Yves here. Yesterday’s press had a fair bit of upset over the fact that Gazprom had cut gas shipments to Germany over Nord Stream 1 by about 40%. That plus the news that the second biggest US LNG exporting plant would be out of commission for months, as opposed to weeks, due to a fire, led European gas prices to rise 13%.
Russia at least had what appears to be a good excuse for reducing gas flows to Germany. Siemens was contracted to repair some Gazprom equipment in St. Petersburg. According to RT (hat tip Rev Kev) Five out of eight “pumping units” had not been returned on time and then some malfunctioned when reconnected. Reader Polar Socialist added:
The reason to drop throughput from 167 million cubic meters to 100 was that Siemens sent the pump to Montreal for repairs, and Canada refuses to deliver it back – because sanctions.
Meanwhile Gazprom took another pump offline today due to delayed maintenance, thus dropping the throughput to 67 million cubic meters per day. So now apparently only 40% of the max capacity is in use.
If that’s the real reason, it could conceivably get sorted out, although it seems probable that it would take a the very least a month. Recall also that the EU has been muttering about a gas embargo in its next round of sanctions, to the degree that Hungary is again being forced to play bad guy and object strenuously.
In the meantime, as you’ll see, German Vice Chancellor Robert Habeck has been harrumphing that the Russia cuts are obviously political. Even if true, so what? Russia has been astonishingly restrained in not doing much in the way of counter sanctions, despite Gilbert Doctorow reporting what would seem to be obvious: the general public in Russia is frustrated that Putin hasn’t punched back, as guests on Russian political shows make clear.
However, remember Russia’s retaliatory economic sanctions? The ones that seemed like a as if they had turned out to be a damp squib? From a May 12 post:
Russia published its initial list of parties subject to its “retaliatory special economic measures.” Putin established the program by decree on May 3, designed to address the unlawful taking of property and property rights by unfriendly parties. The order tasked officials to come up with targets in ten days and develop additional criteria.
We speculated that Germany’s seizure of Gazprom operations, which included storage facilities, would be a prime initial target. We were correct…TASS gives an overview:
The list includes 31 companies from Germany, France and other European countries, as well as from the USA and Singapore. In particular, it includes former European subsidiaries of Gazprom, traders and operators of underground gas storage facilities.
In particular, Russian authorities, legal entities and citizens will not be able to conclude transactions with the sanctioned entities and organizations under their control, fulfill obligations to them under completed transactions, and conduct financial transactions in their favor. This includes the concluded foreign trade contracts….
Now so far this is all very entertaining, but what does it mean? It appears Europeans in the gas and possibly also electricity business won’t know for sure until Russia counterparties tell them their contracts are cancelled or they otherwise won’t be doing business with them. Remember that the sanctions are sweeping in terms of subjecting all Russian individuals and legal persons to them. And their application goes beyond the entities listed to include “organizations under their control.”
It looks like Russia knew exactly what it was doing. Consider the impact of the most obvious step Russia would take under these sanctions, of no longer supplying gas to the stolen Gazprom businesses. From reader vao:
But there is more on the gas front in Germany, and costs for the German State are piling up.
Remember that story with Gazprom Germania taken over by the Bundesnetzagentur as trustee? Well,
1) After being placed under the administration of the Bundesnetzagentur, Gazprom embargoed supplies to its former German unit, i.e. Gazprom Germania and its host of subsidiaries storing and delivering gas in Germany. This means that GG has not yet managed to re-fill its storage tanks.
2) Furthermore, since GG had contracts to fulfil, it had to acquire gas elsewhere at much higher prices — which proved totally unprofitable, so much so that GG is nearly bankrupt.
3) The German government is now embarking on a reorganization to avoid the cessation of activities by GG. GG will be lent up to €10bn through the KfW to ensure the continuity of operations.
4) It is not yet certain whether the government will back the loan with a State guarantee, or whether it will convert it to equity (in which case the German State will become a shareholder of GG).
