Natural gas started flowing through a major pipeline from Russia to Europe on Thursday after a 10-day shutdown for maintenance, the operator said. But the gas flow was expected to fall well short of full capacity.
Vladimir Putin and Russian state-owned energy giant Gazprom appear to be turning the screw on Europe by limiting gas supplies. The head of the International Energy Agency has now warned that Europe needs to prepare immediately for the eventuality of Russia turning off all gas exports to the region this winter. The invasion of Ukraine has triggered a scramble by countries to wean themselves off energy imports from Russia, but fresh urgency has been injected into those efforts.
A drilling rig at a gas processing facility, operated by Gazprom.
Russia may have just made its first retaliatory move against Finland after lawmakers in Helsinki officially applied to join the NATO military alliance.
Gasum, Finland’s state-owned gas wholesaler, said in a statement Friday morning that imports from Russia will be halted starting Saturday.
“On the afternoon of Friday May 20, Gazprom Export informed Gasum that natural gas supplies to Finland under Gasum’s supply contract will be cut on Saturday May 21, 2022 at 07.00,” it said in a statement.
Gasum’s CEO, Mika Wiljanen, added that the company had been preparing for such a situation “and provided that there will be no disruptions in the gas transmission network, we will be able to supply all our customers with gas in the coming months.”
“Gasum will supply natural gas to its customers from other sources through the Balticconnector pipeline. Gasum’s gas filling stations in the gas network area will continue in normal operation,” he said.
A spokesperson for Gazprom was not immediately available when contacted by CNBC.
It comes after Russia’s state-run gas giant in April told Poland and Bulgaria that it would halt flows after both countries refused Moscow’s demand to pay for gas supplies in rubles.
A previously concluded contract with a price guarantee until the end of 2023 was allegedly suddenly terminated
Since Eckehard Vatter’s bakery is a craft business under commercial law, he could not receive any support from the state. (Pexels/Pixabay.com)
The energy company E.on has demanded a significantly higher gas bill from the Hanoverian bakery owned by Eckehard Vatter, sending his company a bill of €330,000 for gas consumption over the past four months. In addition, the man has to pay the amount within 14 days, German news outlet Junge Freiheit reported.
“Are they crazy?” Vatter reacted indignantly, according to the Bild newspaper. “A year ago, we paid €5,856 per month in gas costs for our large furnaces and heating,” he explained.
The chief of the family business had formerly concluded a contract with a price guarantee until the end of 2023. However, it was allegedly suddenly terminated. Now, his new energy supplier is demanding a price increase of 1,200 percent. Vatter has not received a reason for the increased price.
Since his large bakery is a craft business under commercial law, he could not receive any support from the state. He claims to have paid around €19.9 million in taxes in recent years. That’s why Vatter recently took part in a demonstration in Hanover with approximately 1,000 colleagues under the motto: “Soon the oven will be turned off!”
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November 28 (SeeNews) – The CEO of Moldovan public natural gas distributor Moldovagaz, Vadim Ceban, said on Monday that the company paid Russia’s Gazprom $21.4 million (20.5 million euro) for gas delivered so far in November.
“As of November 21, Moldovagaz provided a $21.41 million advance payment to Gazprom representing 50% of the cost of natural gas for November. Taking into account the changes in the structure of natural gas consumption on the right bank of the Dniester river, which led to an increase in natural gas supply volumes from 52.11 million cu m to 102.0 million cu m, Moldogavaz’ payment obligation increased to $41.9 million,” Moldovagaz CEO Vadim Ceban wrote in a statement on his Telegram channel.
Earlier on Monday, Russia’s Gazprom said it has decided against curtailing gas exports to Moldova after energy company Moldovagaz paid for quantities stuck in Ukraine, but stressed that it reserved the right to reduce or cut off gas supply if the country defaults on its payments.
“Gazprom reserves the right to reduce or completely stop gas supplies in case of payment violations,” the Russian company added.
On Wednesday, Gazprom accused Ukraine of keeping gas supplies which transit through the country on their way to Moldova, and threatened to cut supply if that gas is not paid for. In response, Moldovagaz said in a statement at the time that it is deliberately keeping natural gas in Ukraine and that it has always had a good relationship with its Ukrainian partners, as gas volumes were always timely delivered.
