The Globe and Mail:
German Ambassador Sabine Sparwasser contacted The Globe and Mail, saying Germany never threatened Canada with the withdrawal of aid to Ukraine. She said Germany is strongly supportive of Kyiv but is concerned about having enough gas for the hard winter ahead.
Fair enough, but what Baerbeck said was that “popular uprisings” might force Germany to change tack on Ukraine. Even if the reference to popular uprisings was an exaggeration, it is far from clear that Germany will be prepared to stick with its current (not entirely convincing) support for Ukraine in the event of major economic dislocation this winter, dislocation that will inevitably bring political trouble in its wake.
And Putin knows that.