Russia decreases its gas shipments while Europe promotes energy saving

Wednesday, Russia sent less natural gas to Europe, worsening the energy dispute between Moscow and the European Union and making it more difficult and costly for the EU to fill its storage tanks before the winter heating season.

The supply cut announced by Gazprom (MCX:GAZP) earlier this week has reduced Nord Stream 1's capacity to barely one-fifth of its total capacity. Nord Stream 1 is the primary route for delivering Russian gas to Europe.

Nord Stream 1 accounts for around one-third of all Russian gas exports to Europe.

Tuesday, EU leaders approved a modified emergency plan to decrease gas usage after reaching compromise deals to restrict reductions for some countries, with the aim that a drop in consumption will offset the impact if Moscow entirely shuts supplies.

The policy raises concerns that states may not be able to meet their promises to refill inventories and keep their populations warm during the winter months, and that Europe's fragile economic progress would take another hit if gas is rationed.

Royal Bank of Canada analysts indicated that the strategy might enable Europe survive the winter if Russian gas supplies are between 20 and 50 percent of capacity, but warned against "market complacency" now that European leaders had handled the problem of their dependence on Russian gas.

While Moscow attributed the supply reductions on the delayed return of a repaired turbine and sanctions, Brussels accused Russia of using energy as a weapon to blackmail the European Union and retaliate against Western sanctions for its invasion of Ukraine.

Vitaly Markelov, deputy CEO of Gazprom, revealed that the company has not yet received a Siemens turbine used at the compressor station for Nord Stream 1 Portovaya, which is undergoing maintenance in Canada.

Siemens Energy reported that Gazprom was obliged to produce customs paperwork in order to return the turbine to Russia, while Markelov indicated that the equipment raised sanctions problems.

'SAVE GAS'

Wednesday between 1200 and 1300 GMT, physical flows across Nord Stream 1 decreased to 14.4 million kilowatt-hours per hour (kWh/h) from 28 million kWh/h the previous day, indicating just 40 percent of average capacity. The drop took place less than a week after the pipeline started operating after a 10-day maintenance hiatus.

European politicians have repeatedly warned that Russia might completely suspend gas shipments this winter, which would plunge Germany into recession and drive up consumer and industrial costs even more.

The Dutch wholesale gas price for August, which is the European norm, climbed by 7 percent to 210 euros per megawatt hour on Wednesday, representing a year-over-year rise of more than 400 percent.

Since mid-June, Germany, Europe's largest economy and major importer of Russian gas, has been disproportionately hit by supply delays, prompting a 15 billion euro ($15.21 billion) bailout for its gas importer Uniper.

Roberto Cingolani, minister of ecological transition, cautioned that if Russia totally discontinued gas shipments, Italy, another major importer that receives 40 percent of its gas from Russia, would experience a gas supply shortfall by the end of the following winter.

Uniper and Eni reported receiving less natural gas from Gazprom in recent days compared to previous days.

German Finance Minister Christian Lindner claimed he was open to the use of nuclear power to prevent an electricity deficit.

Germany has indicated that, if Russia were to cut off its gas supply, it might extend the life of its three remaining nuclear power reactors, which generate 6 percent of its electricity.

Klaus Mueller, head of the country's network regulator, indicated that Germany may yet be able to avoid a gas shortage that would entail rationing, and he urged households and businesses to "save gas."

German industry organisations, on the other hand, have cautioned that firms may be forced to curtail output to achieve larger cost savings, noting the glacial approval of replacing natural gas with other, more polluting fuels.

Upon request, Ola Kaellenius, CEO of Mercedes-Benz, claimed that a combination of efficiency improvements, increased energy consumption, temperature reductions in manufacturing facilities, and the conversion to oil may cut gas use by up to 50 percent within a year.

Germany is now under Part 2 of a three-phase gas emergency plan, with the last phase occurring when rationing can no longer be avoided.