Economic Statecraft
On the Situation Concerning the Nord Stream Pipeline. Prospects for Further Gas Transport Between Russia and the EU

Against the backdrop of a rapidly unfolding flywheel of mutual restrictions and diplomatic confrontation between Russia and the West since the start of the special operation in Ukraine, the Nord Stream gas pipeline has found itself at the centre of an already-difficult and unpredictable political-sanction clinch between the Euro-Atlantic allies and Moscow.

During the course of pre-planned repair and maintenance work on the gas compressor units (GPU) of the main Portovay compressor station of the old North Stream 1, back in December 2021, one of the Siemens turbines was delivered, in accordance with the terms of the service contract, to Canada (Montreal ). However, the Canadian authorities decided to postpone the return of the repaired equipment, apparently deciding in this way to contribute to the overall Western policy of “curbing the Russian regime” in connection with offensive military operations in Ukraine. As a result, the gas transmission operator, a subsidiary of Gazprom, had to first reduce the supply of blue fuel to 40% of the possible throughput volume (from April this year), and then completely stop pumping for 10 days in July. At the same time, in the political circles of the EU and the USA, the Russian company’s decision was used to further inflame Russophobic sentiments, to further marginalise Moscow and strengthen the theses about the “weaponisation” of the energy sector as an additional strategic weapon of the Kremlin.

Economic Statecraft
Friendly Fire: Sanctions Against Gazprom Trigger Another Gas Crisis in Europe
Vitaly Yermakov
If Europe and Canada are unable to find a face-saving compromise to deal with the sanctions mess over gas turbines now, by November Germany’s choice might become even more embarrassing: to let Nord Stream 2 flow or risk a full-blown gas crisis and super-high prices in the midst of winter, writes Valdai Club expert Vitaly Yermakov.
Expert Opinions

After difficult negotiations between Ottawa and interested German authorities, who, most likely, pointed out to their North American partners the scenario of a real energy crisis looming over Europe due to the disruption of plans to purchase the Russian pipeline gas necessary for the coming winter, a turbine for the Portovaya station was sent, but not to St. Petersburg, as was stipulated, but to Germany, where it still needs to be certified for further transportation to Russia. In this context, the “principle of double standards” that has ingrained itself in all links of the decision-making chain of the Euro-Atlantic bloc is no longer surprising. In this situation, the short-sightedness of the “sanctions club” of the West has hit German industry and households, forcing the German Foreign Ministry and the Ministry of Energy and Economics to literally invent possible options for providing already agreed-upon repairs to Gazprom without violating the sanctions regime imposed by Washington.

As a result of a number of deliberate logistical violations on the part of Canada and the delay of Gazprom’s German counterparties in preparing the relevant technical documentation, the Portovaya is still operating at only 30% of its capacity, with only one of the six units required for pumping fuel. 

Gazprom plans to carry out further repair procedures in order to ensure the safety of the operation of the transport hub amid the package of Western sanctions in force against the exporter, which complicates the shipment and return of pumping power plants that require maintenance. So it stands to reason that the next interruptions in the supply of Russian gas to the EU can hardly be seen as an “evil” move , but a forced, non-alternative measure of Moscow to prevent critical emergencies and to fulfil its contractual obligations amid conditions where the second branch of the joint venture has been blocked and transit through the gas transmission system of Ukraine has been curtailed.
The situation with the Nord Stream clearly illustrates the degradation of the legal basis for Russia’s interaction with the countries of the collective West and the lack of prospects for the revival of fairly-conducted trade in the medium term.

The actions of the Canadian authorities and Berlin’s solidarity with its transatlantic partners, which artificially creates obstacles to the implementation of joint gas transportation projects, indicate the predominance of the political factor in the traditional trade and economic mechanisms of interaction between the Euro-Atlantic partners and Moscow. Taking into account the significant rise in the cost of hydrocarbons, the failure of the “green transition” in Europe and the ongoing stagnation of Western markets, the leading circles of Brussels and Washington considered that the time had come to transfer responsibility for turbulence in the energy markets and dynamically accelerating inflation in key European countries to Russia. At the same time, the strengthening mechanism of unfair competition in the EU natural gas market becomes obvious. Gazprom’s competitors, primarily among the American LNG producers, see their interest in presenting Moscow as an “extremely unreliable partner” that imposes long-term contractual “bondage” on fuel supplies to democratic countries, and they are only waiting for the expensive LNG, given the current spot prices.

At the same time, it is worth recognising that the Russian stakes on the tactics of “sobering up” its main trading partner, which risks not getting even half of the 155 billion cubic meters of natural gas it requires ( most of which is used by Germany, France, Italy and Austria), runs the risk of not working at all without North Stream-2. In the current conditions of consolidating the efforts of the US and the EU, which are determined at all costs to undermine the energy monopoly of Russia in European markets without regard to potential costs, the economy is controlled by a bloc political model that can actually reshape the traditional production and logistics chains that have been formed on the continent for decades.

At the same time, we are already seeing how the world gas market reacts sensitively to any technical or deliberate large-scale reductions in supply. The cost of natural gas at the Dutch hub TTF was now almost $1,700 per thousand cubic meters this July. Given the current agenda and approaching winter, this uptrend will only strengthen in EU spot markets. Such trends will inevitably affect the cost of all elements of production schemes in key sectors for the global economy: agriculture, fertilizers, the chemical industry, transport, etc. Such forecasts are mutually unacceptable both for the leadership of Brussels, which once again feels the growth of Eurosceptic sentiments among the masses dissatisfied with the well-being, and for Moscow, which is forced to look for an alternative to its usual European market, and it is obvious that, for example, new Asian partners will demand a solid discount for access to their markets.

At the same time, it can be assumed that with the growth in the cost of pipeline gas and its unreliability due to excessive politicisation, LNG will become the predominant form of blue fuel trade in the future. In this regard, Russia has solid potential rebuilding its export model and entering the global market. At the same time, the existing infrastructure in the east (“Power of Siberia”) could also be oriented towards the delivery of gas to Chinese LNG terminals for further transportation to Southeast Asia, India and Latin America. In this context, it is strategically important to maintain a partnership channel with China, as the main fast-growing consumer of natural gas and a key transport hub in East Asia.

Modern Diplomacy
Europe Contemplates the End of the Golden Age of Pipelines
Leonid Grigoryev
Apparently, computer models show the continental balance of gas in the EU for the winter, taking into account the reduction in demand. In real life, everything is somewhat more complicated. The EU's intention to reduce overall gas consumption by 15 percent by March 2023 is probably feasible, but only if there is moderately cold winter, writes Leonid Grigoriev, a tenured professor at the National Research University Higher School of Economics
Expert Opinions
Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.