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As Nord Stream 1 shuts indefinitely, concerns over gas prices rise

  • By Al Mayadeen English
  • Source: Agencies
  • 5 Sep 2022 09:34
  • 2 Shares
4 Min Read

Russia shutting down its Nord Stream 1 gas pipeline has sparked concerns all over Europe regarding energy prices as manufacturing has taken a hit all over the continent, especially in the UK.

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  • Pipes at the landfall facilities of the 'Nord Stream 1' gas pipeline are pictured in Lubmin, Germany, March 8, 2022 (Reuters)
    Pipes at the landfall facilities of the 'Nord Stream 1' gas pipeline are pictured in Lubmin, Germany, March 8, 2022 (Reuters)

Russia's decision to suspend the operation of its Nord Stream 1 pipeline has given rise to fear about the prospects for gas prices as the European economy has taken one hit after the other due to the Western sanctions on Moscow.

Gas supplies via Nord Stream have completely stopped since August 31st and the operation of the pipeline has been suspended due to scheduled maintenance work at the Portovaya compressor station, data from gas transportation system operators showed.

Meanwhile, the British economy has taken on another level of deterioration, with an increasing number of UK manufacturers saying they were already cutting production or cutting off employees due to the soaring energy bills.

Previously, Gazprom said gas would continue to flow on Saturday after a different turbine repair was required. However, Western sanctions have made it difficult for the energy company to pursue its maintenance routine.

Some 13% of businesses surveyed by Make UK, the top manufacturing industry trade body in Britain, said they were decreasing their hours of operation or procrastinating production until energy prices cool down, 7% said they were cutting production by long periods of time, and 12% said they fired employees to cope.

Prices all over Europe have been inflated by almost 400% due to the restricted gas flow from Russia, with expectations that they increase further after Moscow went back on its decision to continue pumping gas through Nord Stream 1 to Germany due to maintenance issues.

The United Kingdom was importing some 4% of its gas and 8% of its oil from Russia, but a few days ago, London revealed that it had no energy resources coming from Russia at all for the first time following the deterioration of ties with Moscow in light of the Ukraine war.

Thirteen EU nations have either ceased getting Russian gas entirely or are only receiving a portion of it due to the temporary blockage of the Nord Stream pipeline 1, the Russian TASS news agency reported last week.

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The UK and the rest of Europe are incomparable, as Britain is not as dependent on Russian energy, though markets in the EU have largely affected the country's prices.

Check out: Britons suffer in holidays amid soaring gas prices

Russia has underlined several times that it was not weaponizing energy and that the Western sanctions on it, as well as technical difficulties due to said sanctions, have been restricting the flow of gas and oil. Meanwhile, the sanctioning parties - essentially countries most damaged by the self-imposed sanctions - have been accusing Moscow of weaponizing its resources.

The Nord Stream 1 pipeline is highly significant for Europe. Running through the Baltic Sea to Germany, the gas pipeline supplied around a third of the Russian gas exports to Europe. Before its shutdown for maintenance last week, the pipeline was running at 20% of its capacity.

Surging costs of power linked to gas prices have already stunted the production of various industries, such as fertilizers and aluminum manufacturers, and prompted EU governments to increase their spending by billions in order to help their citizens.

Gazprom announced on Wednesday that it will suspend gas shipments to French energy giant Engie due to payment concerns, raising the prospect of a wider supply shortfall. However, France is less vulnerable to the rise in gas prices caused by Russia's decision to curtail deliveries to Europe following draconian sanctions on the country after its special military operation in Ukraine.

Italy and Germany are now the two largest European countries most exposed to a gas supply shock due to their extensive use of natural gas and significant reliance on Russia, according to S&P Global Ratings.

About 60% of Germany's natural gas supply was piped in from Russia in 2020, primarily under long-term contracts.

The Ukraine war has led to an energy crisis across Europe, with August emerging as the month with the highest surging prices on record for power tariffs in the bloc, Rystad Energy said this week.

Italy was the first market to record a monthly spot price above €500 ($500.15) per megawatt hour, with the average for August rising to €547 per MWh, followed by France at €492 per MWh, Germany at €465 per MWh, and the United Kingdom at €438 per MWh.

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