A huge circle of bubbling water about a kilometer in diameter, foam and diverging waves. The sabotage of the Nord Stream and Nord Stream 2 pipelines automatically increased the shares of Ukraine's gas transportation system, Yamal-Europe and Turkish Stream gas pipelines.
The words of Anthony Blinken come to mind who promised at the end of May that the U.S. would continue to be active in the Baltic Sea Region.
We Pointed to Bridges and Nitric Acid Explosion
Footage of the Danish Defense Ministry, which published a circle of bubbling water in the Baltic Sea along the route of Nord Stream 2, is the most popular video of the last 24 hours. This is what the damaged area of the Nord Stream 2 pipeline in the Baltic Sea looks like. On Monday, September 26, the Danish Energy Agency reported three gas leaks at Nord Stream and Nord Stream 2 gas pipelines in Denmark's economic zone near Bornholm Island in the Baltic Sea. On September 27, it became generally known that both Nord Stream and Nord Stream 2 were damaged and that the leaks were the result of damage.
The Nord Stream AG operator, called the destruction “unprecedented.” “The destruction of three offshore pipelines of the Nord Stream system on the same day is unprecedented,” said Nord Stream AG’s representatives.
Amid the news of the damage to Nord Stream and Nord Stream 2, gas prices on European exchanges jumped once again, reaching $1,850 per 1,000 m3 for futures supplies on the TTF virtual trading facility in the Netherlands on Tuesday evening, September 27. By comparison, the day before, on Monday, September 26, the TTF hub closed the trading day at $1,682 per 1,000 m3. However, $1,850 is only the start. At the end of August, the price of 1,000 on the exchange in the Netherlands passed the $3,500 mark.
A story headlined ‘Germany Suspects Sabotage Causes Damage to Nord Stream Pipeline’ is now at the top of Bloomberg's most-read list, which called the damage unprecedented, adding that Danish authorities are stepping up security measures.
At the same time, the price of gas jumped an average of 12 % from its original price on Tuesday alone, according to Bloomberg.
“German authorities suspect that the Nord Stream pipeline has been damaged by sabotage, which could result in an escalation in the standoff between Russia and Europe,” Bloomberg warns, citing a senior German intelligence official, who says all evidence suggests that it is in fact an act of sabotage and not a technical failure in the pipeline. In support of this conclusion Bloomberg cites the fact that Swedish seismologists detected two explosions in the Nord Stream pipeline's passing area on Monday, September 26.
As mentioned above, the Danes detected three leaks from Nord Stream 2. As for Nord Stream, so far, we know about two leaks, and both strings of the pipeline were damaged. By the way, on September 26 and 27, the NATO Air Force conducted exercises in the Baltic Sea region. In theory, they could have spotted any suspicious activity. If NATO needed it, of course.
Here we Fight, and Here we Trade
It should be said that gas transit is an independent series that develops in parallel with the special military operation. To be more precise, it even contradicts it because despite the hostilities on the territory of Ukraine, Gazprom and Naftogaz of Ukraine continue the gas transit all these months.
Now, taking into account the new realities, Nord Stream has been stopped for an indefinite period, and Nord Stream 2 has not been launched. The capacity of the Nord Stream 2, according to the data from the website of Nord Stream AG, is 27.5 bln m3 per line, i.e. 55 bln m3 a year.
What is left? There are three options: Ukraine's gas transportation system via Ukraine, Yamal-Europe via Belarus and Turkish Stream gas pipelines via the Black Sea.
