Euro Utilities: Nordstream None

Andrew Moulder - Senior Analyst-European Utilities

EXECUTIVE SUMMARY
  • The Nordstream 1 gas pipeline between Russia and Germany was supposed to come back into operation on 2 September – It did not. Gazprom blamed an oil leak for the continued and “indefinite” outage, an excuse that was rubbished by Germany and by Siemens, which is responsible for maintenance.
  • Press reports jumped on the suspicious timing, with the EU having agreed earlier the same day to implementing a cap on the price of Russian oil, and also to have reached their targeted gas storage levels earlier than expected. At the EU level gas storage is now 81% full while in two of the most Russian gas dependent countries, Germany and Italy, storage levels are at 85% and 83% respectively.
  • Reports of the growth in storage levels have recently been reassuring markets that gas availability over the winter may not be as tight as had been feared and consequently European gas prices have fallen over the last few days, but we expect prices to jump upwards on the Nordsteam news when markets open on Monday.
  • In our opinion, it is likely Russia will, as some point, restore flows through Nordstream 1, but it will be at the low 20% level that has been supplied over the last few months. Gazprom, and Russia, can still earn revenue this way and it keeps Europe in a “will they, won’t they” uncertain situation over Russian gas flows. However there is no clarity on how long this “indefinite” outage might last.
  • Given current storage levels this latest gas curtailment from Russia is not going to lead to an immediate gas shortage, but it could deplete storage levels going into the winter. Whether there will need to be rationing over the winter will depend on gas availability, but also on the wind and the weather.
  • The most significant impact is going to be on Uniper, where gas purchase costs will be higher than had been estimated, but apart from Uniper and EDF, which is a special case, we do not see the energy crisis being a huge negative for the Euro utilities. Governments generally acknowledge that the utilities are simply the conduits for passing through the high commodity costs, they are not the cause of these commodity costs or the consequent high energy prices.
  • The real issue is that energy costs are rising to such extreme levels that millions across Europe are being pushed into fuel poverty and businesses are becoming uneconomic. And without action things will only get worse as Europe moves into the winter. On Sunday Germany announced a further €65 bn support package, and also pledged to contain rising electricity prices.
  • Politicians need to act and we expect there will be additional measures put in place, and that these will likely include windfall taxes and price caps.

It was supposed to be a three day maintenance that would end on 2 September, but after market close on 2 September Gazprom announced that Nordstream 1 would not be coming back on line as scheduled. Gazprom had reportedly found an issue with an oil leak during maintenance of the turbines at the Portovaya compressor station which meant gas would not be flowing and that Nordsteam 1 would be shut off “indefinitely” while the issue is rectified.

Gazpprom claimed that sanctions were hindering the repair which could only be done in specialised workshops, but Siemens, which is responsible for maintaining the turbines stated that “Such leaks do not normally affect the operation of a turbine and can be sealed on site. It is a routine procedure within the scope of maintenance work.” Gazprom posted the photo below showing the extent of the oil leak.

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