Deputy Prime Minister Alexander Novak warned late Monday that Russia could halt flows along the existing Nord Stream 1 pipeline to Germany. The EU is trying to get ahead of any such moves, mapping out a plan to cut its huge dependency on Russian gas.
Benchmark Dutch gas futures surged more than 30% early on Tuesday, before paring gains to trade almost unchanged.
The developments highlight the bloc’s urgency to wean itself off gas from its biggest supplier — and there’s no easy alternative. Europe was already dealing with an energy supply crunch due to low gas inventories, and the war has sent commodities prices across the board soaring to record levels.
It’s also forcing companies to redesign the way they do business — and take massive impairments. Germany’s Uniper SE, one of the biggest buyers of Russian gas, said Monday it won’t sign any new contracts with the country for long-term supply. It joins a raft of firms that have cut or reduced ties with Russia, often taking a financial hit to do so.
Across the globe, governments and companies are now racing to adjust to the new landscape as the gas market experiences unprecedented volatility. Benchmark European gas futures have more than tripled on an intraday basis within the last two weeks. Prices rose to an all-time high on Monday before paring some of those gains, with the risk of supply disruptions being priced in.
Exporter Gazprom PJSC reiterated on Tuesday that it’s sending gas to Ukraine’s network for further transit to Europe as normal, in line with client requests. About a third of Russia’s supply to the EU flows via Ukraine.
In comments broadcast late Monday, Russian Deputy Prime Minister Novak warned that a “provocation is being prepared against the gas transportation system of Ukraine, and specifically against gas pumping stations.” He said Russia is doing “everything in our power to prevent this.”
However, Novak also said Russia could cut off some supplies to the continent in retaliation for Germany’s decision to halt approval of the controversial Nord Stream 2 pipeline.
“We have every right to take a reciprocal decision and impose an embargo on gas shipments through the Nord Stream 1 pipeline,” he added. “So far we have not made this decision. Nobody will benefit from this.”
German Economy Minister Robert Habeck said Tuesday that he doesn’t expect Russia to follow through with its threat because it would cast Russia as an “unreliable supplier.”
Still, the possibility of lower supplies is pushing the EU to move even faster to find alternatives.
The bloc’s executive arm on Tuesday is due to unveil a new energy strategy that outlines steps to reduce its reliance on Russian gas imports by almost 80% this year. The European Commission considers that the bloc has sufficient gas to get through the rest of this winter, even in the event of an abrupt disruption of Russian supplies, according to people familiar with the draft plan.