European Gas Prices Jump After Gazprom Threatens Ukraine Transit, Damage to Nord Stream Pipelines

Pipes at the landfall facilities of the Nord Stream 1 gas pipeline in Lubmin, Germany, on Mar. 8, 2022. Hannibal Hanschke/Reuters

Natural gas prices jumped in Europe on Tuesday following ruptures to the Nord Stream 1 and 2 gas pipelines under the Baltic Sea and Russia’s warning that it may impose sanctions on the Ukrainian company Naftogaz.

Officials from both the West and Russia are investigating the ruptures to the crucial pipelines that occurred on Sept. 26, and have not ruled out sabotage.

Kremlin spokesman Dmitry Peskov said that Russia is “extremely concerned” about the leaks, and that “no option can be ruled out right now,” telling reporters: “Certainly, this is an issue related to the energy security of the entire continent.”

Ukrainian presidential adviser Mykhaylo Podolyak, meanwhile, wrote on Twitter that the leak is “nothing more than a terrorist attack planned by Russia and an act of aggression toward the EU,” adding that Russia wants to “destabilize the economic situation in Europe and cause pre-winter panic.”

Seismologists reported three separate underwater explosions before the unusual leaks were discovered. The German geological research center GFZ also were alerted to the explosions, as did seismic stations in Norway and Finland.

The incident caused natural gas prices to surge on Tuesday, with the front-month Dutch TTF contract, the benchmark for northwest Europe gas prices, rising 8.8 percent, to €189.10 per megawatt-hour (MWh) by 05:30 ET (09:30 GMT). On Monday, it reached a two-month low of €168.50/MWh.

Potential Sanctions

Further pushing up prices was Russian gas giant Gazprom’s statement announcing that it had “every reason” to impose sanctions against the Ukrainian company Naftogaz, which has been organizing the Russian gas transit to Europe.

Naftogaz launched a new arbitration procedure against Gazprom over its alleged failure to make payments on time and in full for gas transportation services through Ukraine.

“Gazprom strongly rejects all the claims of Naftogaz of Ukraine on the initiated proceedings regarding the transit of Russian gas to Europe—services not provided by the Ukrainian side should not and will not be paid,” the gas giant said in a statement translated by the Russian news agency TASS.

“Gazprom has notified the secretariat of the International Court of Arbitration (ICA) of the International Chamber of Commerce and the current head of Naftogaz of Ukraine about this today,” the company said.

“Gazprom considers the filing of Naftogaz of Ukraine’s appeal to be an unfriendly step and a continuation of the Ukrainian company’s bad faith behavior, and that further attempts by Naftogaz of Ukraine to seek consideration of the dispute in the IAC may lead to the fact that the Russian state authorities will have every reason to impose sanctions against Naftogaz of Ukraine and to include it in the sanctions list of persons,” the statement added.

“In practice, this will mean that Gazprom will be banned from fulfilling its obligations to sanctioned persons under completed transactions, including financial transactions,” Gazprom said.

The latest surge in natural gas prices comes as the threat of an energy crisis looms over Europe amid shortages and sanctions on Russian gas.