Sabotage In The Baltic

As expected, evidence surrounding the underwater explosions along the Nord Stream 1 and 2 pipelines in the Baltic Sea on Monday is leaning towards sabotage as the cause. And just as predictably, fingers in Europe and Washington are instinctively pointing east towards Russia. Two explosions caused large leaks in both undersea natural gas pipelines. The Nord Stream pipelines originate in Russia.

Now experts are trying to decipher the meaning behind the attacks while energy and security officials in Europe are now forced to deal with the possibility of further attacks on fuel infrastructure sites. Retired senior German intelligence official Gerhard Schindler told German news channel Welt that Russia is the only real suspect behind the attack.  “An unnoticed, conspiratorial damage to pipelines at a depth of 80 meters in the Baltic Sea requires sophisticated technical and organizational capabilities that clearly point to a state actor. Only Russia can really be considered for this, especially since it stands to gain the most from this act of sabotage.”

What exactly can Moscow expect to gain from sabotaging its own natural gas pipelines, provided they are responsible? For starters, with Nordstream 1 now out of commission for an extended period because of the explosions, Europe is caught between two chairs. With winter approaching and concern about whether there will be sufficient energy supplies to get through the season, the eastern option is now completely off the table. This means that now European nations that are heavily dependent on Russian natural gas, especially Germany, have to find new energy sources to replace what was permanently lost following Monday’s explosions and leaks.

Despite official claims by Berlin that its natural gas stockpile is robust, German officials continue to seek new energy sources for the short term with increasing urgency. Perhaps the German government miscalculated the stockpile numbers and Germany really does not have anywhere near sufficient natural gas available. If this turns out to be the case, expect the blowback from it to be decidedly unpleasant around Europe and the rest of the world.

Nord Stream 1 Will Not Resume Operations On Saturday As Scheduled

Saturday’s scheduled resumption of operations for the Nord Stream 1 natural gas pipeline has been put on hold. Perhaps indefinitely. Gazprom, the Russian energy firm in charge of gas exports via pipeline announced it has discovered faults during a three-day maintenance period that commenced on Wednesday. An oil leak at the Portovaya compressor station is being blamed as the main culprit. Gazprom has not given an estimate on when gas exports will resume. “Until the issues on the operation of the equipment are resolved, gas supplies to the Nord Stream gas pipeline have been completely stopped,” Gazprom said in a statement Friday.

It is not clear whether the pipeline is indeed suffering from maintenance issues or if this is simply the next stage of energy brinkmanship currently underway between Russia and Europe. The timing of the shutdown is suspicious as it comes  on the day G-7 nations agreed to impose a price cap on Russian oil to minimize Moscow’s ability to finance the war in Ukraine, and simultaneously act as a hedge on global inflation.

Germany is most anxious over Nord Stream 1. Despite efforts to obtain energy independence from Moscow, efforts by Berlin to secure other natural gas sources have not met with rapid success. Progress is being made, however not at the pace Germany was hoping. Therefore, with Nord Stream 1 closing down, the possibility of an energy crisis through the winter months now becomes a stark possibility.

Germany continues to say that the nation is well prepared to cope with a disruption in natural gas supplies. Over the last month the government has boasted about its preparations and growing amount of gas in storage. However, for the stored natural gas to last through the entire winter, usage might need to be limited. This will have a direct effect on the German economy and its population.

Russia Reduces German Gas Supply Further

With Gazprom 1 having announced another reduction in the Nord Stream 1 pipeline’s output to around twenty percent of its capacity, Germany and other Central European nations could be faced with having to make some unpalatable choices in the weeks to come. Service resumed on the pipeline last week following a ten-day maintenance period at roughly 40 percent capacity. Now that has been halved and the prospect of even deeper reductions is looming. Other nations in Central Europe are contending with reductions as well. Italy has been informed by Gazprom that the amount of gas it normally receives is being reduced as well. The Russian energy giant claims overall gas flow in the pipeline is lower because of technical concerns with one of the turbine engines. Germany claims this reason is a ‘made up pretext’ and the move is nothing less than a Russian powerplay.

