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Storm cuts U.S. oil, gas, power output, sending prices higher
Dec 23 (Reuters) – Frigid cold and blowing winds on Friday knocked out power and cut energy production across the United States, driving up heating and electricity prices as people prepared for holiday celebrations.
Winter Storm Elliott brought sub-freezing temperatures and extreme weather alerts to about two-thirds of the United States, with cold and snow in some areas to linger through the Christmas holiday.
More than 1.5 million homes and businesses lost power, oil refineries in Texas cut gasoline and diesel production on equipment failures, and heating and power prices surged on the losses. Oil and gas output from North Dakota to Texas suffered freeze-ins, cutting supplies.
Some 1.5 million barrels of daily refining capacity along the U.S. Gulf Coast was shut due to the bitterly cold temperatures. The production losses are not expected to last, but they have lifted fuel prices.
Knocked out were TotalEnergies (TTEF.PA), Motiva Enterprises (MOTIV.UL) and Marathon Petroleum (MPC.N) facilities outside Houston. Cold weather also disrupted Exxon Mobil (XOM.N), LyondellBasell (LYB.N) and Valero Energy (VLO.N) plants in Texas that produce gasoline, diesel and jet fuel.
Sempra Infrastructure’s Cameron LNG plant in Louisiana said weather disrupted its production of liquefied natural gas without providing details. Crews at the 12 million tonne-per-year facility were trying to restore output, it said.
Freeze-ins – in which ice crystals halt oil and gas production – this week trimmed production in North Dakota’s oilfields by 300,000 to 350,000 barrels per day, or a third of normal. In Texas’s Permian oilfield, the freeze led to more gas being withdrawn than was injected, said El Paso Natural Gas operator Kinder Morgan Inc. (KMI.N).
U.S. benchmark oil prices on Friday jumped 2.4% to $79.56, and next-day gas in west Texas jumped 22% to around $9 per million British thermal units , the highest since the state’s 2021 deep freeze.
Power prices on Texas’s grid also spiked to $3,700 per megawatt hour, prompting generators to add more power to the grid before prices fell back as thermal and solar supplies came online.
New England’s bulk power supplier said it expected to have enough to supply demand, but elsewhere strong winds led to outages largely in the Southeast and Midwest; North Carolina counted more than 187,000 without power.
“Crews are restoring power but high winds are making repairs challenging at most of the 4,600 outage locations,” Duke Energy spokesman Jeff Brooks wrote on Twitter.
Heating oil and natural gas futures rose sharply in response to the cold. U.S. heating oil futures gained 4.3% while natural gas futures rose 2.5%.
In New England, gas for Friday at the Algonquin hub soared 361% to a near 11-month high of $30 mmBtu.
About half of the power generated in New England comes from gas-fired plants, but on the coldest days, power generators shift to burn more oil. According to grid operator New England ISO, power companies’ generation mix was at 17% from oil-fired plants as of midday Friday.
Gas output dropped about 6.5 billion cubic feet per day (bcfd) over the past four days to a preliminary nine-month low of 92.4 bcfd on Friday as wells froze in Texas, Oklahoma, North Dakota, Pennsylvania and elsewhere.
That is the biggest drop in output since the February 2021 freeze knocked out power for millions in Texas.
One billion cubic feet is enough gas to supply about 5 million U.S. homes for a day.
Reporting by Erwin Seba and Scott DiSavino; additional reporting by Arathy Somasekhar and Laila Kearney; editing by Jonathan Oatis, Kirsten Donovan, Aurora Ellis and Leslie Adler
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Russia says UK navy blew up Nord Stream, London denies involvement
LONDON, Oct 29 (Reuters) – Russia’s defence ministry said on Saturday that British navy personnel blew up the Nord Stream gas pipelines last month, a claim that London said was false and designed to distract from Russian military failures in Ukraine.
Russia did not give evidence for its claim that a leading NATO member had sabotaged critical Russian infrastructure amid the worst crisis in relations between the West and Russia since the depths of the Cold War.
The Russian ministry said that “British specialists” from the same unit directed Ukrainian drone attacks on ships of Russian Black Sea fleet in Crimea earlier on Saturday that it said were largely repelled by Russian forces, with minor damage to a Russian minesweeper.
