Russia’s Nord Stream Pipeline Closure Lands Economic Blow Against Europe

Power prices surged, European currencies hit multidecade lows and governments scrambled to contain the economic hit after Russia cut its main natural-gas pipeline to Europe.

The cutoff, which the Kremlin blamed Monday on Western sanctions and said would be long-lasting, realizes the worst-case scenario Europe had been girding for since Russia invaded Ukraine in February.

Europe is at the front lines of the economic war between Russia and the West that runs parallel to the battlefield war in Ukraine. Soaring electricity prices and a shortage of natural gas have hammered the European economy and raised concerns about blackouts and shortages this winter.

Natural-gas and electricity prices jumped by around a quarter Monday in response to the shutdown of the Nord Stream pipeline to Germany, announced by state-controlled Gazprom PJSC after markets closed last week. As traders braced for an expected recession in the eurozone, the euro briefly slid to its lowest level in 20 years. Stocks fell in Germany, Italy, France and other markets.

European governments and energy executives say the throttling of gas is designed to hurt economies and undermine support for Ukraine. Moscow says Western sanctions have made maintenance of key pieces of equipment on the Nord Stream pipeline impossible. Gazprom has declined to reroute gas through functioning pipelines.

Kremlin spokesman Dmitry Peskov said Monday that problems pumping gas “arose due to the sanctions imposed against our country and against a number of companies by Western states, including Germany and Great Britain.”

“We insist that the collective West, in this case the European Union, Canada, Great Britain, are to blame for the situation having reached the point where it is now,” he added.

Germany’s energy regulator said Monday that “the defects alleged by the Russian side are not a technical reason for the cessation of operations.”

Gas and electricity prices remained below the record highs recorded in late August. But the advance to historically high levels stands to goose inflation, push consumers into poverty and pile pressure on energy-intensive industries experiencing a wave of factory closures.

European utilities, many backed by governments, have worked furiously this year to replace Russian gas flows with alternative sources, including supercooled liquified-natural gas sent by ship from the U.S. and the Middle East. Germany has promised to re-examine whether to shutter three nuclear power plants.

Gas storage levels have risen ahead of European targets and analysts increasingly think the region will survive the winter without state-directed rationing, albeit at exorbitant costs to the economy through record prices.

Governments have also shelled out tens of billions of dollars to shield vulnerable households and businesses. Germany announced a $65 billion plan Sunday. Further complicating the outlook, analysts expect the European Central Bank to raise interest rates this week to control inflation fueled by high energy prices.

Western leaders are preparing for the possibility that Russian natural gas flows through the key Nord Stream pipeline may never return to full levels. WSJ’s Shelby Holliday explains what an energy crisis could look like in Europe, and how it might ripple through the world. Illustration: David Fang (Originally published July 21, 2022)

The Nord Stream closure, which Gazprom said would last indefinitely, added urgency to Europe’s efforts to make sure it gets through winter without running out of gas. European Union energy ministers are set to meet Friday to assemble a plan to limit the severity of a likely recession.

A key goal is to tame wild moves in electricity markets that have driven Europe’s power-hungry factories to shut down. Options circulated by the Czech Republic, which holds the rotating EU presidency, include measures to temporarily cap prices for gas imports and gas used for electricity generation, and to put a limit on revenues earned by renewable, nuclear and hydropower companies with low running costs. Revenues beyond a certain point would be skimmed and redistributed to customers, a document seen by The Wall Street Journal suggested.

More immediately, governments are taking steps to ensure power markets don’t break down. Haywire moves in the price of electricity have saddled utilities with massive cash payments they are required to make to trade on energy exchanges. Officials in some countries fear failed payments could undermine financial stability, and that the cash squeeze is creating a vicious cycle of volatility.

The options put forward by the Czech government include a pan-European credit line, potentially handled by the European Central Bank, from which companies with large margin calls could borrow to keep trading. The proposals also raise the possibility of a temporary suspension of trading on European power derivative markets. Those ideas are due to be discussed during talks this week, including at Friday’s ministerial meeting.

Concerned about a potential meltdown in the integrated Nordic power market, governments in Sweden and Finland got ahead of the EU over the weekend, offering energy companies a combined $33 billion in guarantees to ensure margin payments are met. Lawmakers in both countries will meet to decide whether to approve the proposals Monday.

The plans appeared to calm traders. David Augustsson, a spokesman for Stockholm-based Nasdaq Clearing AB, which processes most power derivative trades in the Nordic region, said Monday’s trading was orderly, though prices were rising.

“Even the strongest utilities are facing huge pressure in terms of collateral payments,” said analysts at RBC Capital Markets. Analysts at


said northwest European gas prices could surge to 420 euros, equivalent to $418, a megawatt-hour in the event of a cold winter and further Russian cuts, beyond the closing high of almost 350 euros from Aug. 26.

Nord Stream was until recently the main transit route for Russian gas, which met about 40% of the EU’s demand in the year before President

Vladimir Putin

invaded Ukraine. A separate route, the Yamal-Europe pipeline running through Poland and Belarus, has been closed by Russian sanctions.

That leaves Russian gas flowing to Europe through two routes—pipelines running through Ukraine, and TurkStream—in massively reduced quantities. The drop in exports from Russia struck at a bad moment for the region, which is also contending with curbed hydropower generation in Norway and a steep drop in generation by the French nuclear-power fleet.

Cutting gas supplies to Europe carries risks for Moscow, as pipeline infrastructure to China and other markets will take years to build.

Gazprom has slashed production. Last week, it said it would accelerate longstanding plans to connect more Russian towns to the grid to give another outlet for gas that once headed to Europe.

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