In recent weeks, the Nord Stream 1 pipeline has been the focus of a row between Russian and EU member states after Russia cut the amount of natural gas it sends to Europe by 20%.
Despite Russian’s largest energy supplier Gazprom, citing technical issues for the cut, critics have accused the Russian government of using gas as a political weapon.
Amid the fear of gas shortages, the EU capital, Brussels has been looking for ways to secure enough gas reserves to supply EU members states through the coming winter.
To shed some light on the ongoing situation, let’s take a closer look at Nord Stream 1 and why it’s important to Europe.
What is Nord Stream 1?
Nord Stream 1 is a set of two pipelines that have been operational since 2012. Combined, they transport approximately 55 billion cubic metres of natural gas (bcm) a year, providing energy to more than 26 million European households. The pipeline stretches 1,200 km under the Baltic Sea from St Petersburg in Russia, to North-Eastern Germany.
The pipeline is owned and operated by Nord Stream AG, whose majority shareholder is Gazprom. The other shareholding companies are Norway’s Wintershall Dea AG, Switzerland’s PEG Infrastrukture AG (E. ON), the Netherlands’ N.V. Nederlandse Gasuni, and French company ENGIE.
By June 2022, Germany was importing 26% of its gas from Russia with most it coming through Nord Stream 1. Germany had also agreed to the construction of a parallel pipeline – Nord Stream 2. However, the pipeline has yet to become operational due to the Russia’s invasion of Ukraine.
What is Russia’s involvement in Nord Stream 1?
In May 2022, Gazprom closed the Yamal gas pipeline, which runs through Belarus and Poland and delivers gas to several European countries. Then, in mid-June, Gazprom cut supplies through Nord Stream 1 by 75% – reducing natural gas supplies from 170 million cubic metres (mcm) of gas a day, to approximatley 40 mcm.
In early July, Russia closed Nord Stream 1 for a total of 10 days, citing the need for technical maintenance. Upon reopening, Gazprom reduced supplies even further to 20 mcm. As a result, the wholesale price of gas in Europe increased by 10%, making gas prices 450% higher than they were one year ago.
Despite Russia citing ‘maintenance’ as the reason for closing Nord Stream 1 and then reducing supplies, critics have said that the cuts are politically motivated as less gas creates more demand, which means Russia can increase export prices.
In response to the cuts, Kadri Simon, the EU energy policy chief said that ‘‘there’s no technical reason for Russia to reduce gas prices and that the EU needs to counter Moscow’s moves by pre-emptively reducing gas consumption.’’
Ukraine’s President Volodymyr Zelensky referred to the cuts as ‘‘an overt gas war that Russia is waging against a united Europe’’. And Kate Dourian, fellow at the Energy Institute said ‘‘Russia is weaponising gas more and more’’.
How is Europe being affected by reduced gas flows?
Nord Stream 1, is the single biggest pipeline that brings essential supplies of Russian natural gas to Europe via Germany. As such, Europe is heavily reliant on the pipeline and Russian natural gas. So much so, that in 2021, Russia supplied 40% of the EU’s natural gas.
With gas supplies significantly reduced, many European industries that rely on natural gas face been negatively impacted. For example,chemical and fertiliser production companies are facing a potential crisis as they depend on gas for feedstock and to operate key machinery. Likewise, heavy manufacturing companies are also likely to be affected as gas is essential for production.
However, the sector that has been hit hardest is utilities. German energy company Uniper is the most visible casualty of the cut in gas supplies, and at the time of writing, the company is in talks with the German government about a potential bailout as they’re unable to offset rising costs against consumer energy bills.
Since the outbreak of the war in Ukraine, Germany has been looking for alternative gas supplies from Norway and the Netherlands. It also plans to buy five floating terminals to import liquefied natural gas from Qatar and the US, however, the construction of the terminals will take several months.
Both Spain and Italy are in the process of trying to import more gas from Algeria, and Germany is increasing its use of coal, despite its impact on the environment. The country is also extending the life of power stations that were previously marked for closure.
In late July, the EU negotiated a deal in which the member states would reduce their gas consumption by 15%. There has also been reports of EU citizens installing solar panels and buying wood stoves to reduce their own gas consumption.
What are the latest developments with Nord Stream 1?
At the time of writing, international energy company E. ON, recently announced that it has significantly reduced its value of investment in Nord Stream 1 by almost £600m because of ‘increased uncertainties’ following Russia’s invasion of Ukraine. The company previously held a 15.5% stake in the pipeline with a value of approximately £1 billion, so its revaluation represents a 58% decline.
Another recent development is that Germany’s stance on blocking the operation of the new Nord Stream 2 pipeline remains unchanged. In February, following the start of the war in Ukraine, Germany halted all plans for the new 1,200 km pipeline to begin operations.
The decision to pause the project has raised concerns over further increases in gas prices for Germany. However, Steffen Hebestreit, the Cabinet spokesperson said: ‘‘Germany will not put the Russian gas pipeline Nord Stream 2 into operation even if the energy supply situation deteriorates in the coming months.’’
What does the future hold for Europe’s gas supply?
At this stage, there are no certainties about what will happen with the Nord Stream 1 pipeline. Despite offering reassurances, it’s possible that Russia could decide to completely cut gas flows to Europe over the winter. In turn, this would send much of Europe into a recession, further inflating the price of food and energy.
As Europe’s largest economy, Germany in particular, could be hit hard if gas supplies were to be cut over the winter. The country depends on Russia for around one third of its gas supplies and has been racing to fill its storage facilities in time for winter. At the time of writing, Germany has reached 75% of its gas stocks, ahead of schedule.
Further to the EU’s agreement to reduce gas consumption by 15% over winter, there’s the possibility that the reduction could be made mandatory if member states fail to achieve the target. So far, Greece, Italy, Spain, Poland, and Portugal have opposed the proposal.