Putin could come to regret his gas game with Europe

24 July 2022

3:15 PM

24 July 2022

3:15 PM

Russian president Vladimir Putin has always enjoyed trolling European leaders. As relations between Moscow and Berlin deteriorate over reduced natural gas supplies and Ukraine-related sanctions, Putin is now brazenly gaslighting his German counterpart, chancellor Olaf Scholz. But it’s a move he could come to regret.

Putin suggested this week that Germany should give the shelved Nord Stream 2 gas pipeline the go ahead to restore gas flows to normal levels. The amount of Russian gas flowing into Germany along the operational Nord Stream 1 pipeline under the Baltic Sea is capped at 67 million cubic metres per day (MMcm/d), or about 40 per cent of its technical capacity. Russia claims this is due to a technical fault that could not be fixed under sanctions. Few take this excuse at face value.

Putin says certifying the newly-built but inoperative second phase of Nord Stream would offer a workaround solution. The Russian leader told journalists in Tehran this week that he raised the issue of Nord Stream 2 with Scholz about two months ago. The Scholz administration suspended the certification process after Russia’s full invasion of Ukraine in February.

The Nord Stream 2 proposal is not a serious one. In theory, bringing an unused gas pipeline into service might offer additional capacity to make up for lost volumes. But to believe that, you would also have to believe that Gazprom (read: the Kremlin) is acting in good faith and intends to use the capacity at its disposal.

This is patently not the case. There is idle capacity on pipelines in Poland and Ukraine that could be used to make up for Gazprom’s ‘inability’ to run Nord Stream 1 at full whack. Warsaw has hardened its stance towards Moscow since Russia’s full invasion of Ukraine, but the decrease in gas flows predates any concrete measures taken by the pipelines’ host countries to prevent their usage.

Greenlighting Nord Stream 2 would be tantamount to Germany hoisting a white flag in its standoff with Russia. It would also achieve precisely nothing. Despite Putin’s claims to the contrary, Russian state gas exporter Gazprom has trashed its own reputation as a reliable gas supplier by withholding gas volumes from the European market. The problem lies not in the amount of pipeline capacity at Gazprom’s disposal, but how the company chooses to use it.

Gazprom cut Nord Stream 1 flows to 40 per cent on 15 June. Flows were subsequently reduced to zero during a ten-day period of routine maintenance that ended on 21 July, when they returned to the capped level of 40 per cent. Gazprom claims flows cannot go any higher because a failed gas compressor turbine, which is needed to pump the gas more than 1,200 km (750 miles) under the Baltic Sea, could not be returned from a Siemens service base in Canada due to Ukraine-related sanctions.

It is telling that Gazprom waited a month before retroactively issuing a force majeure notice to its European gas buyers over the turbine issue. And that notice – known as an ‘act of God’ clause – was first reported on 18 July, the exact same day that Russian media said the repaired turbine had left Canada and was headed back to Russia via Germany.

Uniper, Germany’s biggest importer of Russian gas, has already rejected the notice, saying the claims are unjustified. A spokesperson for Germany’s economy ministry was quoted as saying the refurbished turbine is a spare that was not due to be used until September, casting doubt on its absence as the real cause for the drop in gas flows.

The turbine in question is now believed to be making its way back to Russia after the Canadian government issued a time-limited exemption to its sanctions package. The unit is due to be reinstalled at a compressor station at Portovaya, at the Russian end of the Nord Stream 1 pipeline, by early August. In theory that should allow exports to rise back to full capacity, but don’t hold your breath.

This won’t be the last of it. Putin says Gazprom needs to send at least one more turbine from Portovaya back to Canada for refurbishment, but cannot do so until documentation about the legal status of the first one has been received to confirm that it is not under sanctions and will not be confiscated.

By Putin’s own admission, opening Nord Stream 2 would not replace the missing gas volumes on Nord Stream 1. After Germany froze the certification process, Gazprom apparently redirected half of the gas intended to run through Nord Stream 2 for ‘domestic consumption and processing’ in Russia, meaning Russia no longer has enough gas to fill either pipeline to capacity.

Proposing a politically unpalatable solution to a ‘technical’ problem is part of the normal cut and thrust of geopolitics. Proposing a technically unworkable solution to a political problem is pointless provocation. Putin might enjoy point-scoring but the European energy crisis is a problem for Russia as much as it is one for Scholz and his European allies.

The coming winter will see industrial gas consumption throttled back across Europe in a bid to avoid blackouts in the event that Gazprom reduces gas flows further. Industrial activity is being wound down at an alarming pace and cannot be easily reversed, meaning gas demand will not return quickly, even if Russia-Germany relations are magically repaired and gas becomes cheap and abundant again.

The European Union, for all its flaws, is now taking Moscow’s threat seriously and is legislating to force member states to cut their consumption this winter, while progressing longer-term plans for a future without Russian energy imports. The EU is bracing for extreme short-term economic pain but could emerge in a few years’ time with a more resilient, if smaller, industrial economy and energy system.

Russia cannot easily replace European gas purchases. Pipelines to China will take many years to build, as would the capacity to liquefy and export volumes as liquefied natural gas (LNG) to global markets. Putin is plotting the demise of Russia’s main energy customer without the ready means to replace it. Scholz might yet have the last laugh.

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