“According to available information, representatives of this unit of the British Navy took part in the planning, provision and implementation of a terrorist attack in the Baltic Sea on September 26 this year – blowing up the Nord Stream 1 and Nord Stream 2 gas pipelines,” the ministry said.
Britain denied the claim.
“To detract from their disastrous handling of the illegal invasion of Ukraine, the Russian Ministry of Defence is resorting to peddling false claims of an epic scale,” it said.
“This invented story, says more about arguments going on inside the Russian government than it does about the West.”
Russia has previously blamed the West for the explosions that ruptured the Russian-built Nord Stream 1 and Nord Stream 2 pipelines on the bed of the Baltic Sea.
But it had not previously given specific details of who it thinks was responsible for the damage to the pipelines, previously the largest routes for Russian gas supplies to Europe.
A sharp drop in pressure on both pipelines was registered on Sept. 26 and seismologists detected explosions, triggering a wave of speculation about sabotage to one of Russia’s most important energy corridors.
Reuters has not been able to immediately verify any of the conflicting claims about who was to blame for the damage.
PIPELINE MYSTERY
Sweden and Denmark have both concluded that four leaks on Nord Stream 1 and 2 were caused by explosions, but have not said who might be responsible. NATO Secretary-General Jens Stoltenberg has called the damage an act of sabotage.
Sweden has ordered additional investigations to be carried out into the damage done to the pipelines, the prosecutor in charge of the case said in a statement on Friday.
The Kremlin has repeatedly said allegations of Russian responsibility for the damage were “stupid” and Russian officials have said Washington had a motive as it wants to sell more liquefied natural gas (LNG) to Europe.
The United States has denied involvement.
The Nord Stream 1 and Nord Stream 2 pipelines have a joint annual capacity of 110 billion cubic metres – more than half of Russia’s normal gas exports volumes.
Sections of the 1,224-km (760-mile) long pipelines, which run from Russia to Germany, lie at a depth of around 80-110 metres.
Russia said meanwhile that Ukrainian forces attacked ships from the Black Sea Fleet in Sevastopol, the biggest city in Russian-annexed Crimea, in the early hours of Saturday.
“Nine unmanned aerial vehicles and seven autonomous marine drones were involved in the attack,” the defence ministry said.
“The preparation of this terrorist act and the training of servicemen of the Ukrainian 73rd Special Center for Naval Operations were carried out under the guidance of British specialists located in the town of Ochakiv.”
All the air drones were destroyed though minor damage was done to the minesweeper Ivan Golubets, the ministry said. Sevastopol is the headquarters of Russia’s Black Sea Fleet.
Reporting by Reuters
Editing by Guy Faulconbridge and Frances Kerry
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Exxon’s record-smashing Q3 profit nearly matches Apple’s
HOUSTON, Oct 28 (Reuters) – Exxon Mobil Corp (XOM.N) on Friday smashed expectations as soaring energy prices fueled a record-breaking quarterly profit, nearly matching that of tech giant Apple.
Its $19.66 billion third-quarter net profit far exceeded recently raised Wall Street forecasts as skyrocketing natural gas and high oil prices put its earnings within reach of Apple’s (AAPL.O) $20.7 billion net for the same period.
As recently as 2013, Exxon ranked as the largest publicly traded U.S. company by market value – a position now held by Apple. Exxon shares rose 3% to $110.70, a record high that gave it a market value of $461 billion.
Oil company profits have soared this year as rising demand and an undersupplied energy market collided with Western sanctions against Russia over its invasion of Ukraine. U.S. exports of gas and oil to Europe have jumped and promise to set all-time profit records for the industry.
The top U.S. oil producer reported a per-share profit of $4.68, exceeding Wall Street’s $3.89 consensus view, on a huge jump in natural gas earnings, continued high oil prices and strong fuel sales.
“Where others pulled back in the face of uncertainty and a historic slowdown, retreating and retrenching, this company moved forward, continuing to invest,” Chief Executive Darren Woods told investors. Its quarterly profits “reflect that deep commitment” as well as higher prices, he added.
Exxon led record gains among oil majors in the second quarter and has leapfrogged Shell Plc (SHEL.L) and TotalEnergies SE (TTEF.PA) with earnings almost twice as big from continued bets on fossil fuels as competitors shifted investment to renewables.
Exxon banked $43 billion in the first nine months of this year, 19% more than in the same period of 2008, when oil prices traded at a record level of $140 per barrel.