Ukrainian gas transmission operator said in a statement on Wednesday that all supplies that Russia sent through the country were fully transferred to Moldova.
Moldova has no gas deposits of its own and covers all of its gas needs by imports from Russia.
Gazprom owns 50% of Moldovagaz, the Moldovan government owns 35.33% and 13.44% is held by the government of Transnistria, the pro-Russian separatist republic within Moldova.
Earlier this month, the European Bank for Reconstruction and Development (EBRD) approved a 200 million euro loan ($199 million) to enable Moldova purchase emergency gas supplies.
($= 0.96 euro)
Industrial producers across Germany are coming up with unique ways to cut their dependence on natural gas as Russia’s war in Ukraine keeps prices high.
Melissa Eddy, a business correspondent based in Germany, reported this story in Berlin.
In the weeks after Russia invaded Ukraine, German lawmakers cautiously proposed ways to cut their country’s ties to Russian natural gas. The heads of some of Germany’s leading industrial companies, long reliant on Russian gas, wanted no part of it.
Martin Brudermüller, chief executive of the chemical maker BASF, one of Germany’s biggest corporations, warned in April that a cutoff of Russian energy “could send the German economy into its worst economic crisis since the end of World War II.”
Now the price of gas has soared, recently hitting five times what it was a year ago, and Gazprom, the Russian energy monopoly, continues to keep Germany’s chief executives on high alert by periodically throttling energy flows. The next temporary shutdown starts on Wednesday, when, Gazprom said, it will shut down the Nord Stream 1 pipeline for three days for repairs.
“We are in crisis mode, but we are not panicking,” Mr. Brudermüller said in an earnings call in July.
Germany has filled its gas storage tanks to more than 82 percent capacity, well ahead of schedule to prepare for winter. Analysts said this was possible, even after Russia had cut routine deliveries via Nord Stream 1 to only 20 percent of normal capacity, because companies had found ways to use less natural gas.
“The reduction in industrial gas demand that we have seen is not because of a large output loss or economic downturn in these sectors,” but because of flexibility in production or the ability to find import substitutions, said Clemens Stiewe, an economist at the Hertie School in Berlin, who has studied energy savings in German companies.
Not every manufacturer can operate with less gas. And no one knows how Germany, Europe’s largest economy and the one most reliant on Russian gas, will fare this winter when chilly weather causes gas demand to soar.
But BASF, for one, said it had begun using oil instead of gas to generate power and steam, and reducing production at its European plants that use a lot of gas, especially its facility in Ludwigshafen, described as the world’s largest chemical complex.
Detailing BASF’s efforts in the earnings call, Mr. Brudermüller said the company was scaling back ammonia production, which requires natural gas, and seeking to buy it from outside suppliers. Ammonia plays a key role in the manufacturing of fertilizer, plastics and other products.
Hans Engel, BASF’s chief financial officer, indicated that the company was also relying on an ammonia plant the company runs as a joint venture in Freeport, Texas, where production is cheaper because the price of natural gas in the United States remains a fraction of that in Europe.
The European Union has proposed that its members reduce their overall consumption of natural gas by 15 percent. Germany is going further, targeting 20 percent to prevent having to resort to rationing later in the winter.
The government in Berlin issued orders last week to limit the heating of public buildings to no more than 66 degrees Fahrenheit and to ban the use of illuminated advertisements overnight. German cities and states have already ordered public buildings and municipal swimming pools to reduce their temperatures, turn off hot water in public restrooms and dim the lights on monuments across the country as additional measures to save energy.
Private households, which combined use the most energy in Germany, have already shaved about 6 percent off their gas use this year. A government program is encouraging them to do more, dropping their thermostats by one degree in the coming winter and limiting showers to just five minutes.
If Russia cuts gas supplies so much that the government orders rationing, Germany’s industrial producers could face limits on the amount of gas they consume, even as households and essential services would be spared. Teams at a federal agency are crunching the numbers to determine priorities if rationing becomes necessary.
That pressure has encouraged the workarounds that have emerged in recent months.
Evonik, a specialty chemicals company that makes products used in refrigerators, face creams and violin strings, also relies on gas for power and for the chemical processes to make its products.
