Putin warns of Nord Stream 1 gas capacity cuts over equipment repairs

(July 19, 5:22 p.m. CDT) Russian President Vladimir Putin said July 19 that capacity of the Nord Stream 1 gas pipeline, the single largest link for Russian gas supplies to Europe, could be further reduced due to slow progress in equipment maintenance.

Nord Stream 1, which runs on the bed of the Baltic Sea to Germany, has been in focus since Russia sent troops to Ukraine on Feb. 24 in what Moscow describes as a "special military operation."

The pipeline is staying idle for annual maintenance from July 11 to July 21. Sources told Reuters that Nord Stream is expected to resume gas exports as scheduled but at reduced capacity. 

Speaking to reporters after his visit to Tehran, Putin said there were five gas pumping units, operated by Siemens Energy (ENR1n.DE) at Nord Stream 1, while one more unit was out of order due to "crumbling of inside lining."

"There are two functioning machines there, they pump 60 million cubic meters per day ... If one is not returned, there will be one, which is 30 million cubic meters. Has Gazprom something to do with that?" Putin said, adding that one more of the gas pumping turbines is due to be sent for maintenance on July 26.

Nord Stream 1 has capacity to pump more than 55 Bcm per year to the EU, which last year imported about 140 Bcm of gas from Russia via pipelines.

Gazprom cut gas exports through the route to 40% capacity last month, citing delays in the return of a turbine Siemens Energy was servicing in Canada, which had initially banned the equipment return, citing sanctions.

The Kommersant newspaper reported on July 18, citing people familiar with the situation, that Canada had eventually sent the turbine needed for Nord Stream 1 to Germany by plane on July 17 after repair work had been completed. 

Putin also said that Gazprom was not to blame for the reduction of gas transit capacity, including shutting down one of the routes via Ukraine to Europe by Kyiv.

He added that Gazprom was ready to fulfil its obligations on gas exports.

Russia seen restarting gas exports from Nord Stream 1 on schedule

(July 19, 10:44 CDT) Russian gas flows via the Nord Stream 1 pipeline are seen restarting on time on Thursday after the completion of scheduled maintenance, two sources familiar with the export plans told Reuters.

The pipeline, which accounts for more than a third of Russian natural gas exports to the EU, was halted for 10 days of annual maintenance on July 11.

The sources, speaking on condition of anonymity because of the sensitivity of the issue, told Reuters the pipeline was expected to resume operation on time, but at less than its capacity of some 160 MMcm per day.

Gazprom cut gas exports through the route to 40% capacity last month, citing delays in the return of a turbine Siemens Energy (ENR1n.DE) was servicing in Canada.

"They [Gazprom] will return to the levels seen before July 11," one of the sources said of the gas volumes expected via Nord Stream 1 from Thursday.

The benchmark Dutch front-month contract was down 3% following Reuters' report flows will resume on Thursday.

Earlier in the day, the contract traded higher after the Wall Street Journal reported that the European Commision did not expect the pipeline to restart after the maintenance.

Gazprom and Nord Stream 1 did not reply to requests for comment on July 19.

Nord Stream 1, which runs on the bed of the Baltic Sea to Germany, has been in focus since Russia sent troops to Ukraine.

The West has accused Russia, the world's largest gas exporter and second largest crude oil supplier, of using its energy supplies as a tool of coercion.

Russia has refuted the accusations, saying it has been a reliable energy supplier.

In a letter dated July 14, however, Gazprom said it was retroactively declaring force majeure on supplies from June 14, a legal clause meaning it cannot guarantee gas delivery because of exceptional circumstances.

The Kommersant newspaper reported on July 18, citing people familiar with the situation, that Canada had sent the turbine needed for Nord Stream 1 to Germany by plane on July 17 after repair work had been completed. Siemens Energy declined to comment. One of the sources on July 19 told Reuters the turbine was unlikely to be reinstalled by July 21. Germany's economy ministry said on July 18 it could not provide details of the turbine's whereabouts. But a spokesperson for the ministry said the turbine was a replacement part that was meant to be used only from September, meaning its absence could not be the real reason for the fall-off in gas flows prior to the maintenance.

Gazprom Singapore misses LNG deliveries to Indian customer, sources say

(July 19, 9:45 a.m. CDT) Gazprom Singapore has failed to deliver some LNG cargoes to Indian state firm GAIL Ltd. and has said it may not be able to meet supplies under their long-term deal, three sources familiar with the matter said.

The sources did not say why Gazprom Marketing and Trading Singapore (GMTS) did not deliver the supplies. Global competition for the super-chilled fuel and low inventories have sent Asian LNG prices soaring.

GMTS is a subsidiary of Gazprom Germania, a former unit of Russian energy giant Gazprom, now under the control of Germany's network regulator.

"We are facing difficulties, (the) situation is quite tight as GMTS has already defaulted on some cargoes and they have said they may not be able to meet commitments under the contract," said one of the sources. They declined to be named because they were not authorized to speak to the media.

Reuters reported on July 18 that Gazprom had told customers in Europe that it couldn't guarantee gas supplies due to "extraordinary" circumstances. According to a letter dated July 14, Gazprom declared force majeure on supplies, meaning it did not have to meet its contractual obligations. 

GMTS is willing to offer a penalty to the Indian company for missed cargoes. One of the sources said the penalty is miniscule compared to spot prices of LNG.

"GMTS' LNG portfolio has been restricted as a result of the Russian sanctions," Germany's network regulator said in an emailed statement. "GMTS is therefore using the mechanisms existing in its contractual agreements to manage the situation with its customers," it added, not providing further details.

GAIL, GMTS, Gazprom and Gazprom Germania did not respond to Reuters requests for comment.

GAIL, which imports and distributes gas and also operates India's largest gas pipeline network, agreed in 2012 to a 20-year deal with Russia's Gazprom for annual purchases of an average 2.5 MMtonnes of LNG. Supplies under the contract began in 2018.

GMTS had signed the deal on behalf of Gazprom. At the time, Gazprom Germania was a unit of the Russian state firm.

Considered key for Germany's energy security, the company is now controlled by German regulator Bundesnetzagentur (BNetzA), which had no immediate comment.

Responsibility to meet the supply commitment lies with Gazprom, which had asked GAIL to sign the deal with the Singapore-based entity, said the sources, adding the Indian company was in talks with the Russian gas firm.

"We are looking into the commercial aspects of the [GAIL] deal and working out some alternative arrangements including spot purchases," a second source said.

Sources said GAIL may have to step up spot purchases of LNG at higher prices to meet local demand.

Earlier this month, GAIL bought a spot LNG cargo at $38 per MMBtu for August loading, two sources said.

GAIL was getting the gas under the deal with Gazprom at about $12-$14 per MMBtu.

07.19.2022