Save for later Print Download Share LinkedIn Twitter Gazprom’s pipeline gas exports to Europe fell to record-low monthly levels in June due to sharp supply cuts via the Nord Stream pipeline.Europe is not convinced by the Kremlin’s explanation that the cuts were caused by purely technical reasons stemming from the sanctions against Russia, as Moscow benefits both politically and commercially from the price rally because of the supply cuts.In the meantime, Moscow has been keeping an eye on the G7 discussions of a price cap for Russian oil and gas, which is aimed at limiting its crucial windfall revenue amid the war in Ukraine but looks difficult to implement.Export DropGazprom’s exports to Europe, excluding Turkey, will likely total around 5 billion cubic meters, or some 170 million cubic meters per day, in June, Energy Intelligence estimates based on gas transmission data. That is lower than the 270 MMcm/d in May, 295 MMcm/d in April or 360 MMcm/d in March, and unprecedentedly low for the historically key European export market for Russia, which is now seeking to gradually phase out Russian imports by 2027, following the Kremlin’s invasion of Ukraine.The June drop appears to be a result of Gazprom’s own actions, rather than those of Europe, which still fears that any immediate cutoff would cause severe damage to its own economy.The sharp drop in Gazprom’s exports in previous months could be well explained by market factors, including the eroded demand for Gazprom’s pricey hub-linked contract deliveries and competition with higher LNG imports. But in June, pipeline capacity restrictions were the main driver.Underused PipesNord Stream flows dropped to around 68 MMcm/d in the second half of June from their normal levels of almost 170 MMcm/d due to the sanctions-driven problems with maintenance of Siemens gas turbines used at Nord Stream’s Portovaya compressor station.Gas was not rerouted to Ukrainian transit pipes, where Gazprom kept flows at just above 40 MMcm/d in June, below the available 77 MMcm/d and the booked 110 MMcm/d capacity.Europe-bound flows via the Turk Stream pipeline also remained some 40% below nameplate capacity of 43 MMcm/d, following the cutoff of Bulgaria in late April, and stopped for a planned maintenance turnaround from Jun. 21-27.Turbine ConundrumThe Kremlin insisted last week the Nord Stream gas flow cuts had nothing to do with politics, but Europe is not convinced, as there are doubts that the sharp cuts can be fully justified by technical reasons.Gazprom said on Jun. 14 it could only use three gas compressor units at Nord Stream’s Portovaya compressor station and pipe up to 110 MMcm/d, because one Siemens turbine was stuck in Canada after maintenance due to that country’s sanctions against Russia. The next day it said it had to switch off one more turbine, which resulted to a further drop in capacity to 67 MMcm/d. CEO Alexei Miller hinted that more turbines could be switched off as they approach their maintenance deadlines, but it is not clear how many and how that could affect the flows.A complete stop is understood to be avoidable from the technical point of view, because not all Portovaya turbines are overhauled in Canada. Portovaya has six 52 megawatt compressor units using nine Siemens SGT-A65 turbines which are produced in Canada and two 27 MW units using three SGT-A35 turbines produced and overhauled by Siemens’ facility in Aberdeen where there should be no sanctions-driven problems at this stage.Russia’s ambassador to Canada Oleg Stepanov was quoted as saying that Moscow is not in talks with Ottawa over the Siemens turbine situation, because the Kremlin believes this is something that must be settled between Canada and Germany, the country which hosts Nord Stream’s end point and where Siemens is headquartered.Price CapConcerns of further supply cuts remain high in Europe, as reflected in the elevated spot prices, while the planned complete shutdown of Nord Stream for annual maintenance from Jul. 11-21 should increase pressure on the tight market.The high prices have resulted in Gazprom’s record windfall revenues even despite a sharp drop in export volumes. At this stage, Moscow doesn’t seem to be too concerned with discussions of a proposed price cap for Russian gas in Europe.The G7 leaders on Jun. 28 agreed to explore price caps for Russian oil and gas to curb Moscow’s ability to fund its war in Ukraine. However, it might prove very difficult to convince big Russian oil buyers like China and India to join the initiative.No detail of a possible mechanism for a gas price cap was provided. Kremlin spokesman Dmitry Peskov was quoted as saying that if Europe wants to revise gas supply contracts and change the purchase price, it is a matter of negotiation with Gazprom.