Manufacturers Brace for Nord Stream Repairs, Fearing Pipeline Won’t Reopen

Pipeline

PARIS—European manufacturers are preparing for possible natural-gas rationing that would force them to shut production amid fears that Russia is about to cut off gas deliveries via its main artery to Europe.

On Monday the Nord Stream pipeline, which runs 760 miles from northwest Russia under the Baltic Sea to Germany, will go into annual maintenance for 10 days, repairs that are routine in peaceful times. European officials say that Moscow, which has already cut gas deliveries to 40% of the pipeline’s capacity, might not bring it back online.

The Kremlin says it plans to continue supplying gas through the pipeline once the maintenance is complete and that any disruptions are the fault of Western sanctions that it says have blocked delivery of a turbine for the pipeline that is being repaired in Canada. European capitals, however, say Moscow is wielding its gas supply as a weapon, reducing the pipeline’s deliveries last month in retaliation for their support of Ukraine.

Canada on Saturday said it would send the turbine to Germany after weeks of discussions with the German government. Berlin wants to return it to Russia, saying the move would show that Moscow has been using the turbine as an excuse for a political decision to cut gas deliveries to Europe.

Europe has enough gas for now, but the region’s manufacturers are bracing for a winter without Russian supplies. Some, needing chemicals for production that are made with natural gas, are looking to import them from regions outside Europe where the fuel is more plentiful. Others are planning to switch from natural gas to other fuels where they can. And some producers fear they would have no choice but to shut down completely.

“There are no easy solutions if we get into a curtailment situation,” said Svein Tore Holsether, chief executive of Yara International AS A, the world’s largest fertilizer producer.

Europe was counting on Russian gas to stock up for the winter when consumption peaks. Without Russian deliveries, officials fear shortages could appear as temperatures fall. Since Russia invaded Ukraine in February, Europe has been buying record amounts of liquefied natural gas from the U.S. and other non-Russian exporters, but those deliveries may not be enough to replace Russian gas, which last year accounted for 40% of the European Union’s overall supply of the fuel.

Russian President Vladimir Putin on Friday warned the West against imposing further measures against Moscow.

Manufactures Brace for Nord Stream Repairs - Fearing Pipeline Wont Reopen -Landfall Port
A landfall facility of the Nord Stream natural-gas pipeline in Lubmin, Germany. PHOTO: HANNIBAL HANSCHKE/REUTERS

“Sanctions restrictions against Russia cause much more damage to precisely those countries that impose them,” Mr. Putin said at a government meeting. “Further use of the sanctions policy could lead to even more severe, even catastrophic, consequences in the global energy market.”

Uniper SE, one of Europe’s largest utilities, on Friday requested a bailout from the German government after being hit hard by dwindling gas supplies from Russia. Uniper, which is Germany’s largest importer of Russian gas, has had to make up the difference in the spot market, paying higher prices for that gas. France, meanwhile, is moving to nationalize energy giant EDF SA, which has been losing billions of euros under a government-imposed cap on electricity prices.

The continent’s energy-intensive industries are discussing with governments whether they can reduce gas consumption to reserve scarce supplies for households when winter arrives.

Yara, which has 15 production sites across Europe, uses natural gas to produce ammonia, the key ingredient for nitrogen fertilizer. Yara in the first week of July was running its ammonia operations at close to full production, but Mr. Holsether said the company can ramp down and import ammonia from its other sites in markets around the world where natural gas is more plentiful. The company has taken that step several times over the past year when confronted with spikes in Europe’s natural-gas prices. There are limits to the company’s flexibility, Mr. Holsether said.

“Ammonia-producing assets aren’t really designed to be ramped up and down with fluctuating prices,” he said.

German manufacturers, the motor of European industry, are rushing to prepare for a possible Russian cutoff.

Hamburg-based Aurubis AG , one of the largest copper producers in Europe, said it was looking to substitute gas with electricity and oil. Gas, however, remains the key fuel for many of its processes and cannot be replaced in the short term, including for some of the work at its Hamburg smelter where more than 2,000 workers produce wires, cathodes and precious metals.

The switch to alternative energy sources has been further complicated by the global supply-chain disruptions. Aurubis estimates the shift could take up to a year.

German company Ritzenhoff AG operates in one of the world’s most energy-intensive industries: glass making. Most of the energy consumed in glass manufacturing comes from natural-gas combustion used to heat furnaces to melt raw materials and form glass. The gas keeps what Axel Drösser, the chief executive, describes as a “glass soup” boiling in tanks at over 2,700 degrees Fahrenheit.

“Natural gas cannot be substituted here. If there is no gas, the ovens have to be switched off and production comes to a standstill,” he said. In the event that production shuts down, the tanks could be damaged if left idle.

Mr. Drösser said the company, which sells its wares in more than 100 countries, has been trying to reduce its gas consumption including by using some hydrogen. “However, an ad hoc substitution of gas in glass production is not possible with the given infrastructure,” he said.

The Coatinc Company Holding GmbH, one of Germany’s oldest family-run businesses at over 500 years old, provides a crucial service for many industries using steel: galvanizing, or dipping the steel into molten zinc in huge kettles, to prevent corrosion. To melt the zinc, it is 90% dependent on gas.

While Coatinc is looking to switch to electricity longer term, it would take a few years and an investment of around 16 million euros, equivalent to $16.4 million.

But if the gas stops this winter, so will the company’s production. In that case, Paul Niederstein, the executive manager, hopes he would have two weeks’ notice so that the firm can pump out some 7,000 tons of liquid zinc from the kettles, cool it down and store it.

Mr. Niederstein said he is currently trying to persuade German authorities, who would decide who gets gas in the case of rationing, that his industry is critical and should be given priority.

“Galvanized steel is used to construct solar fields and other renewable-energy infrastructure,” he said. “We’re not making chocolate here.”

Some companies that had planned to use gas instead of oil or coal as part of plans to reduce carbon-dioxide emissions are now backtracking because of the looming gas shortage.

Volkswagen AG operates two coal-fired power plants at its headquarters in Wolfsburg, Germany, which provide heat and power for the plant and the city. In 2018, VW said it would invest €400 million to shift to gas, saving 1.5 million metric tons a year in CO2 emissions.

The shift was expected to be completed by the end of this year. But after Russia’s invasion of Ukraine and the subsequent gas-supply crisis, VW CEO Herbert Diess said the company could prolong the use of coal.

Source: WSJ

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Stuart Turley is President and CEO of Sandstone Group, a top energy data, and finance consultancy working with companies all throughout the energy value chain. Sandstone helps both small and large-cap energy companies to develop customized applications and manage data workflows/integration throughout the entire business. With experience in implementing enterprise networks, supercomputers, and cellular tower solutions, Sandstone has become a trusted source and advisor in this space. Stuart has led the “Total Corporate Digital Integration” platform at Sandstone and works with Sandstone clients to help integrate all aspects of modern digital business. He is also the Executive Publisher of www.energynewsbeat.com, the best source for 24/7 energy news coverage and is the Co-Host of the energy news video and Podcast Energy News Beat. Stuart is on Board Member of ASN Productions, DI Communities Stuart is guided by over 30 years of business management experience, having successfully built and help sell multiple small and medium businesses while consulting for numerous Fortune 500 companies. He holds a B.A in Business Administration from Oklahoma State and an MBA from Oklahoma City University.