Earnings from pumping oil and gas tripled last quarter while profit from selling motor fuels jumped tenfold compared with year-ago levels. Natural gas sales to Europe and soaring demand for diesel fuel led the company’s better-than-expected results.
“The refining businesses – both in the U.S. and international – was the star performer,” said Peter McNally, an analyst at Third Bridge.
Those rising fuel profits have renewed calls by U.S. President Joe Biden for companies to invest the windfall from this year’s energy price run-up in production rather than buy back their own shares.
Exxon will maintain its $30 billion share buyback through 2023 while increasing dividends, Chief Financial Officer Kathryn Mikells told Reuters. On Friday, it declared a fourth-quarter per-share dividend of 91 cents, up 3 cents, and will pay $15 billion to shareholders this year.
Exxon said its U.S. oil and gas production from the Permian Basin was near 560,000 barrels of oil and gas per day (boepd), a record. Production for the year will increase about 20% over 2021, said CEO Woods.
“We’re optimizing and adjusting our development plans,” he told analysts, with the full-year production gain below the 25% increase Exxon had forecast in February.
Results also were helped by an almost 100,000-boepd increase over the previous quarter in Guyana, where Exxon leads a consortium responsible for all output in the South American nation.
But its withdrawal from Russia reduced its overall production forecast for the year by about 100,000 barrels per day. Exxon said its Russian assets were expropriated.
“We are going to end up at about 3.7 million barrels a day for the full year,” Mikells said, down from a 3.8 million bpd goal set in February.
Reporting by Sabrina Valle; Editing by Ana Nicolaci da Costa, Jonathan Oatis and Marguerita Choy
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Shell reports drop in profit to $9.45 billion, hikes dividend
LONDON, Oct 27 (Reuters) – Shell (SHEL.L) on Thursday posted a third-quarter profit of $9.45 billion, slightly below the second quarter’s record high, due to weaker refining and gas trading, and said it will sharply boost its dividend by the end of 2022 when its CEO departs.
The British oil and gas giant also extended its share repurchasing programme, announcing plans to buy $4 billion of stock over the next three months after completing $6 billion in purchases in the second quarter.
Shell said it intends to increase its dividend by 15% in the fourth quarter, when Chief Executive Officer Ben van Beurden will step down after nine years at the helm. The dividend will be paid in March 2023.
It will be the fifth time that Shell will have raised its dividend since slashing it by more than 60% in the wake of the 2020 COVID-19 pandemic.
Shell shares were up nearly 6% by 1430 GMT, compared with a 3.5% gain for the broader European energy sector (.SXEP).
Van Beurden will be succeeded by Wael Sawan, the current head of Shell’s natural gas and low-carbon division.
With a profit of $30.5 billion so far this year, Shell is well on track to exceed its record annual profit of $31 billion in 2008.
The strong earnings were likely to intensify calls in Britain and the European Union to impose further windfall taxes on energy companies as governments struggle with soaring gas and power bills.
Van Beurden said the energy industry “should be prepared and accept” that it will face higher taxes to help struggling parts of society.
Shell’s shares have gained more than 40% so far this year, lifted by soaring oil and gas prices in the wake of Russia’s invasion of Ukraine in February and amid tightening global oil and gas supplies.
French rival TotalEnergies posted a record profit in the third quarter.
[1/2] A view shows a board with the logo of Shell at the company’s fuel station in Saint Petersburg, Russia May 6, 2022. REUTERS/Anton Vaganov/File Photo
LNG WOES
Shell’s quarterly adjusted earnings of $9.45 billion, which slightly exceeded forecasts, were hit by a sharp 38% quarterly drop in the gas and renewables division, the company’s largest.
Earnings for the second quarter were a record $11.5 billion.
The world’s largest trader of liquefied natural gas (LNG) produced 7.2 million tonnes of LNG in the period, 5% less than in the previous quarter, mainly due to ongoing strikes at its Australian Prelude facility.
Its gas trading business was hit this quarter by “supply constraints, coupled with substantial differences between paper and physical realisations in a volatile and dislocated market.”
Earnings from the refining, chemicals and oil trading division also dropped sharply by 62% in the quarter due to weaker refining margins.
Shell said it would stick to its plans to spend $23 billion to $27 billion this year.
