- On 2 September Gazprom announced that the Nord Stream 1 pipeline, the main route for Russian gas to Germany, would remain closed indefinitely.
- Europe faced the winter without its main supplier, with upward pressure on gas and electricity.
- Spain, less dependent on Russian gas, was in a better position, but the price is formed in a European market: it is wise to keep reviewing contracts and consumption.
On 2 September 2022 the Russian company Gazprom announced that the Nord Stream 1 pipeline, the main route for Russian gas to Germany, would remain closed indefinitely. It was a new chapter in the tension over Russian gas supply, and it confirmed the scenario that many governments and companies had tried to prevent. The announcement came as autumn approached, with winter ahead.
For Europe, the decision meant facing the winter without what had been its main source of piped gas. The consequences were not limited to household heating: industry, power generation and a good part of value chains depend on gas, and its price influences the costs of almost every product. Understanding how that effect is transmitted helps to plan the following months better. Companies and households cannot influence that decision, but they can influence how they prepare: adjusting consumption, contracts and budgets.
The main route, closed
A pipeline is fixed infrastructure: gas that does not flow through it cannot be replaced overnight by another channel. The indefinite closure of the main route for Russian gas to Germany forced a rethink of supply for a good part of the continent.
Replacing that gas means turning to other suppliers, often via liquefied natural gas carried by ship, which requires regasification terminals and logistics capacity. It is neither an instant nor a free solution. While the replacement is completed, reserves and consumption savings are the main buffers, and any incident can amplify price volatility. Every cubic metre no longer received by one route has to be bought by another, and often at a higher price.
A winter without its main supplier
Europe faced the winter without its main supplier. That pushed up the price of gas, and by extension that of electricity, and obliged governments, industry and households to prepare for more restrained consumption and possible saving measures.
For companies, the practical question is how much of their activity depends on gas, directly or indirectly, and what room exists to reduce or replace it. Some can change fuel or process; others depend on suppliers who do. Knowing one’s own exposure and that of the supply chain makes it possible to anticipate the impact and negotiate in good time. It is also wise to ask suppliers how they are affected, because gas is a hidden cost in many goods and services.
Spain, in a better position
Spain, less dependent on Russian gas and with more regasification plants, was in a better position than the centre of the continent. Even so, the price of gas is formed in a European market, and Spanish companies with high energy consumption were not safe from the rise. That flexibility cannot be improvised: it is built in advance in the form of contracts, equipment and contingency plans.
A better relative position is not immunity. Benchmark prices in Europe influence the contracts and energy offers available in Spain, and demand for liquefied natural gas competes in a global market. That is why Spanish companies should not lower their guard: reviewing contracts, watching consumption and analysing alternatives remains good practice. And remember that benchmark prices can change quickly on news, so contracts with frequent review are more sensitive to volatility.
Energy security is measured by what happens when the main route fails.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