When it comes to the Ukrainian gas transportation system, according to the website of the Ukrainian GTS Operator, its declared capacity limit is 146 billion m3 of gas per year. Under the contract of December 30, 2019, Gazprom committed to transit 40 billion m3 for the period 2021 - 2024 on the pump-or-pay principle which means that Gazprom pays for the transit of 40 billion m3 in any case, even if it pumps much less. At the same time, the volumes of the Ukrainian GTS may be increased. For example, Gazprom's obligation to pump 65 billion m3 was fixed for 2020. Sergey Makogon, the former head of the Ukrainian GTS Operator, said in early January that in 2021, the capacities of the Ukrainian GTS were used by less than 30% (the company listed the volume of 41.6 billion m3). According to Makogon's estimates, the Ukrainian GTS is potentially capable of providing transit of another 100 billion m3 of gas from Russia to Europe. “Reliable and ramified Ukrainian GTS is capable to provide transit of at least another 100 billion m3 of gas in the European direction,” said Makogon.
By the way, it happened that on the eve of the sabotage of Nord Stream, official Kiev fired the previous director, appointing Polish citizen Pawel Stanchak as the head of the GTS Operator.
Launched in 1999, the Yamal-Europe pipeline links Western Siberian fields with the European Union. The starting point is Torzhok in the Tver Region. The pipeline passes through the territories of Russia, Belarus and Poland, and the final compressor station is located near Frankfurt am Oder in Germany. The pipeline's design capacity is 32.9 billion m3, although 34.7 billion m3 were pumped in 2013. This is the first gas pipeline built in modern times with the specific purpose of bypassing Ukraine. In February, it became known that Gazprom had not booked Yamal-Europe capacity for the second and third quarters of this year. Since the night of March 30, Yamal-Europe has been shut down and is not operating.
There is also the Turkish Stream (with the Balkan Stream branch), launched in 2020, which originates in the Krasnodar Territory and runs along the bottom of the Black Sea to the European part of Turkey. Two branches of Turkish Stream are able to provide transit of 15.75 billion m3 each, i.e. the total capacity is 31.5 billion m3 per year. Russia uses Turkish Stream to supply gas to Turkey and also provides energy resources to such countries in Southern and Southeastern Europe as Hungary, Serbia and Slovakia. Moreover, thanks to Turkish Stream, Ankara not only meets its own needs, but also earns good money and strengthens its international prestige as a powerful intermediary.
Are Players Doubling Down?
If we proceed from the fact that annual demand in Europe is 470 bln m3, and Russia provides up to 40% of this figure (188 bln, in terms of figures), it is obvious that Turkish Stream with its 31.5 bln m3 may minimally compensate the deficit.
However, if we add Yamal-Europe, even if at the level of 35 billion m3 a year, it will not drastically improve the situation. Under the conditions of tough deficit, the role of Ukrainian GTS with its declared 146 bln m3 per year will automatically increase. In addition, there is a huge demand even for liquefied natural gas (LNG) from the U.S., despite the fact that it is much more expensive than Russian gas. At the end of August, LNG from the US was trading at $3,600 per 1,000 m3 on the TTF hub.
However, if the Kremlin is ready to buck the odds, Gazprom may refuse transit at all. For example, if during an address to the State Duma on September 30, Russian President Vladimir Putin officially declares war on Ukraine. Military action under international law is a standard force majeure, freeing Gazprom from fulfilling its obligations.
The Kremlin can also “throw the ball” to the EU elites and let them negotiate an increase in volumes through the Ukrainian GTS or launch Nord Stream 2, which has been ready for operation for a long time but has been idle for political reasons. On the other hand, American democrats have serious leverage because it is they who control the Ukrainian GTS. All in all, a very complicated gas-related conundrum has been added to the special military operation in Ukraine.
“There's no doubt, this is not an earthquake,” said Björn Lund, head of the Swedish National Seismological Network.
“The era of Russia's dominance in the gas sector is coming to an end. The era marked by blackmail, threats, and extortion,” said Mateusz Morawiecki, Prime Minister of Poland.
“It was not an accident,” said Metter Frederiksen, Prime Minister of Denmark
According to Christian Kopfer, equity analyst (Sweden), “The increase in gas prices is primarily a psychological effect. There is a lot of confusion about what happened and why it happened, so people are worried about the fate of gas supplies to Europe.”