Earlier in the week EU energy ministers announced support for a voluntary 15% reduction in natural gas usage. The plan has been somewhat watered-down following resistance from Southern European nations, but the 27 member-states have agreed to cut back on usage by the winter. The plan is an effort to make certain fuel supplies are adequate for the coming winter. Despite the claim by Brussels that the bloc is united in standing up to Russian energy strongarm tactics, objections by nations not reliant on Russian gas raise the prospect of a disunited front in the future.

In a somewhat ironic reversal of fortunes from ten years ago, now it is Southern European nations like Spain and Portugal chiding Germany for its failure to prepare and short-sighted thinking. They’re not wrong. Berlin ignored the warnings for quite some time as it became dependent on Russian gas. Therefore, the argument put forward by Madrid and Lisbon is that the Germans should carry the largest burden instead of nations whose economies are not reliant on Russian gas.

Gazprom’s Force Majeure Claim Rattles Nerves in Germany

Yesterday’s declaration by state-owned Russian energy giant Gazprom that ‘unforeseeable circumstances’ could make it unable comply with European gas contracts is placing Germany in an even more precarious position. The prospect of Russia shutting down the flow of natural gas to Germany seems more probable. With Gazprom threatening to send less gas to Germany and other European nations, German firm Uniper, a major energy importer, has rejected the claim. According to a company spokesperson, Uniper rejects the force majeure claim put forward by Gazprom. Realistically, Uniper’s rejection does not change matters one way or another.

The Nord Stream 1 pipeline is scheduled to come off its 10-day maintenance period and resume operations on Thursday. It’s unclear if the pipeline will start operating at a reduced capacity, or at all. Despite Berlin claiming to have reduced its overall dependence on Russian gas from 55% to 35% it is still highly dependent on Nord Stream 1. The two other pipelines providing natural gas to Germany from Russia were closed off.

Many analysts still seem to agree that Nord Stream 1 will resume operations, albeit in a limited capacity, perhaps. However, Germany’s nightmare scenario of Putin halting gas deliveries entirely is haunting Berlin and Brussels. The nation is already falling behind efforts to top off its natural gas storage supplies before winter sets in. We discussed this in an earlier entry last week. Gas rationing and other conservation steps will have a detrimental effect on the German economy.  A number of companies are concerned such measures will force them to close permanently.

Germany is not the only target either. A dozen EU nations have seen their gas supplies from Russia either severely reduced or cut off entirely. The lack of a European-based energy sharing plan and the shortsighted thinking of EU leaders on the energy-security front are now coming home to roost.

Ukraine Update: 14 February, 2022 (AM)

Moscow is projecting the appearance of leaving a door open for further discussions of its security concerns, even as Russian military exercises continue and, in some cases, intensify. Russian President Vladimir Putin is supporting a need for further discussion, even as he emphasizes his nation’s worries about “the endless, in our opinion, and very dangerous expansion of NATO to the East.” At the moment, Putin is referring to the possibility of Ukraine becoming a NATO member. Putin met with his senior advisors today for an update. Foreign Minister Sergei Lavrov reiterated Putin’s positive comments on more dialogue with NATO and the West while Defense Minister Sergei Shoigu said that some of the military exercises are drawing to a close while others will end in the near future.

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German Chancellor Olaf Scholz has embarked on the shuttle diplomacy circuit. Today, he is in Kiev discussing the crisis with Ukraine’s leader Volodymyr Zelensky. Scholz has come under fire for Germany’s somewhat skittish support for Ukraine lately and hopes this trip will help to erase the looming misperception that Berlin has been reluctant to back Ukraine for fear of provoking Russia to curtain natural gas supplies to Germany.The German chancellor will arrive in Moscow tomorrow for talks with Vladimir Putin.

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 As Scholz arrived in Kiev, Western nations are withdrawing more embassy staff and military personnel from Ukraine. More airlines are also avoiding Ukrainian airspace as the crisis with Russia continues. The Ukrainian government announced it was ready to assume financial responsibility for the safety of aircraft flying through its airspace. Kiev has dedicated over $500 million to keeping its airspace open to commercial flights in the face of many insurance and leasing companies balking at carriers use of Ukrainian airspace as tensions and the threat of Russian military action rise.