London Daily

Focus on the big picture.
Friday, Sep 25, 2026

Russia teaches Europe ABC of gas trade

Russia teaches Europe ABC of gas trade

The unthinkable is happening for the second time in five months: Russian gas giant Gazprom writes to German gas companies announcing force majeure effective from June 14, exonerating it from any compensation for shortfalls since then.
The first time shock and awe appeared in German-Russian relations this year was on February 22 when Chancellor Olaf Shloz surprised even hardened political observers by freezing approval process for the newly-constructed Nord Stream 2 gas pipeline. The $11 billion pipeline beneath the Baltic Sea would have doubled the volume of gas sent directly from Russia to Germany, but Scholz instead blocked its commissioning. Those were halcyon days when Berlin talked of “defeating” Russia.

Scholz’s move was in reaction to Moscow’s decision on February 21 to recognise two breakaway regions of Ukraine as independent republics. Russia hawks in Germany applauded his decision. Acclaim came pouring in. Jana Puglierin, head of the European Council on Foreign Relations in Berlin, praised Scholz, saying he was “raising the bar for all other EU countries… this is real leadership at a crucial moment.”

However, in Moscow, which has a thorough understanding of German energy market, Scholz’s move was seen as an act of deliberate self-harm. Moscow reacted with a flash of sardonic humour. Dmitry Medvedev, former president and deputy head of Russia’s Security Council, tweeted, “Welcome to the brave new world where Europeans will soon be paying €2,000 per 1,000 cubic meters of gas!”

He was alluding to the grim reality that gas accounted for a quarter of Germany’s energy mix, and more than half of it came from Russia. Indeed, it was plain to see that Germany’s reliance on gas could only rise having decided to shelve nuclear power in the aftermath of the 2011 Fukushima disaster in Japan and committed to phasing out coal-fired power by 2030.

But Scholz insisted that Germany would expand solar and wind power capacity “so we can produce steel, cement and chemicals without using fossil fuels.” His confidence actually stemmed from the fact that Germany had a long-term contract with Russia to supply gas at a friendly price via Nord Stream 1.

The first indication that something was going horribly wrong was when the influential Russian daily Izvestia wrote on July 11 quoting industry experts in Moscow that the scheduled routine stoppage of NS1 for annual servicing and repairs from July 11-21 might continue due to Canada holding back, under sanctions against Russia, the turbine that had gone for repair.

The daily went on to forecast that Gazprom might announce force majeure because of western sanctions, as Siemens twice already failed to return equipment to Gazprom after repairs in Canada, which resulted in a reduction in the gas flow from the planned 167 million cubic meters.m to 67 million cubic meters.m per day.

Izvestia noted that the situation would lead to a spike in spot market price for LNG upward of $2,000 per 1,000 cubic meters — perhaps, “even more — up to $ 3,500” — from the July 8 price level of $1800.

Acting on an urgent request from Berlin and recommendation for Washington for waiver of sanctions, Canada since agreed, but, according to Izvestia, even after Siemens returns the turbines to Gazprom, “there will be a long period of testing the turbines to find out how correctly they were repaired. No one wants to install turbines that are at risk of failure after being repaired in an unfriendly country. So the real time for launching turbines and returning SP-1 (NS1) to its design capacity is two to three months.”

That is, gas may flow through NS1 earliest only by September/October. Even then, Gazprom may not be able to utilise more than 60 percent of its capacity, since overhauls are overdue for two more turbines.

Therefore, the experts told Izvestia that problems with gas shortages in the European Union would persist for the next few winters and authorities may have to “limit the supply of hot water, dim street lights, close swimming pools and turn off energy-consuming equipment” and, furthermore, instead of green energy, switch to coal.

Kommersant newspaper reported today that while classic force majeure events could be natural disasters, fires, etc., in the case of Gazprom, “we are talking about a technical malfunction of equipment,” which may lead to litigation — and, “what will be decisive will be whether Gazprom’s actions to cut gas supplies were proportionate to the real scale of the technical problems.”

Evidently, Gazprom is well-prepared. Germans suspect that Gazprom’s alibi of non-delivery of gas turbines from Canada, et al, is bogus. And Kommersant foresees a “lengthy trial.” Now, the catch is, in the long run, we are all dead.

For Germany, however, this is a grave situation, as many industries may have to shut down, and there could be serious social unrest. Germans are convinced that Moscow is resorting to the “nuclear option.” The big question is whether Germany’s solidarity with Ukraine will survive a cold winter.

Scholz’s confidence was predicated on the belief that Russia desperately needed the income from gas exports. But then, Moscow is today generating more income from less exports. Arguably, Russia’s best strategy today would be to reduce gas deliveries without ending them altogether, as even if Russia sells only a third of the gas it sold previously, its revenues do not get affected, since the shortage of LNG globally has exponentially spiked the market price. It’s a fair bet that’s what Gazprom would do.

Putin once disclosed that under the long-term contracts, Russia sold gas to Germany at ridiculously low price — $280 per thousand cubic meters — and Germany was even reselling Russian gas to other customers for a tidy profit!

Where it hurts Germany most is that this is not only about freezing homes, but the implosion of its entire economic model that is over-reliant on industrial exports, thanks to imports of cheap fossil fuels from Russia. German industry is responsible for 36 percent of its gas use.

Germany behaved in an unprincipled way on all aspects of the Ukraine crisis. It pretended to support Zelensky but shied away from giving military support, triggering a nasty diplomatic spat between Kiev and Berlin. On the other hand, when Moscow introduced the new payment scheme for gas exports, making it mandatory to pay in rubles, Germany was the first country to fall in line, knowing well that the new regime undercut EU sanctions.

