Russia Resumes Nord Stream Natural-Gas Supply to Europe

Despite the pipeline’s restart, European governments are bracing for permanent instability in the Russian energy supply  The German energy regulator said gas flows could reach 40% of capacity Thursday.  “Unfortunately, the political uncertainty and the 60% cut from mid-June remain,” the regulator’s head, Klaus Müller, said on Twitter

The pipeline has been operating below capacity since Russia began throttling supplies in June, invoking technical issues related to Western sanctions against Russia.

Mr. Putin earlier this week said Russia would meet its contractual obligations for gas deliveries to Europe. The Nord Stream pipeline is the main conduit for Russian gas into Europe. Mr. Putin also warned that Western sanctions adopted to punish Russia in the wake of the invasion could cause further disruptions and cap pipeline volumes as low as 20%.

European officials and executives had worried the pipeline might not restart at all, or do so at even lower volumes. While gas is now flowing again, how much Russia sends—and for how long—will be closely watched by European capitals, who are in the midst of filling reservoirs for the higher-demand winter just a few months away.

An abrupt cutoff would have pushed Germany, Europe’s largest economy and industrial powerhouse, and several of its neighbors into a severe recession, according to most economists. But even reduced flows and the uncertainty regarding future supplies mean governments may still be forced to ration energy and subsidize mounting costs for households, experts and officials say.

Nord Stream channels gas extracted from Siberia by state-controlled Gazprom PJSC.

Mr. Putin this week blamed the drop on the absence of a turbine that had been held up in Canada after undergoing repairs because of Western sanctions, but is now on its way back to Russia.

Berlin and most Western experts said the cut in supplies was an attempt to pressure the West into easing sanctions and to push up gas prices. Several German officials and a Gazprom manager in Europe told The Wall Street Journal that Nord Stream had an elaborate contingency system with at least one spare turbine available at all times.

German officials say they expect the pipeline to continue to operate at its reduced pre-maintenance capacity—a level they think was deliberately set to prevent Germany and others from building up enough gas reserves for the winter. Because of technical reasons related to the pressure levels in the pipeline, Nord Stream can’t transport volumes below 30% of its capacity of 55 billion cubic meters a year.

A German government minister said that Mr. Putin was deliberately causing anxiety in the global energy markets, but that he was unlikely to sever supplies completely because it would remove his leverage and risk a harsher response from the West.

The reduced flows and uncertainty are already hitting Germany’s economy. The largest gas utility, Uniper SE, is in bailout talks with the German government. The company said Monday that it had drawn down a €2 billion, or $2.04 billion, credit line with German state-owned KfW bank. A German Economy Ministry spokesperson said Monday that the government was working with Uniper and its Finnish parent, Fortum Oyj, to find ways to help the company.

Germany and other European Union nations, which pledged to end purchases of Russian energy by 2024, are now working on two basic contingency plans.

The first envisages a status quo, with Nord Stream operating at around 40% of its capacity. Under that scenario, Germany, where gas storages are currently 65% full, would have to significantly reduce consumption compared with the previous year to avoid a shortfall in the winter. Some regions, however, are expected to be more severely affected, possibly triggering local measures such as limited factory shutdowns and a cut in supply to some businesses.

Under this scenario, Germany would be unable to completely fill its reserves before year-end, leaving the country vulnerable to new surprise supply cuts and keeping energy prices high.

This could be politically explosive for Berlin, with some 66% of Germans currently feeling that the government isn’t doing enough to tackle high energy prices, while 53% believe the sanctions are hurting Germany more than Russia, according to a Forsa poll published on Wednesday.

“We need to prepare for a war economy…the next two winters will be difficult,” said Günther Oettinger, a former chief energy official of the EU and German politician. “Our very democracy is in danger of disruption from the energy costs fallout.”

The second scenario, seen in Berlin as less likely according to German officials, foresees an end to Russian gas supplies before the end of the year, triggering an emergency plan that would allow Chancellor Olaf Scholz to take control of the gas market and ration consumption.

Under legislation that protects households and critical infrastructure, rationing would hit mainly businesses, leading to a drop in Germany’s gross domestic product of between 5% and 6% in 2023, according to estimates by Deutsche Bank.

With many European countries that depend on Russian gas reliant on supplies transiting through Germany, irregular or dwindling supplies through Nord Stream would have effects across the continent.

The EU this week issued guidelines recommending measures to cut gas consumption by 15% between August 2022 and March 2023, including by limiting the temperature in office spaces to 66 degrees this winter.

Germany’s immediate neighbors are working on their own contingency plans.

Germany and Austria negotiated a deal to share their gas-storage capacity and help each other’s regions that are at risk of fuel shortages.

“Russian dictator Vladimir Putin is using energy as a weapon against us. It is clear that the cooperation with Germany, through which almost all gas flows to us, will be essential for us in this direction,” Josef Sikela, the minister of industry and trade of the Czech Republic, told reporters earlier this month.

Europe is also adjusting its gas infrastructure, which has so far been largely geared to receive supply from Russia. Belgium and Germany are working to expand the capacity of a pipeline connecting the two nations, while Austria and Italy are looking into importing their infrastructure to be able to channel more Norwegian gas into their storage.

The Netherlands, once among the world’s largest gas producers, is considering temporarily prolonging the life of a gas field scheduled for closure after mining work there caused numerous earthquakes.

Many governments are trying to secure gas from other suppliers, from Norway to Algeria, the U.S. and Qatar, which often comes in the form of liquefied natural gas transported by ship.

Germany is building several LNG terminals on its coast to receive shipments from faraway countries and has chartered five floating terminals that can handle those inflows in the short term. Increased LNG purchases by EU nations—Germany alone is investing over €15 billion—have caused a shortage on the global market, leaving countries such as Pakistan struggling to access supply.

Berlin, meanwhile, has said it would review its decision to shut down its three remaining nuclear-power plants. It is already planning to increase use of coal to produce electricity this winter to save gas for heating.