Jun 15, 2022
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Canada dealt a painful blow to Nord Stream

Gas supplies from Russia to Europe have not yet been subject to sanctions – this is too sensitive for both sides. An unexpected blow was dealt by Canada: its sanctions made it impossible to repair equipment for Nord Stream 1. There are real risks that the gas pipeline may be completely stopped in the near future. Paradoxically, such a scenario could give Nord Stream 2 a chance to make money.

Gazprom warned that due to the untimely return of gas pumping units at the Portovaya compressor station from repair by the German company Siemens and “revealed technical engine malfunctions” (an order from Rostekhnadzor on a temporary ban on activities was received), only three units can be used. In this regard, gas supplies via Nord Stream had to be reduced from 167 to 100 million cubic meters per day, that is, by 40%.

Nord Stream 1 is the most important route for gas supplies to Europe from Russia. The capacity of the pipeline is 55 billion cubic meters of gas per year, but in reality more is pumped through the pipeline: in 2021 – 60 billion cubic meters. A 40% year-on-year reduction in pumping volume means a loss of 24 billion cubic meters of gas. This is a pretty serious volume in itself. The situation is complicated by the fact that other routes for the delivery of Russian gas to Europe are already operating in a reduced mode. The Yamal-Europe gas pipeline, through which gas can go to Poland and Germany, can no longer be used by Gazprom due to Russian counter-sanctions. Nord Stream 2 was not launched for political reasons. The Ukrainian route has halved the volume of Russian gas transit due to Ukraine’s refusal to receive gas at one of the gas compressor stations, Stakhanovka. Now the possibilities of pumping blue fuel through Nord Stream 1 are narrowing.

At first, the reason why the German concern delayed the repair and did not return the necessary units on time was not indicated. Therefore, experts logically assumed that this was a temporary problem that arose due to financial or logistical problems.

“Now all financial transactions that relate to Russia, even bank transfers that are allowed, are delayed by several weeks, because European banks are reinsured and totally check any transactions. They are afraid, because if sanctions are violated, they will have to pay a fine for a very large amount, which exceeds the income from such operations,” says Igor Yushkov, an expert at the National Energy Security Fund. It is possible that logistical problems could arise separately or in parallel: change the route of delivery of equipment, insurance, etc.

All these problems are temporary, and their solution would take a maximum of a couple of weeks. However, it turned out that the situation is much more serious than it initially looked. German Siemens cannot return turbines for Nord Stream from repair due to Canadian sanctions, a representative of Siemens Energy told RBC. The company explained that the gas turbines for the pipeline are manufactured in Canada, delivered in 2009 and have been in operation for more than 10 years. They need to be repaired periodically to keep them working.

“One engine is currently undergoing a major overhaul in Montreal. For technical reasons, these gas turbines can only be overhauled at the Siemens Energy facility in Montreal, Canada. Due to Canadian sanctions, Siemens Energy is currently unable to supply the customer with refurbished gas turbines,” said a Siemens Energy spokesperson.

“Russia received an unexpected blow, which will certainly affect the volume of gas transportation through Nord Stream 1 until a solution to the problem is found,” says Aleksey Gromov, energy director at the Institute of Energy and Finance.

In his opinion, if we are talking about the prohibitive sanctions of Canada, then the German company will definitely not help Gazprom solve this problem with the help of gray schemes, through the supply of units through third countries, etc.

The first thing to be done is to clarify the prohibiting decision of the Russian supervisory authority Rostekhnadzor, whether it is possible to extend the operation of the compressor station units for some period. Gazprom’s report indicates two reasons for the decrease in pumping through the Portovaya GCS. The first is the inability of Siemens to return gas pumping units from repair. The second is the order of Rostekhnadzor due to the identified technical malfunctions of the engine. It is logical to assume that Gazprom cannot send this engine to the Germans for repair, since it will not be possible to return the engine back.

“It happens that the supervisory authority treats its duties formally, so to speak, blowing on the water. Therefore, it is worth once again requesting a detailed explanation from Rostekhnadzor in order to understand how serious the problem is or whether it is possible to postpone the decommissioning of gas compressor units,” Gromov argues.
Compressor stations usually have spare capacity in case of unscheduled repairs, which were probably running while the units were sent to Germany for repairs.