Thus, Moscow insists that German gas buyers keep euro and dollar accounts at Gazprombank (which is not subject to EU sanctions) and convert the currencies into rubles, since the Russian central bank is subject to western sanctions and can no longer transact in foreign exchange markets!

Russians have made monkeys out of Europeans. Clearly, it is impossible to sanction a country that is sitting on valuable commodities. Russia is the world’s second largest exporter of oil, the largest exporter of gas, and the largest exporter of wheat and fertilisers — plus the range of rare earth metals like palladium.

Both Boeing and Airbus have complained of risks in their supply chain. Airbus imports large quantities of titanium where about 65 percent of the supply of the metal comes from Russia. It has publicly requested the EU not to impose restrictions on the material, which is used to manufacture critical components of aircraft.

Thus, it comes as no surprise that the EU is slowing down the pace of sanctions against Russia. The bureaucrats in Brussels have exhausted the potential for increasing sanctions and the political elites admit that the sanctions were a mistake.

The consequences for European economies are already extremely serious. The rising energy prices are fuelling inflation in all EU countries. According to forecasts, in France inflation will reach 7% this year; in Germany – 8.5-9%; and in Italy – 10%. And this is just the beginning. Most countries will also face a serious drop in GDP next year — from 2 to 4 percent.
Newsletter

Related Articles

0:00
0:00
Close
Police Arrest Far-Right Activist After Migrant Dinghy Slashed in English Channel
Synthetic Opioids Drive Renewed Rise in Scotland’s Drug Deaths
Reported Assaults on Britain’s Railways Rise 20% in a Year
Vistry Cuts Profit Forecast as Losses Weigh on UK Housebuilder
TikTok Drops Appeal and Accepts £12.7 Million UK Data Protection Fine
Russell Group Urges UK Government to Drop Proposed International Student Levy
Legal & General Plans to Cut 1,000 Jobs by Mid-2027
UK Health Bill Would Remove Independent Governors From NHS Foundation Trusts
BMA Raises Patient Safety Concerns Over Advanced Practitioners Filling Doctor Rotas
UK’s Largest AI Supercomputer Delayed by Power Supply Constraints
NHS Orders Security Cameras in Neonatal Units Following Thirlwall Inquiry
Post-Brexit Trade Barriers Cost UK Economy Up to £6.5 Billion a Year, Analysis Says
UK Parliament Launches Inquiry Into Bank of England Monetary Policy Independence
Global Bond Selloff and Higher Oil Prices Narrow UK Budget Options
UK Prime Minister Andy Burnham Addresses UN and Holds First Meeting With Donald Trump
Royal Navy Commandos Complete Maritime Operations Training With US Navy SEALs
Vistry Profit Warning Adds to Concerns Over UK Housebuilding Conditions
UK Commits £343 Million to Major Expansion of Community Mental Health Services
Five Eyes Partners Back UK-Led Campaign Against Global Fraud Networks
UK Businesses Gain Full Access to £13 Trillion CPTPP Trading Bloc
UK Allocates Nearly £10 Billion for Council, Social and Affordable Housing
Chancellor John Healey Unveils Deregulation Drive to Accelerate UK Investment and Growth
Prime Minister Andy Burnham Sets Out Post-Brexit Foreign Policy Vision at United Nations
UK Reassesses Chagos Arrangements as Burnham Seeks New Path on Diego Garcia
Key Trends to Watch
Government’s “Buy British” Procurement Push Targets More Domestic Jobs and Industrial Capacity
Scotland Launches Four-Year Flood Resilience Programme With New Community Funding
Low-Income Renters Face Record Gap Between Housing Support and Private Rents
UK and US Test Torpedo Launch From British Undersea Drone in Defence Technology Milestone
Britain Pushes Artificial Intelligence Security Onto United Nations Security Council Agenda
Treasury Committee Defends Office for Budget Responsibility Independence Amid Fiscal Pressure
Scotland Records Eleven Per Cent Rise in Drug-Use Deaths as Cocaine and Nitazenes Drive Concern
Welsh Government Sets Four-Year Programme Around Health, Living Costs, Jobs and Housing
Study Finds Most People With High Blood Pressure in England Remain Undiagnosed
Britain Plans First National Workplace Health System to Tackle Economic Inactivity
England to Introduce Vocational GCSEs in Major Secondary Education Reform
UK Elevates Climate and Nature Risks to National Security Priority
Andy Burnham and Donald Trump Put Trade at Centre of First Major Bilateral Meeting
Andy Burnham and Ursula von der Leyen Push Ahead With Closer UK-European Union Economic Ties
UK Government Borrowing Jumps to Eighteen Point Three Billion Pounds Ahead of October Budget
Piddington Residents Back Symbolic Independence Vote Over Asylum Accommodation Plan
Reform UK Names Helen Jenner as New Leader in Wales
England Expands Devolution of Transport, Skills and Economic Development Powers
Liberal Democrats Call for Temporary Fuel Duty Cut to Ease Cost-of-Living Pressure
UK Farmers Warn Drought Has Caused Crop Failures and Reduced Harvests
UK Fixed Mortgage Rates Approach 6% as Lenders Raise Borrowing Costs
YouGov Poll Puts Labour at 23% With Conservatives and Reform UK on 21%
Badenoch Presses Burnham to Increase Defence Spending and Cut Welfare Costs
UK Military Figures Warn of Growing Threats to Undersea Infrastructure and National Readiness
BP Moves Ahead With Sale of UK North Sea Oil and Gas Business
×