Shell’s cash flow in the third quarter dropped sharply to $12.5 billion from $18.6 billion in the second quarter due to a large working capital outflow of $4.2 billion as a result of changes in the value of European gas inventories.
Shell’s net debt rose by around $2 billion to $46.4 billion due to lower cash flow from operations and to pay for a recent acquisition. Its debt-to-capital ratio, known as gearing, also rose above 20%.
Reporting by Ron Bousso and Shadia Nasralla; editing by Jason Neely, Simon Cameron-Moore and Paul Simao
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World is in its ‘first truly global energy crisis’ – IEA’s Birol
SINGAPORE, Oct 25 (Reuters) – Tightening markets for liquefied natural gas (LNG) worldwide and major oil producers cutting supply have put the world in the middle of “the first truly global energy crisis”, the head of the International Energy Agency (IEA) said on Tuesday.
Rising imports of LNG to Europe amid the Ukraine crisis and a potential rebound in Chinese appetite for the fuel will tighten the market as only 20 billion cubic meters of new LNG capacity will come to market next year, IEA Executive Director Fatih Birol said during the Singapore International Energy Week.
At the same time the recent decision by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, to cut 2 million barrels per day (bpd) of output is a “risky” decision as the IEA sees global oil demand growth of close to 2 million bpd this year, Birol said.
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“(It is) especially risky as several economies around the world are on the brink of a recession, if that we are talking about the global recession…I found this decision really unfortunate,” he said.
Soaring global prices across a number of energy sources, including oil, natural gas and coal, are hammering consumers at the same time they are already dealing with rising food and services inflation. The high prices and possibility of rationing are potentially hazardous to European consumers as they prepare to enter the Northern Hemisphere winter.
Europe may make it through this winter, though somewhat battered, if the weather remains mild, Birol said.
“Unless we will have an extremely cold and long winter, unless there will be any surprises in terms of what we have seen, for example Nordstream pipeline explosion, Europe should go through this winter with some economic and social bruises,” he added.
For oil, consumption is expected to grow by 1.7 million bpd in 2023 so the world will still need Russian oil to meet demand, Birol said.
G7 nations have proposed a mechanism that would allow emerging nations to buy Russian oil but at lower prices to cap Moscow’s revenues in the wake of the Ukraine war.
Birol said the scheme still has many details to iron out and will require the buy-in of major oil importing nations.
A U.S. Treasury official told Reuters last week that it is not unreasonable to believe that up to 80% to 90% of Russian oil will continue to flow outside the price cap mechanism if Moscow seeks to flout it.
“I think this is good because the world still needs Russian oil to flow into the market for now. An 80%-90% is good and encouraging level in order to meet the demand,” Birol said.
While there is still a huge volume of strategic oil reserves that can be tapped during a supply disruption, another release is not currently on the agenda, he added.
ENERGY SECURITY DRIVES RENEWABLES GROWTH
The energy crisis could be a turning point for accelerating clean sources and for forming a sustainable and secured energy system, Birol said.
“Energy security is the number one driver (of the energy transition),” said Birol, as countries see energy technologies and renewables as a solution.
The IEA has revised up the forecast of renewable power capacity growth in 2022 to a 20% year-on-year increase from 8% previously, with close to 400 gigawatts of renewable capacity being added this year.
Many countries in Europe and elsewhere are accelerating the installation of renewable capacity by cutting the permitting and licensing processes to replace the Russian gas, Birol said.
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Reporting by Florence Tan, Muyu Xu and Emily Chow; Editing by Jacqueline Wong and Christian Schmollinger
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Putin orders seizure of Exxon-led Sakhalin 1 oil and gas project
MOSCOW/HOUSTON, Oct 7 (Reuters) – Russian President Vladimir Putin signed a decree on Friday that establishes a new operator for the Exxon Mobil Corp-led (XOM.N) Sakhalin-1 oil and gas project in Russia’s Far East.
Putin’s move affecting Exxon’s largest investment in Russia mimics a strategy he used to seize control of other energy properties in the country.
The decree gives the Russian government authority to decide whether foreign shareholders can retain stakes in the project.
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Exxon holds a 30% operator stake in Sakhalin-1, with Russian company Rosneft (ROSN.MM), India’s ONGC Videsh (ONVI.NS) and Japan’s SODECO as partners.
