Russia Steps Up Energy Wars With Further Gas Cuts to Europe

(Bloomberg) — Russia stepped up the use of energy as a weapon by further cutting natural gas shipments via its biggest pipeline to Europe, a move Germany said was politically motivated.

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Gazprom PJSC is curbing gas supplies via its Nord Stream pipeline to Germany by 60%, increasing a cut announced on Tuesday. The curtailment adds to a 15% reduction in flows to Italy, putting more pressure on already tight European energy markets and sending gas prices surging as much as 24%.

German Economy Minister Robert Habeck said Russia was trying to unsettle markets and move up gas prices. The curbs reignited tensions with Moscow, which had calmed down after several European countries found ways of paying for gas in rubles, meeting a demand from President Vladimir Putin.

“EU companies that accepted to twist the contract to continue to receive gas should now understand that political diktats can come anytime from the Kremlin,” said Thierry Bros, a former energy analyst who’s now a professor at the Paris Institute of Political Studies. “The industry must prepare for zero Russian gas.”

Gazprom PJSC halted a third turbine crucial for the functioning of Nord Stream, capping supplies via the link to 67 million cubic meters a day from Thursday. The decision comes a day after the Russian gas giant said it was facing technical issues with two turbines manufactured by Siemens Energy AG that could limit capacity to 100 million cubic meters a day.

Habbeck dismissed the suggestion that the technical issues were the main reason for the reduction, while Oliver Krischer, a deputy economy minister, said the curbs could be linked to Germany’s 10-billion euro ($10.4 billion) bailout of a former Gazprom unit under the control of the country’s energy regulator since April.

“A connection between the two problems cannot be ruled out, one could be a reaction to the other,” Krischer told the lower house of parliament’s climate protection and energy committee on Wednesday.

Russia is also limiting supplies to Italy, another country that agreed to pay for gas under the new payment terms imposed by the Kremlin. Eni SpA said on Wednesday that Gazprom informed the Italian energy giant that it would curb supplies by about 15%. The St. Petersburg-based company didn’t provide a reason for the cut.

“Italy can rightly feel aggrieved at receiving reduced flows as one of the ‘friendlier’ allies to pay for Russian gas in rubles and not on Nord Stream’s direct route,” said Tim Partridge, head of energy trading at DB Group Europe.

The loss of Russian supply coincided with a drop in US capacity to ship liquefied natural gas to the region after a major export terminal in Texas was damaged by fire. Benchmark European gas prices traded in the Netherlands rose 120.50 euros a megawatt-hour, the highest since April.

“These significant gas outages East and West of Europe are a reminder of the fragility of the physical infrastructure that underpins the global gas market,” said Zongqiang Luo, an analyst at Norwegian consultant Rystad Energy.

(Updates with analyst quote in fourth paragraph.)

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