Putin's Nord Stream Gamble Backfires as Russia Losing Energy War

President Vladimir Putin's gamble on the Nord Stream 1 pipeline, which delivers gas from Russia to Western Europe, has backfired as Russia "is losing the energy war," analysts have told Newsweek.

Nord Stream 1 is the biggest pipeline transporting natural gas between Russia and Europe and stretches some 745 miles under the Baltic Sea from Vyborg, 80 miles northwest of St. Petersburg, to the northeastern coast of Germany.

On Monday, drops in pressure by the operators of the Nord Stream 1 and Nord Stream 2 pipelines, funded and constructed by the Russian government, were first detected. It was confirmed that both pipelines were damaged and, on Friday, it was revealed that there were four leaks.

Sabotage has been widely expected to be the cause of the leaks, and a British defense source told Sky News on Friday that underwater explosives were likely used. Russia has denied causing the damage.

Neither pipeline was in operation at the time, after Gazprom, the state-owned company that operates the pipeline, stopped running Nord Stream 1 on August 19, citing maintenance issues. In July, the pipeline had been shut down for annual repairs. The Nord Stream 2 project was scuppered by Western sanctions.

Simone Tagliapietra, senior fellow at Bruegel and energy professor at the Università Cattolica del Sacro Cuore and at The Johns Hopkins University - School of Advanced International Studies (SAIS) Europe, told Newsweek that it is too early to understand the entirety of the damage of the pipeline.

"In any case, the pipeline was already not sending – since August – any gas to Germany, and we all expected it would not be resumed anytime soon," Tagliapietra said.

"Europe in general and Germany in particular have been preparing for winter without Russian gas. And we are ready for it. European gas storages are already 85 percent full, and high prices are pushing demand lower.

"As such, we should be able to get to the end of the winter without major problems. Putin is losing his energy war against Europe."

Kateryna Filippenko, principal analyst, global gas markets at Wood Mackenzie, says that it is hard to imagine the restart of flows through Nord Stream.

"Russia is still flowing gas through Ukraine and Turkey, but the volumes are small – Europe is getting more gas from each of the LNG [liquified national gas]-exporting countries, Norway and Algeria, now than it does from Russia," she told Newsweek.

"Overall materiality of Russian gas has been decreasing rapidly, and so has been their impact on the overall balance. Moreover, the market is already pricing in Russian gas disruptions to some degree – prices have been softening since early-September," Fillippenko added.

"We believe the market has adapted through record-high LNG imports, increased non-Russian piped flows and demand reduction. And given Europe managed to fill gas storage to a healthy level ahead of winter, the region is well placed to go through the winter without Nord Stream, albeit prices will have to remain high to ensure appropriate LNG imports."

Fillippenko said that, if weather remains "normal" through winter, even a complete halt of Russian flows – through remaining routes of Ukraine and Turkey – will not completely deplete European gas storage this winter, but it will impede Europe's ability to refill the storage ahead of subsequent winter.

"A much-more acute risk for this year is the risk of extremely cold weather across the Northern Hemisphere – if the weather is extremely cold across Europe and Asia, storage levels in Europe are likely to deplete by the end of winter, requiring further demand reduction," Fillippenko said.

"Meeting European Union target of 15 percent demand reduction or even above will become key. Prices will inevitably remain high and volatile if further Russian gas is disrupted and/or we have extremely cold weather."

Henning Gloystein, director, Energy, Climate & Resources at Eurasia Group, said that, at the very least, Nord Stream will be unavailable for the coming winter.

"Given the extent of the damage and the total lack of cooperation by Russia (plus the onset of winter), offshore repair work is currently out of the question," Gloystein told Newsweek.

"The massive rupture – which some early estimates put at several kilometers in length - probably also means that Nord Stream 1 is irreparable as the seawater that has flown inside the lines quickly causes corrosion."

Gloystein said that Germany, Europe's largest economy and the country where Nord Stream ends, started to make all future gas-supply calculations assuming zero supply through the pipeline around May.

This has led to a large increase in coal-fired power generation, including using previously mothballed facilities, a surge in shipped LNG imports via the Netherlands and Belgium and soon through the first two German LNG-import terminals, as well as maximizing pipeline imports from Norway.

Gloystein added that Germany has put ambitious power- and gas-saving targets in place for industry and households, which has also meant it is less reliant on Russian gas.

"Industrial gas consumption in Germany is already around 20 percent below business as usual, thanks to efficiency efforts, but also because of some shutdowns that have contributed to the recessionary outlook for Germany over the winter," Gloystein said.

"We currently give Germany a roughly 60 percent chance to get through winter without severe rationing, even without any Nord Stream 1 gas, though of course that still means there's a significant risk of critical winter energy shortages, which could happen if the winter is unusually long and cold and/or there are unplanned other supply outages (e.g. of U.S. LNG or Norwegian pipeline supply)."