5) The trusteeship will be converted from October onwards to a permanent administration, and Gazprom Germania renamed to “Securing Energy for Europe GmbH”.
6) In another step, the Bundesnetzagentur has decided to grant a 40% rebate on the fees to be paid when feeding the German gas distribution networks from LNG supplies.
So it is not just the German industry and households that are feeling the pain because of high gas prices — the State budget is getting directly hammered as well because of the consequences of the spat with Russia.
Perhaps I am thinking too much like an American who has done time in finance, but Germany should have realized as soon as Russia announced the retaliatory special economic measures against all former Gazprom entities and joint-venture partners in Europe, that they’d be getting no more gas when they were still on the hook for deliveries. They should have put the German companies in receivership immediately so as to get out of the obligation to perform on the supply agreements. Admittedly this would have shifter the pain somewhere else, but at least German taxpayers would have been spared.
And now to Italy. We had pointed out that some of the Gazprom entities listed in the retaliatory countersanctions were Italian or had customers in Italy, such as Gazprom Schweiz AG, which trades natural gas in Italy, and PremiumGas SpA. So one wonders if the gas cutback to Italy is due at least in part to the retaliatory special economic measures.
By Julianne Geiger, a veteran editor, writer and researcher for Oilprice.com, and a member of the Creative Professionals Networking Group. Originally published at OilPrice
- Eni: Gazprom reduced gas flows to Italy without a reason.
- Italy gets 40% of its imported gas from Russia.
- News of Tuesday’s reduced gas flows to Germany said natural gas prices soaring by 13%.
Russia’s Gazprom has reduced the flow of gas to Italy, an Eni spokesman has said, according to Reuters. Gazprom did not give a reason for the reduction.
“Eni confirms that Gazprom has communicated a limited reduction in gas supplies for today, amounting to approximately 15%,” the spokesman for Eni said, adding that the company was constantly monitoring the situation.
On Tuesday, Gazprom announced that it was cutting natural gas flows to Germany via the Nord Stream pipeline by 40% due to needed equipment repairs that had been delayed. Gas supplies via Nord Stream would therefore be limited to 100 million cubic meters per day, compared to the planned volume of 167 million cubic meters per day, Gazprom said.
News of Tuesday’s reduced gas flows to Germany said natural gas prices soaring by 13%. Nord Stream flows rose slightly on Wednesday. But in July, Nord Stream is scheduled to undergo planned maintenance for two weeks. During this time, there will be no gas flow via Nord Stream to Germany, Gundesnetzagentur said earlier this week.
Italy gets 40% of its imported gas from Russia, equivalent to 29 billion cubic meters, according to Reuters.
Italy is already working on sourcing gas from alternative suppliers, including from Algeria, Azerbaijan, the DRC, Angola, and Qatar. Eni is also in talks with Egypt about boosting LNG imports. Eni has already struck a deal with EGAS to increase nat gas imports by 3 billion cubic meters per day. The new agreement would boost capacity to send even more LNG to Italy, but this would likely take up to two years to complete.
Both Germany and Italy told companies last month that they could open ruble accounts, which would allow them to continue gas purchases from Russia without running afoul of sanctions.
While no reason was given for Wednesday’s gas disruption to Italy, Germany’s Economy Minister Robert Habeck said Gazprom’s Tuesday decision to reduce gas flows to Germany was politically motivated and not due to technical issues like Gazprom said.
All these sanctions the US and Europe have against Russia has me remembering when I was a kid (dating myself big time here). watching those Wile E. Coyote/ Road runner cartoons, and the hapless Coyote’s grand schemes to catch the Road Runner, or blow him up, or trap him.
The schemes always blew up in HIS face. Or, HE went off the cliff, or He smashed into a rock wall. And the Road Runner just kept speeding along. Sanctions not working out so well against Russia, are they? And it would be comical except in the real world, a lot of innocents are getting hurt. Now it just pisses you off the absolute lack of foresight into any possible blowback with the sanctions.
