Finance & MarketsRussian Gas - Germany's economic miracle hinges on Siemens turbine delayed by...

Russian Gas – Germany’s economic miracle hinges on Siemens turbine delayed by Canada

In 200 days as chancellor, Olaf Scholz broke what his predecessors Gerhard Schroeder and Angela Merkel had been building for thirty years. In May 2022, Germany recorded a trade deficit for the first time in thirty years. This happened after Scholz kicked his own jaw in the zeal to teach Russian President Vladimir Putin a lesson. Germany no more enjoys the old model of purchasing cheap gas from Russia and manufacturing high-tech products. Domestic gas prices in the U.S. and Russia are ten times lower, making any energy-intensive activity in Europe economically meaningless. The United States and Russia are providing themselves with oil, gas, and products that look much more promising than Europe.

Canada delays Siemens turbine to Russia

Soon after Russian limited military operations in Ukraine, Europe and the U.S. went on overdrive to impose sanctions on Russia. One of the critical sanctions was on oil and gas equipment, which would humble the Russian energy sector, a move that came to bite back Germany. 

The Nord Stream 1 began pumping a lesser amount of gas to Germany. According to the Russian company Gazprom, the reduction by more than half of the volume of natural gas pumped through the Nord Stream gas pipeline from Russia to Germany was a Siemens Energy ENR1n.DE turbine that Canada delayed returning after repairs in connection with the sanctions. Germany said Russia had another turbine, but Russia shot back, saying it was not Germany to decide on its use, and of course, it was not a Russian problem. In a classic example of Pot calling the kettle black, the German authorities accused Moscow of using energy as a “weapon”, pointing out that gas supplies via Nord Stream could remain at the same level for some time even without turbines sent to Canada. What was even worse was Russia was not ready to discuss the lifting of sanctions. As per a French Documentary, discussing his conversation with Putin soon after the Russian military actions in Ukraine, Olaf Scholz told Emmanuel Macron, “One aspect that impressed me more than all the talks was that he (Putin, Ed.) never once complained about all the sanctions,” Scholz says in English. “He didn’t raise the issue,” he added.

Siemens Energy says it had supplied aeroderivative gas turbines for a Nord Stream 1 compressor station in 2009, which were manufactured in Canada, and they needed to be regularly sent back for maintenance. It adds that one of the turbines was being overhauled in Montreal.

What makes the situation worse is that from 11 to 21 July, both gas pipeline strings will be stopped. The gas pipeline operator Nord Stream AG explained this by “scheduled preventive work.” Such works are indeed carried out annually, but this year there are fears that after their planned completion, gas supplies may not be resumed for political reasons.

Berlin held difficult negotiations with Ottawa to persuade them to make an exception to sanctions against Russia and send a turbine manufactured by the German concern Siemens serviced in Canada back to Germany.

Canada agrees to ship the turbine to Germany

Canada said it would grant Siemens Canada a time-limited and revocable permit that will allow the refurbished Nord Stream turbines to be returned to Germany. 

Canadian Minister of Natural Resources Jonathan Wilkinson said it would “support Europe’s ability to generate reliable and affordable energy” while the E.U. gradually moves away from using Russian oil and gas.

The Canadian minister acknowledged that in the event of an immediate cessation of gas supplies from Russia, the German economy would face significant difficulties; the cessation of supplies would also hit the inhabitants of the country, who are already faced with rising heating costs.

Russians will bargain

Having received the turbines from Canada, Germany is expected to return them to Russia. Berlin believes this will deprive Gazprom of an excuse to limit gas supplies via Nord Stream. 

But returning the turbine to Gazprom is not a simple matter of shipping it to Russia. Europe also has placed restrictions on shipping to Russia. Even if Berlin and or Europe passes one time waiver, not minding innuendoes from Kyiv and possible roadblocks by Poland (or it may not as it now depends on Russian Gas from Germany), it may have to face the Russian diplomatic might. The gas supply agreements are between companies and not states. President Putin has given guarantees verbally over the supply of gas but has not released a statement on the volume of gas which is governed by multiple factors, including politics, commercial terms, technical upkeep, nature etc.

In May, Siemens announced its withdrawal from the Russian market. It is unclear if the company has ceased the activities or is in the process. In the case of the former, Germany will have to arrange to install the turbines too.

Gazprom has the luxury of simply pointing out the state policy and refusing acceptance of the turbine. There is also no guarantee if Gazprom will use the turbine for the intended purpose as Germany cannot dictate the use of the turbine.  

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