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How's those sanctions going for you now?

"Hello, this is Nord Stream customer service can I help you? I'm sorry we're having technical difficulties right now? We hope to be back on line later this winter. Can you call back later? No, we certainly DO value your business. You are of course free to buy your energy from another vendor if you like? Advice? I'm sorry sir, we're not allowed to comment, but you might want to invest in some electric blankets this coming winter. Have a nice day".

"Oh, we don't like being isolated from you guys. Sorry, one second, will you guys please keep the f-cking noise down! No, I wasn't talking to you...there's a party going on in the office. We've been drinking Vodka all day. Gotta go."

Europe Fears Widespread Economic Fallout if Russian Gas Outage Drags On

Closing the Nord Stream gas link could send shortages rippling through industries including petrochemicals, steel, ceramics and plastics

The Nord Stream pipeline that ferries gas from Siberia to Germany closed last Monday for annual maintenance that is expected to last 10 days.

By Bojan Pancevski and Jenny Strasburg, WSJ

Updated July 18, 2022 10:42 am ET

As a deadline approaches for Russia to resume supplying natural gas to Germany this week, European officials and executives are growing concerned about a cascading economic fallout that would spread across the continent should Moscow keep the tap shut.

The Nord Stream pipeline that ferries gas from Siberia to Germany closed last Monday for annual maintenance that is expected to last 10 days. Many in the West fear that Moscow might prolong the closure, possibly permanently, and deprive Germany, Europe’s industrial powerhouse, of a key ingredient for its and its neighbors’ factories.

European leaders blamed Moscow for using gas as a weapon when flows along the pipeline began to ebb last month. Moscow blamed that shortfall on technical issues related to Western sanctions.

According to the annual maintenance schedule, Nord Stream goes back online this coming Thursday, meaning that gas flow should resume the following day.

Complicating the calculus, officials and executives say it might not be easy to determine whether Russia is restoring gas flows fully. Under one scenario, Moscow could switch the pipeline back on but with lower volumes, as it already has, citing technical problems linked to the sanctions.

On Monday, utility Uniper SE, Germany’s biggest buyer of Russian gas, said it had received a letter from Russia’s state-owned Gazprom PJSC that claims force majeure—a legal declaration that exempts the company from fulfilling contractual obligations due to circumstances outside its control—to justify past and current shortfalls in gas deliveries.

Uniper said it had rejected the claim as unjustified. Gazprom didn’t immediately respond to a request for comment.

Germany is highly dependent on Russian gas, and it also acts as a transit hub for gas headed to Austria, the Czech Republic and Ukraine. German industry also makes raw materials and components, from glass to plastics and other chemicals, that are crucial to other manufacturers across Europe and beyond.

For a host of reasons, Russia has already stopped supplying gas to France, Poland, Bulgaria, Finland, Denmark and the Netherlands. It recently reduced supplies to Germany and Italy, blaming Western sanctions for the cuts.

Should Nord Stream remain empty after Thursday, Berlin said it would declare a state of emergency, using new legislation to take control of the energy market. And should the cut result in a shortage of gas, it could ration fuel.

This past Thursday, President Emmanuel Macron of France warned that the European Union had to “prepare for a scenario where we have to switch entirely from Russian gas.”

The same day, Shell PLC Chief Executive Officer Ben van Beurden told an energy conference that Europe might need to ration energy and faces the prospect of sharply escalating prices, as the continent gears up for a “really tough” winter.

Berlin insists it won’t cut exports to its neighbors. EU countries have agreements—one of them called the SOS directive—designed to prevent one nation from hoarding fuel in such a scenario, and Germany has pledged solidarity with several neighbors if Russian gas stops flowing.

EU Energy Commissioner Thierry Breton traveled to Berlin earlier this month. A key aim of EU officials is ensuring there is no repeat of the early days of the Covid-19 pandemic, when some member countries hoarded medical and protective equipment.

As Europe races to wean itself off Russian energy, American natural-gas producers are struggling to meet the demand and prices are rising. Factors including extreme weather and equipment needs have created a bottleneck amid the war in Ukraine.