You can quickly solve this problem with the help of “cannibalism”. “Siemens has been cooperating with Russia for a long time, so compressor stations with German equipment operate not only at Nord Stream, but also in other gas transmission systems within Russia. If it is important for us not to lose the volume of gas pumped through the export pipeline, then it makes sense to remove the missing German-made units from compressor stations in secondary directions. This is the task of “putting out the fire,” says Alexey Gromov.

The strategic task of Gazprom is to replace these imported parts.

“The stone in the garden of Gazprom is that it did not replace the import of equipment for compressor stations. Although eight years ago, when sanctions had just begun, they began to talk about the fact that equipment for compressor stations, which provides the necessary pressure in the pipes, requires close attention. At the same time, Russia previously created compressor equipment, we have enterprises, for example, the Izhora plant. We have Russian-made pipes, but we don’t have equipment for GKS,” the source says.

The expert recalls that the question of the need to replace Siemens equipment at compressor stations with domestic ones also arose several years ago after a cyber attack on a compressor station in Europe serviced by this company.

“Then the alarm bell sounded. This meant that foreign equipment used at compressor stations by Russia could be subjected to cyber attacks and be disabled. This means that Gazprom should quickly find an alternative to Siemens components,” says Gromov.

Why did Russia initially get hooked on the needle of the German concern? Because Nord Stream 1 is an international project with foreign investors, including German ones. “I am sure that the use of Siemens equipment in Nord Stream was a prerequisite on the part of German investors for the implementation of the project,” says Gromov.

However, since then the situation has changed dramatically, and Russia needs to quickly find a replacement for critical equipment, which includes equipment for compressor stations.

The worst scenario is that, in fact, Siemens’ refusal to service and repair compressor stations could lead to a complete shutdown of Nord Stream 1.

Moreover, this may happen soon – in July of this year. The fact is that the planned annual inspection of the Nord Stream 1 gas pipeline by the German supervisory authorities is scheduled for July 11, which can last up to two weeks. The inability to maintain compressor stations creates serious risks. “The Germans are pedantic people, and if they find any threats to the safety of using Nord Stream 1, then the gas pipeline may stop its work altogether at the request of the German technical security authorities. Attempts to close the gas pipeline for political reasons in Europe failed, but if there is a technical reason, then no one will be able to throw a stone in the German garden,” says Gromov.

It will be an energy collapse with a loss of 60 billion cubic meters per year.

“This will be another unpredictable black swan for the European gas market, with negative consequences for both Gazprom and Germany. Moreover, the blame will be laid on Gazprom, because it is he, as the operator of the system, who is obliged to maintain the safety of the gas pipeline. Gazprom, of course, can refer to Canadian sanctions against Siemens, but the Europeans will not care, since Canadian sanctions are Gazprom’s problems,” the industry expert argues.

Another option for stopping Nord Stream 1 is when the rest of the units fail one by one, and there is nothing to replace them, and the compressor station will not be able to work and pump gas through the offshore gas pipeline. But there is a “fire” solution to the problem by removing similar parts from other, less significant compressor stations. For the time being, work is underway to replace the equipment of the German concern so that it meets the requirements of not only Rostekhnadzor, but also the requirements of European regulators.

The consequences will be deplorable for both sides – both for Russia and for Europe. The cost of gas in Europe at hubs has already gone up. And stopping Nord Stream 1 will make gas sky-high. This threatens, first of all, with a stoppage of European industry. And if the problem is not solved by the heating season, then the European population will also be under the threat of freezing. On the other hand, such an energy crisis due to the shutdown of Nord Stream 1 could unexpectedly give Nord Stream 2 a green light. For this gas pipeline to work, something really terrible must happen.

The loss of 60 billion cubic meters of gas per year, which Gazprom pumped through Nord Stream 1, is a very serious loss. It means the termination of more than a third of deliveries to Europe (from 155 billion cubic meters in general).

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