I’m starting to think that Wile E. Coyote = PMC
The esteemed Wile E. Coyote is a great tragic figure, a veritable Hamlet of the 20th century, a modern-era Sisyphus reminding us all of the drama and, yet, utter futility of human existence, its unfulfilled hopes, its submission to the vagaries of fate, but, also, its stubborn perseverance in the chase for that ever elusive, dastardly, loathsome Road Runner…
PMCs are, collectively, self-indulgent idiots. I would never, ever, ever compare them to the great Wile E…
But yes, I keep coming back to Mearsheimer’s contention that we’d spent 25-30 years operating in an environment with absolutely no consequences for stupid policy decisions, and, as a consequence, ended up with a generation of stupid policy makers. As in, both the makers and their policies are, individually yet harmoniously, stupid. I am also guessing that in the case of Germans and other Europeans, there is the aspect of knee-jerk obeisance to US wishes for more sanctions (always more sanctions!), which leads to just that many more “what were they thinking?!” type situations…
I’ll gladly stand corrected, I never meant to insult Mr. Coyote.
Also remember Wile E Coyote/Roadrunner cartoon was intended by Chuck Jones as a meta-commentary on the mindless violence and absurd physics already present in Tom & Jerry.
Acme corporation makes the ridiculous arms race of the cat & mouse chase game escalate into one of tech dog vs. bird blowing raspberries. An apt metaphor for the current act of the USA! vs Russia drama indeed.
I blame it all on Mrs. Coyote. Naming her son “Wile E.” gave him a name he could’t live up to.
Joe Biden is President. Free trade, Iraq, the War on Terror, and so forth, Biden has been there. I mean his plan to partition Iraq was one of the dumbest things I’ve ever seen. He was more or less delivering the oil to Iran, eliminating the potential for any part of Iraq to be a state.
Wile E. Coyote, Captain Ahab for the age of cartoons.
Its a classic problem in soccer. If you have a raw pace disadvantage, you have to compensate by superior positioning or organisation.
This was why Wile E. Coyote was destined to fail.
The RoadRunner cartoons did inspire me when I was kid though.
How I wanted to work for the ACME company when I grew up!
The readers may appreciate this …
(adjusts tin foil hat) Was thinking about this one as I wondered why Italy and so am going to take a few guesses to set up some sort of context. Probably a Russian aim right now is to put a split between the EU and the US as the former has outsourced their decision-making to the later. And the issue of energy is an obvious one to not only split the US from the EU but also the populations of EU against their intransigent leadership. So the Russians have already taken a shot across the bow of the big dog of the EU – Germany – but has now done the same for Italy so why that country? Yeah, the present leadership has trashed relations with Russia the past year or two but that is not a sufficient cause. So perhaps it is because that Italy is so financially vulnerable.
I understand that right now that the cost of governments raising bonds is already more expensive for countries in the south of Europe than those in the north like Germany and the Netherlands. But there was an article on NC some time ago how if the banking sector collapsed in Italy, that it would be a disaster for the EU as the numbers are so big that Italy would be too big too be allowed to fail. So maybe this was a way of sending a message to the EU that if Russia was so inclined, that they could really mess with the economy of the EU by targeting one country at a time faster than the EU could deal with the fallout.
And like Randall Flagg above, I too found myself looking at a videos of Wile E. Coyote running off a cliff and realizing that there was no ground under him anymore but thin air – before falling.
