Europe races to cut Russian gas usage amid new Putin warning

[July 20, 2022]  By Kate Abnett and Nina Chestney

BRUSSELS/LONDON (Reuters) -The European Union will set out emergency plans on Wednesday to curb gas usage after President Vladimir Putin warned that Russian supplies sent via the biggest pipeline to Europe, Nord Stream 1, were at risk of being reduced further.

Deliveries via the pipeline, which accounts for more than a third of Russian gas exports to the EU, are due to resume on Thursday after a 10-day halt for annual maintenance.

But supplies via that route had been reduced even before the maintenance outage because of a dispute over sanctioned parts, and may now face further cuts, while deliveries via other routes, such as Ukraine, have also fallen since Russia invaded its neighbour in February.

The disruptions have hampered Europe's efforts to refill gas stores before winter, raising the risk of rationing and another hit to fragile economic growth if Moscow further restricts flows in retaliation for Western sanctions over the war in Ukraine.
 

The European Commission's plan will urge countries to slash gas use. A draft seen by Reuters proposed a voluntary target for countries to cut gas demand over the next eight months, which could be made legally binding in an emergency.

EU officials said the target cut would be 10%-15%, with any plan needing approval from members of the 27-nation bloc. But EU officials say it is vital to act now rather than wait to see what happens to flows via Nord Stream 1 or other routes.

"We believe that a full disruption is likely and it is especially likely if we don't act and leave ourselves vulnerable to it," one said. "If we wait, it will be more expensive and it will mean us dancing to Russia's tune."

European politicians have accused Russia of playing politics with its gas supplies, using technical issues as a pretext to reduce deliveries. The Kremlin says Russia remains a reliable energy supplier and has blamed reduced flows on sanctions.

Two Russian sources familiar with Russia's export plans said flows via Nord Stream 1 were expected to restart on time on Thursday after being halted on July 11 for annual maintenance.

But they said it would below its capacity of 160 million cubic metres (mcm) per day.

Kremlin-controlled Gazprom cut gas exports via the route to 40% capacity in June, blaming delays on the return of a turbine that Siemens Energy was servicing in Canada.

FURTHER REDUCTIONS

That turbine, which was caught up in sanctions, was reported this week to be on its way back, although Gazprom said on Wednesday it had not received documentation to reinstall it and said the turbine's return and maintenance of other equipment was needed to keep the pipeline running safely.
 

Model of natural gas pipeline and Gazprom logo, July 18, 2022. REUTERS/Dado Ruvic/Illustration

Putin suggested there might be a further reduction in supplies via the pipeline that runs under the Baltic Sea to Germany, Europe's economic powerhouse which has relied heavily on Russian fuel, adding to European supply concerns.

Gas prices have rocketed in volatile trade since the Ukraine crisis erupted. The front-month gas contract climbed above 160 euros per megawatt hour (MWh) on Wednesday, 360% up on a year ago but below its March peak of 335 euros.

Putin said there were five gas pumping units, operated by Siemens Energy at Nord Stream 1 and one more unit was out of order due to "crumbling of inside lining."

"There are two functioning machines there, they pump 60 million cubic metres per day ... If one is not returned, there will be one, which is 30 million cubic metres. Has Gazprom something to do with that?" he said.

Putin said one more of the gas pumping turbines was due to be sent for maintenance on July 26.

He also said Gazprom, which has a monopoly on Russian gas exports by pipeline, was not to blame for the reduction of gas transit capacity via a network of pipelines to Europe.

He blamed Kyiv for closing one route via Ukraine, although Ukraine's authorities blame the shutdown on Russia's invasion.

Siemens Energy said maintaining turbines for the Nord Stream 1 would normally be a routine matter. It said it would continue maintaining equipment under sanctions if possible and where required, and it would work as fast as it could.
 

In a pivot east, Gazprom said on Wednesday Russian gas supplies heading to China via its Power of Siberia pipeline hit a new daily record. Moscow has been expanding capacity to supply China even as deliveries to Europe dwindle, although Russia's far east network is not connected to the European supply system.

European nations, meanwhile, have been chasing alternative supplies, although the global gas market was stretched even before the Ukraine crisis, with demand for the fuel recovering from the pandemic-induced downturn.

Those efforts have included seeking more gas from suppliers linked to Europe by pipeline, such as Algeria, and by building or expanding more liquefied natural gas (LNG) terminals to receive shipments from much further afield, such as the United States.

(Reporting by Reuters bureaus; Writing by Edmund Blair; Editing by Carmel Crimmins)

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