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.
Companies across Germany became more gloomy about their current predicament and the outlook for the next six months, according to the Ifo Institute’s closely watched index of business confidence. Second-quarter gross domestic product figures out on Friday are expected to show growth of only 0.1 per cent, according to economists polled by Reuters.
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.
European capitals will interpret Gazprom’s action as Russian retaliation for sanctions imposed after its invasion of Ukraine. Europe is already struggling to fill gas storage facilities, leading to warnings of rationing for industry and concerns about shortages for domestic users.
Tom Marzec-Manser at consultancy ICIS said if the latest Russian supply cuts were to last they would require further efforts from European governments “to incentivise demand reductions, especially from the industrial sector”.
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”.
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.
Gas flows will drop to 33mn cubic metres a day of gas from 4am GMT on Wednesday, Gazprom said, down from a full capacity of more than 160mn cubic metres and half of current flows. Gazprom resumed partial gas supplies through NS1 last week after a planned outage for repairs.
Russia’s gas monopoly said on Monday it was cutting the flow because it was halting another turbine for maintenance, following through on a threat from president Vladimir Putin last week to slash volumes.
There have been concerns in Europe that Russia will completely halt exports of gas, leading the European Commission to tell EU member states to cut their consumption by 15 per cent over the winter.
EU capitals have pushed back against the plan and ambassadors in Brussels have struggled to reach a deal that is due to be signed off by energy ministers at an emergency meeting on Tuesday.
“There is no plan B,” a senior EU diplomat said about the importance of the gas reduction deal. “It is important for us to show the EU remains united in these difficult times and we are prepared for the worst-case scenarios.”
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.
Additional reporting by Joe Miller in Frankfurt and Alice Hancock in London