Oil production at the Sakhalin-1 project fell to just 10,000 barrels per day (bpd) in July from 220,000 bpd before Russia invaded Ukraine.
NAVIGATING AN EXIT
Exxon has been trying to exit its Russia operations and transfer its role in Sakhalin-1 to a partner since March, after international sanctions imposed on Moscow.
Russia’s government and Exxon have clashed, with the oil producer threatening to take the case to international arbitration.
Exxon declined to comment on Friday’s decree.
Japan’s SODECO was not immediately available to comment, but an official of the industry ministry, which owns a 50% stake in the firm, said it was gathering information and talking with partners. Japan has stopped buying crude from Russia since June. read more
Exxon took an impairment charge of $4.6 billion in April for its Russian activities and said it was working with partners to transfer Sakhalin-1’s operation. It also reduced energy production and moved staff out of the country.
In August, Putin issued a decree that Exxon said made a secure and environmentally safe exit from Sakhalin-1 difficult. The U.S. producer then issued a “note of difference,” a legal step prior to arbitration.
Friday’s decree said the Russian government was establishing a Russian company, managed by Rosneft subsidiary Sakhalinmorneftegaz-shelf, that will own investors’ rights in Sakhalin-1.
Foreign partners will have one month after the new company is created to ask the Russian government for shares in the new entity, the decree said.
Putin used a similar strategy in a July decree to seize full control of Sakhalin-2, another gas and oil project in the Russian Far East, with Shell (SHEL.L) and Japanese companies Mitsui & Co (8031.T) and Mitsubishi Corp as partners.
Russia has approved applications by the two Japanese trading houses seeking to transfer their stakes to a new operator. read more
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Reporting by Reuters; Additional reporting by Yoshifumi Takemoto, Yuka Obayashi in Tokyo, Editing by Cynthia Osterman and Clarence Fernandez
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Biden administration denies Cheniere’s request to sidestep LNG pollution rule
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WASHINGTON, Sept 6 (Reuters) – The U.S. Environmental Protection Agency (EPA) said on Tuesday it has denied a request from leading liquefied natural gas (LNG) exporter Cheniere Energy Inc (LNG.A) to exempt turbines at its two U.S. Gulf Coast terminals from a hazardous pollution rule.
The rejection raises questions about whether the Texas-based company will have to reduce exports of the supercooled fuel to install new pollution control equipment at its facilities at a time that Europe is depending on increased shipments of LNG from the United States to offset cuts from Russia.
Europe is facing its worst-ever gas supply crisis, with energy prices soaring and German importers discussing possible rationing in the European Union’s biggest economy after Russia reduced gas flows westward. Moscow has cited a pipeline fault for the halt, but Europe sees it as apparent retribution for Western sanctions imposed on Russia for its invasion of Ukraine.
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“Though EPA is denying Cheniere’s request for a special subcategory to comply with the turbines rule, the Agency will continue to work with them and with other companies as needed to assure they meet Clean Air Act obligations,” EPA spokesperson Tim Carroll said in an email.
Owners and operators of gas turbines had a Sept. 5 deadline to comply with the National Emission Standards for Hazardous Air Pollutants (NESHAP), which the administration of President Joe Biden put into effect after an 18-year stay.
The rule imposes curbs on emissions of known carcinogens like formaldehyde and benzene from stationary combustion turbines, like those used by LNG facilities.
Cheniere had asked the Biden administration to exempt a specific kind of turbine that it installed at its LNG terminals from the NESHAP limits, arguing they would reduce shipments from the top U.S. exporter for an extended period and endanger the country’s efforts to ramp up supplies to Europe. read more
Cheniere was the only company to request such an exemption, according to the EPA. The company claimed the model of turbine it uses at its Texas and Louisiana facilities is the best technology for withstanding the types of storms that often strike the Gulf Coast, but that the equipment is also exceptionally hard to retrofit, and that engineering and installation of pollution controls could take years.
Cheniere spokesperson Eben Burnham-Snyder said that while the company “strongly disagrees” with the EPA’s decision, “we will work with our state and federal regulators to develop solutions that ensure compliance.”
He said the decision may result in “unwarranted expenditures” but added that coming into full compliance will not result in a material financial or operational impact and will not affect its ability to supply LNG to customers and countries around the world.
