Gazprom’s announcement that it was cutting gas flows in the Nord Stream 1 pipeline to 20% of capacity on July 25 means the EU will miss its deadline to fill storage tanks to 80% full by October 1.

German Vice-Chancellor Robert Habeck said the same day that rationing of energy during the winter has become more likely and that Germany needs to reduce its consumption of gas by 15%-20% to be sure of getting through the winter. A 15% reduction is equivalent to about 45bn cubic metres during the heating season and 60 bcm for the whole year, or about a third of all the gas Russia usually sends to the EU.

Brussels proposed EU members unilaterally cut gas consumption by 15% to conserve gas for the winter on July 21, in what proved to be an unpopular move. The southern European countries of Greece, Spain and Portugal rebelled and have refused to make the cuts, saying they are not to blame for Germany’s mistake in becoming so dependent on Russian gas and don’t see why they should suffer to bail Germany out.

Gas storage tanks in Europe were 66.7% full as of July 25 (chart) and Germany’s tanks 66.4%. A few countries are already close to the 80% goal or have already reached it, including: Portugal (100%), Poland (98.5%), Sweden (90.8%), Denmark (85.6%) and France (75.5%).

However, the key markets of Czechia (77.7%), Slovakia (68.3%), Italy (70.5%) and Hungary (49.2%) that are most exposed to Russian gas supplies still have some way to go.

Currently Europe’s gas storage tanks are on track to hit 80% by October 1 (red). The boundaries are the 2020 line (blue) when the tanks were 95.8% full at the start of the heating season – the second highest level in the last ten years – and 2021 (green) when tanks were 77.5% full at the start of the season – the only time in the last decade when the heating season started with less than 80%. Europe has filled its tanks faster than usual this year thanks to record LNG imports.

Ukraine has the most to do with the lowest storage levels in Europe of only 22.9% and also has by far the largest storage facilities in Europe as the traditional warehouse of winter gas supplies. In a controversial move, Ukraine’s government has ordered the state-owned gas company Naftogaz to ask its bondholders to voluntarily delay coupon payments to free up cash to buy more gas. The company needs to buy an estimated 5 bcm of gas worth some $7.8bn and it remains unclear where Naftogaz will get both the money and the gas from.

Even if the 80% goal is reached by October 1 and the second goal of 90% by November 1, Europe will still need more imports from Russia over the rest of winter as only Slovakia and Austria have enough gas storage capacity to get through the whole winter without more imports.

The IMF warned that in a worst-case scenario of a total cut-off of Russian gas the most exposed economies could see GDP contract by up to 6% and key markets like Germany and Italy would see a contraction of between 2% and 3%. Most of Europe is headed into recession by the end of this year anyway due to multiple problems caused by Russia’s war in Ukraine and looming stagflation.

The lack of gas and sky high prices that have risen to $1,800 per thousand cubic metres – ten times the normal level – have already done a lot of damage. Germany’s biggest energy company Uniper, and the biggest importer of Russian gas in Europe, has already been forced to ask the German government for a bailout, as what it can charge consumers is fixed by law, although that may change if Russia continues to restrict gas flows. The French government has also announced plans to nationalise its energy champion Gas de France (GdF), which is having similar problems, by buying back the 16% of the company it does not already control for €8bn.

Reduced flows

At 20% of capacity, or 33mn cubic metres per day, Europe will be able to refill storage to only 75%-80% ahead of winter, Wood Mackenzie consultancy told Reuters. For the previous month and a half since June 15 (excluding the scheduled 10-day maintenance break), Nord Stream has operated at 40% capacity, or 66 mcm per day. Nord Stream 1's nameplate capacity is around 165 mcm per day.

"As a result, Europe is likely to get through the heating season with only 20% gas in store at the end of March – a very low level," said Kateryna Filippenko, principal analyst, Global Gas Supply, at Wood Mackenzie. In 2021/2022 Europe finished the heating season with tank storage at 26% – the lowest level in years.

Putin warned that at the end of June one more unit might be sent for repair, and if the first turbine arrives by that time, “well, two will work. And if it doesn’t come, there will be one – it will be only 30 mcm per day.”

It is still unclear when the first turbine that was sent to Canada for repairs in June will return to Russia. As of July 25, the unit was still in Lübeck, Germany, but it still has not been sent on to Russia, as Gazprom is quibbling about the paperwork.

At first, Gazprom claimed that the turbine manufacturer Siemens did not submit the documents necessary for transportation, but on July 25 it said that the documents have arrived, but "do not remove the previously identified risks, and raise additional questions."

Siemens says that all the necessary documents were submitted a week ago, but there are no documents for import to Russia, which Gazprom must submit and has not.

After Gazprom's announcement, gas prices in Europe spiked by 6% and are approaching $1,800 per thousand cubic metres.

Experts worry that an extra cold winter this year would only exacerbate the problems. And a combined cold European and Asian winter would make things even more difficult by drawing off LNG supplies to Asia, which is heavily dependent on LNG for heating and power.

In addition to the reductions in gas flow through the Nord Stream 1 pipeline to Germany and northern Europe, Russia has already cut off gas flows to Poland, Bulgaria, Denmark, Finland and Dutch firm Gasterra and Shell for its German contracts, after they all rejected the gas-for-rubles scheme introduced by presidential decree in May, although the combined volumes to these countries are a relatively small share of total imports to Europe.

The expanding gas war is worrying European politicians as Russia increasingly uses its tools to exert pressure on the West to make more sanctions concessions. The Istanbul grain deal signed on July 22 that will allow Ukraine to expand grain exports was immediately threatened by rocket attacks on the port the next day, which sent wheat futures spiking. A key part of the deal was Russia insisted on, and got, concessions on sanctions on its own grain exports, a major earner for the budget. It looks like the Kremlin is squeezing gas supplies with the same goal in mind and gas supplies is a major lever for the Kremlin.

“If we don’t get the gas turbine, then we won’t get any more gas, and then we won’t be able to provide any support for Ukraine at all, because then we’ll be busy with popular uprisings,” German Foreign Minister Annalena Baerbock said in a TV interview this week.

Analysts say that a complete cut-off of gas during the autumn is unlikely, as once the gas stops flowing completely Russia precipitates a full-blown energy crisis, loses its European gas market forever and ends the revenue stream it currently earns from gas that is also bleeding the European exchequers of money. More likely is that Russia will maintain gas flows at less than sufficient levels to keep the pressure on Brussels and to keep gas prices at crisis levels, reserving the threat of a total shutdown for the winter and as leverage during talks to possibly end the war in Ukraine.