Russia will cut gas supplies through its biggest pipeline to Germany to just a fifth of capacity later this week, in a move that threatens to leave the continent without critical supplies before winter.
State energy group Gazprom said it would halve existing flows on the Nord Stream 1 pipeline to just 20 percent of capacity from Wednesday, after cutting them to 40 percent last month. European politicians have denounced the “weaponisation” of Russia’s gas supply.
Gazprom’s move came as German business confidence fell to its lowest level in more than two years, the latest sign that Europe’s biggest economy is teetering on the brink of recession.
Businesses in Germany turned gloomier about their current situation and prospects for the next six months, according to the closely watched Ifo Institute’s business confidence index. Second-quarter gross domestic product figures on Friday are expected to show growth of just 0.1 percent, according to economists polled by Reuters.
Germany has been hit hard by inflation and the Russian gas crisis. Gazprom has blamed turbine availability for its supply cuts, but a spokeswoman for Germany’s economy ministry said there was “no technical reason” for the reduction.
European capitals will interpret Gazprom’s action as a Russian retaliation for the sanctions imposed after its invasion of Ukraine. Europe is struggling to fill gas storage facilities, prompting rationing warnings for industry and concerns about shortages for domestic users.
Tom Marzec-Manser, of consultancy ICIS, said that if the latest supply cuts in Russia were to last, more efforts would be needed by European governments “to incentivize the reduction of demand, especially in the industrial sector”.
Gazprom has put the volume cuts down to problems with turbines maintained by German company Siemens Energy at a factory in Canada. However, Berlin and gas market analysts say Russia is using the issue of turbine repairs as a pretext to cut flows.
European politicians and industry analysts have questioned whether these problems would cause such a sharp drop in gas flows. Russia has also refused to use alternative pipeline routes to maintain supplies.
Laurent Ruseckas, an analyst at S&P Global Commodity Insights, said Gazprom’s move was in line with a “pattern that has been shown for months and months, which is the continuous reduction of pipeline flows to keep supplies tight and complicate storage”.
European gas prices rose after Gazprom signaled it would cut the volume of gas flowing to the continent. On Monday they rose 10 percent to 177 euros per megawatt hour, five times more than the price of a year ago.
Gas flows will drop to 33 million cubic meters of gas per day from 4 a.m. GMT on Wednesday, Gazprom said, below a total capacity of more than 160 million cubic meters and half the flows current The group resumed partial gas supplies via NS1 last week after a planned outage for repairs.
Russia’s gas monopoly said on Monday it was cutting the flow as it shut down another turbine for maintenance, following President Vladimir Putin’s threat last week to cut volumes.
There have been concerns in Europe that Russia will stop gas exports entirely, prompting the European Commission to ask EU member states to cut their consumption by 15 percent over the winter.
EU capitals have rejected the plan and ambassadors in Brussels have struggled to reach a deal to be signed by energy ministers at an emergency meeting on Tuesday.
“There is no plan B,” a senior EU diplomat said of the importance of the gas cut deal. “It is important for us to show that the EU remains united in these difficult times and that we are prepared for the worst-case scenarios.”
Gazprom blamed Siemens Energy, the turbine supplier, for the problems. He said the company still had “open questions” about the UK and EU sanctions.
Canada this month waived sanctions restrictions on the supply of equipment to Gazprom to allow the turbine to be returned to the company.
Additional reporting by Joe Miller in Frankfurt and Alice Hancock in London