Gas-powered turbines emit formaldehyde and other dangerous pollutants through a chemical transformation that occurs when methane, the main ingredient in natural gas, is superheated.
Around 250 U.S. gas turbines are subject to the new rule, according to an EPA list, nearly a quarter of them Cheniere’s.
The Houston-based company accounts for around 50% of U.S. shipments of LNG abroad.
Ilan Levin, associate director of the Environmental Integrity Project, said the decision by EPA to deny Cheniere’s request was not a surprise because it had warned the company that it needed to meet the standard for years.
Reuters reported last month that the EPA had questioned Cheniere’s selection of gas turbines without adding pollution controls in 2011 and again in 2013. read more
“We applaud the EPA for enforcing the law and making sure the people living near these plants in the coastal bend and southeast Texas/southwest Louisiana get the same clean air protections as everybody else,” he said.
Cheniere shares closed 2.3% lower at $158.58 on Tuesday.
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Reporting by Valerie Volcovici in Washington and Nichola Groom in Los Angeles; Editing by Jonathan Oatis, Matthew Lewis and Himani Sarkar
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Shell smashes record again with $11.5 billion profit
General view of a Shell petrol station sign in Milton Keynes, Britain, January 5, 2022. REUTERS/Andrew Boyers/File Photo GLOBAL BUSINESS WEEK AHEAD
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LONDON, July 28 (Reuters) – Shell (SHEL.L) on Thursday reported a second quarter profit of $11.5 billion, smashing its previous record just three months earlier, lifted by a tripling of refining profits and strong gas trading.
The company also announced a share buyback programme of $6 billion for the current quarter, but did not raise its dividend of 25 cents per share. It said shareholder returns would remain “in excess of 30% of cash flow from operating activities”.
A rapid recovery in demand following the end of pandemic lockdowns and a surge in energy prices, driven by Russia’s invasion of Ukraine, have boosted profits for energy companies after a two-year slump. read more
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Shell bought back $8.5 billion of shares in the first half of 2022, and the new repurchase programme is significantly higher than forecasts.
“The strong oil price backdrop has helped Shell deliver a blockbuster set of results. The dividend may have remained the same, but the share buyback programme is positive news for shareholders,” said Stuart Lamont, investment manager at Brewin Dolphin.
Shell shares were up 0.9% at the opening of trading in London.
French rival TotalEnergies (TTEF.PA) also reported on Thursday a record profit of $9.8 billion in the quarter and accelerated its buyback programme. read more
Norway’s Equinor (EQNR.OL) raised its special dividend and boosted share buybacks on Wednesday. read more
U.S. rivals Exxon Mobil and Chevron report results on Friday.
Oil and gas prices remained elevated in the quarter, with benchmark Brent crude averaging about $114 a barrel. Benchmark European natural gas prices and global liquefied natural gas (LNG) prices averaged an all-time high in the quarter.
REFINING BOOST
Shell’s second-quarter adjusted earnings rose to $11.47 billion, above the $11 billion forecast by analysts in a poll provided by the company.
That was up from $5.5 billion a year earlier and from $9.1 billion in the first quarter of 2022.
Shell’s strong results reflected higher energy prices and refining margins, as well as strong gas and power trading, the company said, but were partly offset by lower LNG trading results.
Refining profit margins tripled in the quarter to $28 per barrel. They have weakened substantially in recent weeks amid signs of easing gasoline demand in the United States and Asia.
Shell said its refinery utilization would increase to 90-98% in the third quarter, compared with 84% in the second quarter.
Its oil and gas production in the second quarter was down 2% from the previous quarter to 2.9 million barrels of oil equivalent per day (boepd).
Shell’s LNG liquefaction volumes stood at 7.66 million tonnes in the second quarter, down from 8 million in the previous quarter. Volumes are expected to fall to between 6.9-7.5 million in the third quarter due to strikes at its Australian Prelude site and planned maintenance.
Shell used the surge in cash generation to further reduce its debt, which stood at $46.4 billion at the end of June, compared with $48.5 billion three months earlier. Its debt-to-capitalization ratio, or gearing, declined to 19.3%.
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Reporting by Ron Bousso and Shadia Nasralla
Editing by Jason Neely and Mark Potter
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Europe races to cut Russian gas usage amid new Putin warning
BRUSSELS/LONDON, July 20 (Reuters) – The European Union will set out emergency plans on Wednesday to curb gas usage after President Vladimir Putin warned that Russian supplies sent via the biggest pipeline to Europe, Nord Stream 1, were at risk of being reduced further.