“Every single country must demonstrate that it will do everything possible both for itself and for the others,” Mr. Breton said after the visit. The EU executive body, of which Mr. Breton is a member, will soon publish new gas-conservation guidelines that will suggest limiting the temperature in office buildings across the bloc to 19 degrees Celsius, or about 66 degrees Fahrenheit, officials said Thursday.

European manufacturers in gas-hungry industries have been switching to alternative fuels like oil and coal where possible, and stockpiling chemicals and other crucial ingredients ahead of winter, when gas is in higher demand, according to business and trade officials. But those steps will go only so far. Industry executives and economists say a gas shortage severe enough to force rationing in any one European country—especially in Germany, the bloc’s largest economy—would inevitably be felt across the continent.

Such an event would disrupt pan-European supply chains, particularly in the petrochemical sector, which depends on gas and petroleum as a raw material, said Günther Oettinger, a former EU energy commissioner and German politician. The production of steel, copper and ceramics would also be severely affected. German legislation gives households and institutions such as hospitals priority for gas supplies, making it more likely that industry would be first to face rationing in case of a shortage. Given how tightly integrated the continent’s economy is, such a move would quickly ripple outward.

“The whole EU stands to suffer if any single economy enters into a sharp and long-lasting recession,” as a result of an interruption in gas supplies, German insurer Allianz SE wrote in a recent report.

More than 60% of chemicals imported by Germany, not including pharmaceuticals, comes from other EU countries, according to the German Chemical Industry Association, or VCI, which includes many of the country’s largest chemicals and pharmaceutical companies. Germany, in turn, sends the majority of its chemical exports to industrial customers within the EU.

Plastics and other materials made in the Netherlands can rely on German-produced ammonia or acetylene, a compound used in welding and as a chemical building block for batteries, cables and other products. Those and other plastics can travel across another border for molding, or to go into the making of automobile seats, drug packaging, electronics or construction materials, trade-group officials say.

Acetylene also has medical uses. Chemical-industry groups and companies are gaming out how European officials will give priority to natural gas for production deemed crucial to making lifesaving drugs, or for fertilizers that maximize crop yields—a key consideration at a time of rampant food price inflation.

“We are putting a lot of effort into explaining that if there has to be a prioritization for gas, we in the fertilizer industry have to be a priority,” said Jacob Hansen, director general of Fertilizers Europe, a trade group representing the majority of European fertilizer producers.

He said most plants run 24 hours a day for all but a few weeks of the year. Most need to run at sustained 75% capacity or more to maintain the heat and pressure involved in the manufacturing process.

Should Germany start rationing gas, the government would have discretion to decide which sector gets hit first or hardest and which is spared. Companies and business associations have been lobbying Berlin hard for their sectors to be classified as critical.

“Our most important goal is to ensure that there is no gas shortage in the EU at all,” said a spokesman for the VCI, the German chemical association, whose members make up Germany’s largest consumers of natural gas and account for more than 30% of its industrial gas use, according to the association. The VCI says other European countries might be able to absorb some German chemical manufacturing if their natural-gas supplies are holding up better. Still, high prices for gas and other ingredients and the complexities of transporting goods—including highly flammable gases—threaten to worsen already-painful price inflation, the spokesman said.

In one scenario, a shortage of gas hurting plastics manufacturing could stall the production of automobiles or even athletic sneakers, said Ruud Schmeink, an Amsterdam-based partner at consulting firm Deloitte, who focuses on industrial supply chains. “A shortage of supplies cascades down the value chain, but it gets worse and worse and worse.”

The threat to Russian gas supplies could be compounded by other variables. U.S. producers of liquefied natural gas have promised to increase supplies to Europe, but tropical storms, common at this time of year, could disrupt these plans while also complicating shipments of other goods, trade experts say.

“You’re going into hurricane season, which always causes supply-chain issues in the U.S.,” said Guy Bessant, president of Stolthaven Terminals, part of Oslo-listed chemical-tanker company Stolt-Nielsen Ltd., which ships and stores bulk chemicals and other products globally. He and others said existing European gas pipelines can handle some redistribution of fuel, and rail and other freight lines can reshuffle some chemical supplies to other countries—but at a cost.

“The market is hot at the moment,” Mr. Bessant said. “And there’s not a lot of spare capacity for chemical storage.”

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