When gas prices started rising, Evonik’s engineers searched for where they could make cuts. An obvious solution was to keep a coal-fired power plant going past October, when it was scheduled to be swapped out for two new gas-fired plants.
“We built two fantastic new gas power plants, the best German engineering, but realized that we didn’t have any gas for them,” Christian Kullmann, the chief executive of Evonik, said on German television.
But when the plants were built, the engineers had also equipped them to burn liquefied petroleum gas, or L.P.G., a byproduct from refining crude oil.
A pipeline connecting Evonik’s plant in western Germany’s industrial Ruhr Valley with a nearby BP oil refinery offered a unique solution: The company could pipe in L.P.G. that BP would have otherwise burned off to power the new gas-fired plants.
“We just approached it with the idea that if we can’t use gas, we’ll have to do a bit of engineering,” said Matthias Ruch, a spokesman for Evonik. Running the plants on L.P.G. is less efficient than natural gas, but combined with the output from the coal-fired plant, they can generate enough power to keep the company running.
Mercedes-Benz recently said it could cut its natural gas use in half by sharing extra gas with other manufacturers in regional energy pools. And at the company’s Sindelfingen assembly plant, where the EQS and S-Class models are built, it said the plant’s paint shop could operate without gas in “emergency mode.”
That plan assumes companies will have excess gas that they can put up for auction. Gazprom warned this month that it could drive prices up further as falling temperatures drive up demand.
Such a move would hurt smaller companies with less flexibility, as their limited size and more regional production mean fewer resources to come up with solutions.
The country’s producers of fine porcelain, many of them storied companies that trace their history back centuries, remain dependent on gas to power their ovens to several thousand degrees. “Gas is currently the only energy source that ensures the physicochemical process in the production of white hard porcelain,” said Mads Ryder, chief executive of Rosenthal, referring to the china his company produces.
Although German ceramic and glass manufacturers are researching ways to replace gas with hydrogen or other energy sources, a functioning alternative process is at least a decade away, Mr. Ryder said.
With winter approaching, traditional gas-hungry industries may be left with no choice but to scale back or halt production entirely. But for those that have already found solutions, analysts said, the changes may prove lasting, regardless of what Russia does.
“The signal that energy security can’t be taken for granted is so clear that companies will continue to think of different scenarios even if there were a fast change, even if Russia were to deliver more gas and prices were to fall again,” said Eric Heymann, an economist with Deutsche Bank Research. “There is no going back to the way everything was before.”
Where can European countries turn?
European governments are increasingly turning to the US to supply greater volumes of expensive LNG. The UK could capitalise on the crisis by ramping up natural gas exports to the EU further via interconnectors. Figures from the Office for National Statistics show that goods exports to the EU rose for the third consecutive month to £16.4bn in April, the highest monthly level in current prices since comparable records began in 1997, driven by gas and crude oil shipped to the Netherlands and Ireland.
European governments are also attempting to get more piped gas from Norway and Azerbaijan and ramp up the use of renewable energy. Meanwhile, Asian countries, such as Pakistan, are increasingly having to turn back to heavily polluting coal as Europe snaps up all the gas.
Can Europe replace Russian gas by the winter?
No chance. Before the war, Russia supplied 40% of Europe’s gas supplies, so limitations on storing gas or ramping up imports of liquefied natural gas (LNG) in certain countries including Germany make replacing Russian gas entirely near impossible in the short term. EU leaders have downplayed the likelihood of a total ban on Russian gas as it is seen as impractical and politically divisive.
Instead, nations are racing to fill up their storage caverns earlier in the year than usual. Europe’s underground storage caverns are 57% currently full. The European Commission has asked each country to reach 80% storage by the start of November, with Germany targeting 90% by the same point. However, without Russian gas, these targets will be hard to meet. “The only way they’ll get near the target is by paying very high prices. The US is sending LNG to Europe over Asia because countries in Europe are paying more,” said Investec oil and gas analyst Nathan Piper.
Russia has begun cutting off countries from supplies in an apparent move to hinder their efforts to fill their gas storage before the winter. Over the past week, Gazprom has cut supplies running through Europe’s major natural gas pipeline, Nord Stream 1, by 60%. This has triggered supply cuts in Italy, Austria, the Czech Republic and Slovakia. Gas has also been shut off to a string of other countries including Poland, Bulgaria, France and the Netherlands. An explosion at a huge Freeport liquified natural gas (LNG) facility in the Texas Gulf Coast – which shipped gas to Europe – has also squeezed supplies.