Deliveries via the pipeline, which accounts for more than a third of Russian gas exports to the EU, are due to resume on Thursday after a 10-day halt for annual maintenance.
But supplies via that route had been reduced even before the maintenance outage because of a dispute over sanctioned parts, and may now face further cuts, while deliveries via other routes, such as Ukraine, have also fallen since Russia invaded its neighbour in February.
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The disruptions have hampered Europe’s efforts to refill gas stores before winter, raising the risk of rationing and another hit to fragile economic growth if Moscow further restricts flows in retaliation for Western sanctions over the war in Ukraine.
The European Commission’s plan will urge countries to slash gas use. A draft seen by Reuters proposed a voluntary target for countries to cut gas demand over the next eight months, which could be made legally binding in an emergency.
EU officials said the target cut would be 10%-15%, with any plan needing approval from members of the 27-nation bloc. But EU officials say it is vital to act now rather than wait to see what happens to flows via Nord Stream 1 or other routes.
“We believe that a full disruption is likely and it is especially likely if we don’t act and leave ourselves vulnerable to it,” one said. “If we wait, it will be more expensive and it will mean us dancing to Russia’s tune.”
European politicians have accused Russia of playing politics with its gas supplies, using technical issues as a pretext to reduce deliveries. The Kremlin says Russia remains a reliable energy supplier and has blamed reduced flows on sanctions.
Two Russian sources familiar with Russia’s export plans said flows via Nord Stream 1 were expected to restart on time on Thursday after being halted on July 11 for annual maintenance.
But they said it would below its capacity of 160 million cubic metres (mcm) per day.
Kremlin-controlled Gazprom (GAZP.MM) cut gas exports via the route to 40% capacity in June, blaming delays on the return of a turbine that Siemens Energy (ENR1n.DE) was servicing in Canada.
FURTHER REDUCTIONS
That turbine, which was caught up in sanctions, was reported this week to be on its way back, although Gazprom said on Wednesday it had not received documentation to reinstall it and said the turbine’s return and maintenance of other equipment was needed to keep the pipeline running safely. read more
Putin suggested there might be a further reduction in supplies via the pipeline that runs under the Baltic Sea to Germany, Europe’s economic powerhouse which has relied heavily on Russian fuel, adding to European supply concerns. read more
Gas prices have rocketed in volatile trade since the Ukraine crisis erupted. The front-month gas contract climbed above 160 euros per megawatt hour (MWh) on Wednesday, 360% up on a year ago but below its March peak of 335 euros.
Putin said there were five gas pumping units, operated by Siemens Energy at Nord Stream 1 and one more unit was out of order due to “crumbling of inside lining.”
“There are two functioning machines there, they pump 60 million cubic metres per day … If one is not returned, there will be one, which is 30 million cubic metres. Has Gazprom something to do with that?” he said.
Putin said one more of the gas pumping turbines was due to be sent for maintenance on July 26.
He also said Gazprom, which has a monopoly on Russian gas exports by pipeline, was not to blame for the reduction of gas transit capacity via a network of pipelines to Europe.
He blamed Kyiv for closing one route via Ukraine, although Ukraine’s authorities blame the shutdown on Russia’s invasion.
Siemens Energy said maintaining turbines for the Nord Stream 1 would normally be a routine matter. It said it would continue maintaining equipment under sanctions if possible and where required, and it would work as fast as it could. read more
In a pivot east, Gazprom said on Wednesday Russian gas supplies heading to China via its Power of Siberia pipeline hit a new daily record. Moscow has been expanding capacity to supply China even as deliveries to Europe dwindle, although Russia’s far east network is not connected to the European supply system.
European nations, meanwhile, have been chasing alternative supplies, although the global gas market was stretched even before the Ukraine crisis, with demand for the fuel recovering from the pandemic-induced downturn.
Those efforts have included seeking more gas from suppliers linked to Europe by pipeline, such as Algeria, and by building or expanding more liquefied natural gas (LNG) terminals to receive shipments from much further afield, such as the United States.
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Reporting by Reuters bureaus; Writing by Edmund Blair; Editing by Carmel Crimmins
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