For months European Union officials have claimed the Union should prepared if Russia decides to halt gas shipments to Europe indefinitely. However, Gazprom’s decision halt Nord Stream 1 deliveries, ostensibly due to needed turbine repairs, has shown the earlier EU confidence might’ve been premature. Energy markets are volatile right now with prices surging. If this was not bad enough, many European energy companies are facing margin calls at the worst possible time. Collateral cash is not available in the amounts needed, mainly owing to the volatility of energy markets, which has been sparked in-turn by the energy. The chips are down, and the red light is flashing on the continent as leaders and energy ministers try and come to terms with the crisis now staring directly at them.
Belgian Prime Minister Alexander De Croo warned today that swift action must be taken to prevent a broad economic shutdown continent-wide. “A few weeks like this and the European economy will just go into a full stop. Recovering from that is going to be much more complicated than intervening in gas markets today. The risk of that is de-industrialization and severe risk of fundamental social unrest.” De Croo made these comments in an interview with Bloomberg. Tomorrow 27 EU energy ministers will meet in Brussels to discuss a plan for intervention in European energy markets. As some analysts have said earlier this week, Europe is now facing a “Lehman Event” and swift intervention could be the only tool strong enough to stave off major disaster.
Even though European officials continue to claim gas storage supplies are sufficient enough to get EU nations through the winter, there’s increasing worry that if even one member-state must resort to blackouts and other energy restrictions it will create a domino-effect throughout the entire EU. Given the current state of energy in Europe this is a very possible prospect once winter sets in.
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.
With Germany in the midst of a deepening energy crisis German Chancellor Olaf Scholz is now calling for the construction of a pipeline which would reach from Portugal to Central Europe. Naturally, the goal of such a pipeline would be to reduce Germany’s dependence on Russian gas. Even though Germany and other European nations have made strides to shrink their dependence on gas shipments from Russia, it has become clear that reliance will not diminish before the winter season arrives. Scholz has broached the topic of a pipeline with the officials from Portugal, Spain, France and the European Union. Portuguese Prime Minister António Costa has been pushing for the pipeline proposal to be examined by the EU since the early days of Russia’ invasion of Ukraine. Germany and other nations with a heavy reliance on Russian gas paid the issue little mind.
Now Germany appears intent to push the matter, even publicly admitting regret that a sincere effort was not made earlier. Of course, the geopolitical situation has changed. Now that Germany is anxiously seeking other sources for natural gas supplies, a pipeline from Portugal to Central Europe suddenly seems to be an ideal solution.
Unfortunately for Berlin, the energy troubles confronting Germany are not strictly limited natural gas. Water levels on the Rhine River dropped to a critical low on Friday. This will affect barge traffic on the river and subsequently restrict the flow of essential commodities to inland Europe even more. Not exactly welcome news and a firm indication that the energy crisis facing Europe is a long way from being brought under control.
Europe is on edge as the Nord Stream 1 undersea natural gas pipeline running from Russia to Germany has gone offline for a 10-day maintenance period. Although European efforts to wean the continent off Russian fuel and energy continue, a large portion of Central Europe remains reliant upon Nord Stream 1. Austria, Italy and the Czech Republic receive gas by way of Nord Stream 1, and despite the European sanctions now in place against Moscow, Germany continues to obtain 30% of its natural gas from Russia. Until Germany and other European nations can remove the albatross from around their collective neck that is the dependence on Russian energy, Russia can use this to its advantage. In fact, it already is. Last month Gazprom reduced the westward flow of gas by 60%. The move sent energy prices surging and forced Germany to initiate the second stage of its emergency gas plan.
Naturally, German officials are becoming concerned Russia might use this pre-scheduled maintenance period to shut down the pipeline completely. Germany has been moving to fill its gas storage reserves by November to increase supplies for the winter. If Russia halts the gas flow entirely, a recession will become inevitable. This means the gas crisis Germany has been working hard to avoid will become a reality by the end of the year. Think tanks in Europe have become serious lately, analyzing the data, modeling the situation, and drawing conclusions on the matter. Some conclusions are more realistic than others, at least in my opinion. But a consensus has emerged that for Germany to weather the coming winter with only non-Russian gas supplies, consumption will need to be significantly lower than it has been in recent years.
The German and Russian governments both realize this as well.
US President Joe Biden did some damage control on his own behalf over comments he made over the weekend suggesting Russian President Vladimir Putin should be removed from power. Biden said today that he stood by the statement, yet it was a personal expression of his outrage and not an official change in US policy. “I was expressing the moral outrage I felt toward this man,” Biden told reporters today, effectively rejecting suggestions he misspoke. Right, Joe. 😊 Administration officials have been trying to put out fires created by the comments. Secretary of State Antony Blinken reaffirmed the United States does not “have a strategy of regime change in Russia or anywhere else, for that matter.”
The Group of Seven (G7) member nations have rejected Russia’s demand to pay for natural gas exports in rubles. G7 energy ministers and secretaries met via videoconference and affirmed that doing so would be a breach of existing contracts. Last week, Vladimir Putin announced that ‘unfriendly’ nations will now be required to pay for natural gas in Russian currency. Putin’s announcement raised gas prices even higher amid worries this could be a precursor to a shutdown of pipelines providing natural gas supplies to many European nations.
The next round of Ukraine-Russia peace talks will take place in Istanbul on 29 March, 2022. The Turkish government will be the host.
There have been conflicting reports on which side controlled Irpin, a town located north of Kiev. Initial reports of Ukrainian forces liberating the town made the rounds through much of Monday. In his nightly address President Volodymyr Zelenskiy clarified the situation. “The occupiers are pushed away from Irpin, However, it is too early to talk about security in this part of our region.” Translation: Russian forces have retreated from Irpin, but a counterattack is expected within the next 12 hours or so.