Europe races to cut Russian gas usage amid new Putin warning

By Kate Abnett and Nina Chestney

BRUSSELS/LONDON (Reuters) - The European Union will set out emergency plans on Wednesday to curb gas usage after President Vladimir Putin warned the bloc that Russian supplies sent via the biggest pipeline to Europe, Nord Stream 1, were at risk of being reduced further.

Deliveries via the pipeline, which accounts for more than a third of Russian gas exports to the EU, were halted for 10 days for annual maintenance and are due to resume on Thursday.

But supplies via the route had already been reduced before the maintenance outage because of a dispute over sanctioned parts, and may now face further cuts, while deliveries via other routes, such as Ukraine, have also fallen since Russia invaded its neighbour in February.

The disruptions have hampered Europe's efforts to refill gas storage before winter, raising the risk of rationing and another hit to fragile economic economic growth if Moscow further restricts supplies in retaliation for Western sanctions over the war in Ukraine.

The European Commission's plan will urge countries to slash gas use. A draft seen by Reuters proposed a voluntary target for countries to cut gas demand over the next eight months, which could be made legally binding in an emergency.

EU officials said the target cut would be 10%-15%, with any plan needing approval from members of the 27-nation bloc. But EU officials say it is vital to act now rather than wait to see what happens to flows via Nord Stream 1 or other routes.

"We believe that a full disruption is likely and it is especially likely if we don't act and leave ourselves vulnerable to it," one said. "If we wait, it will be more expensive and it will mean us dancing to Russia's tune."

European politicians have accused Russia of playing politics with its gas supplies, using technical issues as a pretext to reduce deliveries. The Kremlin has said Russia remains a reliable energy supplier and has blamed reduced supply on sanctions.

Two Russian sources familiar with Russia's export plans said gas flows via Nord Stream 1 were expected to restart on time on Thursday after being halted on July 11 for annual maintenance.

But they said it would below its capacity of 160 million cubic metres (mcm) per day.

Kremlin-controlled energy giant Gazprom (MCX:GAZP) cut gas exports via the route to 40% capacity in June, blaming delays in the return of a turbine that Siemens Energy was servicing in Canada. That turbine, which was caught up in sanctions, was reported this week to be on its way back to be refitted.

But Putin suggested on Wednesday there might be a further reduction in supplies via the pipeline that runs under the Baltic Sea to Germany, Europe's economic powerhouse which has relied heavily on Russian fuel.

Gas prices have rocketed in volatile trade since the Ukraine crisis erupted. The front-month gas contract was around 159.80 euros per megawatt hour (MWh) on Wednesday, 360% up on a year ago but below its March peak of 335 euros.

CHASING NEW SUPPLIES

Putin said there were five gas pumping units, operated by Siemens Energy at Nord Stream 1 and one more unit was out of order due to "crumbling of inside lining."

"There are two functioning machines there, they pump 60 million cubic metres per day ... If one is not returned, there will be one, which is 30 million cubic metres. Has Gazprom something to do with that?" he said.

Putin said one more of the gas pumping turbines was due to be sent for maintenance on July 26. Russia's Kommersant newspaper reported on Monday that the turbine in Canada had been sent to Germany and would be sent on to Russia.

Putin also said Gazprom, which has a monopoly on Russian gas exports by pipeline, was not to blame for the reduction of gas transit capacity via a network of pipelines to Europe.

He blamed Kyiv for closing one route via Ukraine, although Ukraine's authorities blame the shutdown on Russia's invasion.

European nations has been chasing alternative gas supplies, although the global gas market was already stretched even before the Ukraine crisis as a global recovery from the pandemic pushed up demand for fuel.

North African gas producer Algeria, which has pipelines to Italy and Spain, promised Rome on Monday it would supply more gas to the southern European nation under a $4 billion deal, one of several moves by EU states to try to secure more supplies.

EU members have also been racing to build or expand terminals to import liquefied natural gas (LNG) which can be shipped to the bloc from the United States and further afield. But the market for LNG is dominated by long-term contracts, making it tougher to secure regular shipments swiftly.

Portugal said on Tuesday that its Sines port was ready to handle onward shipment of LNG arriving in large tankers and which could be transferred to smaller ships to head to other European states.

"Sines is obviously an important contribution ... to ensuring potential alternative routes to replace Russian natural gas imports," a Portuguese government spokesman said.