I’m thinking this is just a prelude and the Germans, true to character, have given Russia the perfect excuse. To cut natgas to Germany, abruptly. Causing Germany to effectively take immediate steps to nationalize energy. It’s well known, but rarely admitted, that Germany’s post war industrial success was built on cheap Russian energy. And now, at the end of everything, it’s time to pay up. So Russia, being smarter than the rest of us, is giving Germany a small taste of the utter panic it will experience when cold weather hits. Now is a good time for a dress rehearsal of the coming event – because it is warm, but everyone will get the message loud and clear. It’s interesting that Egypt wasted no time offering to sell gas to Italy. When I read “Egypt” I read it as “Israel and Egypt” – which makes perfect sense as well. Gasprom was/is an octopus of strangulation – Italy, friendly toward Russia, has been caught up in a connection to Swiss Gasprom. As if this weren’t complicated enough, Ukraine (yes, the “government of Ukraine” whatever that is) has offered to supply Germany “with Russian gas” – huh? (in RT). Howzat gonna work?
‘Ukraine has offered to supply Germany “with Russian gas” – huh? (in RT). Howzat gonna work?’
Easy. If Russia were to increase that supply the Ukrainians would imply siphon it off for their own use to get free gas as that is what they have done in the past.
Here is a very interesting poll on European attitudes toward the Ukraine conflict: https://ecfr.eu/publication/peace-versus-justice-the-coming-european-split-over-the-war-in-ukraine/
I disagree with it a bit because the “who caused” and “what peace” questions leave little room for “both sides” answers.
But the public in Italy is on the very edge of the EU consensus and may be the first county to break from the official EU position, thus it is a good target for the Russian natural gas move.
Yves made an interesting comment in this article: “Perhaps I am thinking too much like an American who has done time in finance, but Germany should have realized as soon as Russia announced the retaliatory special economic measures against all former Gazprom entities and joint-venture partners in Europe, that they’d be getting no more gas when they were still on the hook for deliveries.”
We are all prisoners of our educations and experiences. Yves sees this as a technical “Reorganize the failing corporation” issue, so a receivership makes sense. But political leaders always play the “Hide the ball game” and want the benefits to be seen by the public and the costs hidden and not discussed. A receivership would have made the “Who pays the cost” obvious. In that way it is like the 2008 phony “Conservatorship” of Fannie and Freddie. The losers (the stockholders) were told “We are conserving your asset” when in fact the government was stealing the property without compensation… but delaying the notification for a few years.
A bit like the US policy towards Taiwan, it sounds like. As long as things are ambiguous, no-one has to make hard decisions or take a clear position. One can merrily trade with both parties while pretending they are one. Or like the Good Friday agreement, which reduced the conflict in NI by effectively pretending that Northern Ireland’s population was both UK and Irish at the same time.
These kinds of political fudges are maddening to anyone with a desire for clarity but they do seem to ‘work’ for a while.
A few more tidbits.
And this is why, as I mentioned a month ago, Germany is hurriedly amending its Energiesicherungsgesetz to allow price increases at the source to be immediately passed on to every element of the energy delivery chain till the final consumer, no matter what is stated in the contracts in place.
Then a situation like Gazprom Germania steadily marching towards insolvency because of a massive, sustained mismatch between procurement and resale prices would not take place. In practice, the German government will probably have to prop up GG till 2023, when retail contracts will have been renewed under the new law.
Which means that in particular industrial consumers and municipality utilities would have been directly affected, all of which Wingas (a subsidiary of GG) supplies with gas.
German industry is powerful, influent and would be quite vocal about the consequences of such a sudden contract breach: stoppage of industrial operations, forced offshoring, workforce downsizing, rising unemployment. If in addition thoroughly pissed off regional barons of the governmental parties start agitating because their voters are facing either service interruptions or huge increases in energy prices, then the coalition would be at risk of dissolving. Better hide the mess somewhere in the State budget.
To accelerate the energy transition and get weaned off Russian energy sources, the German government has just drafted a law that will promote electricity generation through wind in a forceful way:
1) Wind power is considered to be of “overriding public interest”, and corresponding projects will be fast-tracked.
2) It will be possible to build wind parks in conservation areas; criteria regarding nature protection, historical monuments, public health, will be weakened so as not to block the allocation of areas to wind parks.