Could Russia’s cutoffs affect the UK?
The UK imported just 4% of its gas needs from Russia last year and appears to be fairly well insulated from the supply issues. The combination of domestic gas supplies, piped supplies from Norway and LNG imports mean Britain is in a good position, although it will continue to be exposed to rocketing prices.
Operator Nord Stream AG says gas flowing again, but will take a while to ramp up
The Nord Stream 1 pipeline to Germany had been closed since July 11 for annual maintenance work. German officials had feared that the pipeline, the country’s main source of Russian gas, might not reopen at all. (Hannibal Hanschke/Reuters)
The Nord Stream 1 pipeline to Germany had been closed since July 11 for annual maintenance work. Amid growing tensions over Russia’s war in Ukraine, German officials had feared that the pipeline — the country’s main source of Russian gas, which has accounted for around a third of Germany’s gas supplies — might not reopen at all.
Operator Nord Stream AG said that gas started flowing again Thursday morning but the flow would take a while to ramp up, German news agency dpa reported.
In mid-June, Russia’s state-owned Gazprom cut the flow to 40 per cent of capacity. It cited alleged technical problems involving equipment that partner Siemens Energy sent to Canada for overhaul and couldn’t be returned because of sanctions imposed over Russia’s invasion of Ukraine.
Ottawa earlier this month gave permission for the turbine that powers a compressor station at the Russian end of the pipeline to be delivered to Germany.
The German government has rejected Gazprom’s technical explanation for the gas reduction, charging repeatedly that it was a pretext for a political decision to sow uncertainty and further push up energy prices. It has said that the turbine was a replacement that was only supposed to be installed in September, but that it’s doing everything to deprive Russia of the pretext to reduce supplies.
Russian President Vladimir Putin said Tuesday that Gazprom still hadn’t received the relevant documents for the turbine’s return — a claim repeated Wednesday by Gazprom. Putin said that Gazprom was to shut another turbine for repairs in late July, and if the one that was sent to Canada wasn’t returned by then the flow of gas would ebb even more.
The head of the European Union’s Executive Commission, Ursula von der Leyen, said on Wednesday that the turbine was “in transit” and there was “no pretext not to deliver” gas.
The Commission proposed that member countries cut their gas use by 15 per cent over the coming months as the bloc braces for a possible full Russian cut-off of gas supplies.
What happens if they can’t replace it?
The most likely outcome will be that businesses will scale back on energy use. In Germany, which gets 35% of its gas imports from Russia, energy-intensive industries such as steelmaking will face a squeeze and limits on production. “Either governments will impose limits on energy usage, or prices will become so high that it will become uneconomic to use,” said Piper. “There could be a pinch point if Russia cuts off gas flows this winter when usage is high. Even during the cold war, Russia was a reliable energy supplier. Now that link has been cut.”
Finland applies to join NATO
Gasum gave no reason for the move, but Finland has also reportedly refused to pay for Russian gas in rubles. It also comes just two days after Finland formally applied to join NATO. Russia had warned of retaliation if the traditionally neutral nation became a member of the Western military alliance.
After Finland’s application, alongside fellow Nordic nation Sweden, Moscow wasted no time in making its feelings known, with Russian President Vladimir Putin saying Monday that the expansion of NATO “is a problem.”
Putin said Russia would respond to an expansion of military infrastructure in Sweden and Finland, but also insisted Moscow had “no problems” with the countries.
Finland’s and Sweden’s membership in NATO is not a done deal yet as any decision on enlargement requires the approval of all 30 members of the alliance and their parliaments — and Turkey has already voiced objections.
— CNBC’s Holly Ellyatt contributed to this article.
What effect will this have on consumers?
Consumers are unlikely to see any interruption to the energy supplies in the UK and Europe, as industrial use would be limited first. However, prices that are already high look likely to escalate. The price cap on annual energy bills is expected to hit £2,980 in October, and could reach £3,003 in January, research firm Cornwall Insight said this week. If Russian completely cuts off gas exports, it could be pushed even higher.