3) Regional rules regarding wind parks will be superseded. For instance, the Bavarian regulation that a new wind turbine must be located at a distance at least 10 times its height from any housing.
4) By 2032, every State (Bundesland) must allocate between 1.8% and 2.2% of its surface for the construction of wind turbines (1.4% by 2026). Urban Länder (such as Hamburg or Bremen) have to reserve only 0.5%.
You might think that the powerful German Green party would be up in arms at such prospects — but no. It is part of the governmental coalition and approves the draft bill. After all, it has always been in favour of a voluntarist policy for the energy transition. And since the “Olivgrünen” (olive green, the colour of military fatigues) are the most russophobic partners of the coalition, they welcome anything that potentially reduces Germany’s dependence on Russian energy.
I am wondering if according to EU rules this accounts as a subsidy that could be challenged with EU rules on competition. May be what is illegal in other EU countries is kosher in Germany?
vao — Thank You Again for a magnificent report on the evolving German response.
Allow me some observations.
First, Russia exports oil and natural gas for direct thermal power yet wind farms produce electricity for indirect thermal power. So the transition to wind also requires a transition for end-use thermal devices. Either at end-user expense or subsidized by rapidly depleting government accounts.
Second, Russia exports oil and natural gas use existing cheap volume-oriented technology for energy storage while the transition to wind requires new expensive density-oriented technology for energy storage. Germany is facing major infrastructure investments for this energy storage in the face of global competition for essential minerals, some of which Russia is a major supplier.
Third, allowing a decade for this transition implies, at least to me, that the government intends to fall back on traditional oil and natural gas from deus ex machina sources as the transition falters.
I imagine energy costs play a large role in the construction of this new infrastructure. It will not be cheap.
Your analysis implies two things:
a) The German government has not “thought it through”. Its actions are reactive, it has not envisioned consequences on the middle to long-term properly, it has much belief in the power of silver bullets.
b) And this is the current sorry situation, some 11 years after the “Energiewende” was launched. The Merkel years were ones of inertia and stagnation, no actual preparations done for the future, no planning, no investments.
My bet remains that the Autumn (October) will be the real turning point, with hard decisions about cutting losses, accepting irreversible, widespread damage, or fundamentally reorganizing the energy system in Germany.
Some more background on the Green Party
The End of War Fatigue
The subtitle Support for arms build-up has increased massively among Green Party voters. Party sympathizers are particularly affluent, less affected by the backlash from sanctions. says it all. We’ve exported our political disfunction to Germany.
Thanks for the link. I’ve bookmarked the site. Kinda a Naked Capitalism vibe.
I only discussed thermal power. WRT motive power, I would like to observe that the stoichiometric mixture is 9000:1 air-fuel by volume. ICE vehicles need only the fuel fraction of energy storage while current EVs require 100% energy storage. Which is why I used the density-oriented term.
About Germany’s seizure of Gazprom operations. I was catching up on videos earlier and one well know commenter was saying that the Germans were experiencing problems with those operations. It seems that when the Russians withdrew, a lot of the knowledge of how to run those operations went with them so now the Germans are experiencing all sorts of problems there.
Indeed, already pointed out early April in your favourite site (www.nakedcapitalism.com) as a sure consequence of the conflict between Germany and Gazprom.
By the way, the general manager of Gazprom Germania, Igor Fedorov, finally left two weeks ago, “by mutual agreement” and in order to “devote himself to new professional challenges”.
Yves, thanks for posting this article and especially your commentary above it.
I had a really good laugh when you mentioned that Gazprom Germania will be renamed to “Securing Energy for Europe GmbH”. Ah yes, when everything falls apart, there’s always the liberal application of PR. That will surely fix it! What’s next, “freedom schnitzel” in the Bundestag canteen?
Named in English as a kind of reminder to Germans who their daddy is.