“North Stream” Pipeline Sudden Damage: Natural Disaster or Man-made Disaster?

   On September 26, local time, Danish media reported that a natural gas leak occurred near the “North Stream-2” natural gas pipeline. Just one day apart, on the 27th, the “Beixi-1” natural gas pipeline was also exposed to two leaks. Since the Russian-Ukrainian conflict, the “North Stream” natural gas pipeline, which is the main energy artery in Europe, has attracted much attention. Is it a natural disaster or a man-made disaster? How does this affect European energy?
   “North Stream” pipeline was damaged, what impact will it have on Europe?
   In response to the accident, the “North Stream” natural gas pipeline company issued a statement saying that the North Stream natural gas pipeline has suffered “unprecedented” damage, the damage is unprecedented, and it is impossible to predict when the gas supply will be restored. Swedish government officials said there was information that the Nord Stream gas pipeline leak may have been “sabotage”.
   The head of the Danish Energy Agency said in a press release that leaks in natural gas pipelines are “extremely rare”. Danish Prime Minister Fraser Ricksen said the leak of the Nord Stream gas pipeline did not rule out the possibility of deliberate sabotage, but stressed that it was “too early to draw conclusions”. Russian President’s Press Secretary Peskov said that the state of emergency of the “North Stream” project concerns the energy security of the entire European continent, and Russia is extremely concerned about this. It cannot be ruled out that the pipeline accident was caused by sabotage.
   “Beixi-1” and “Beixi-2” are two parallel natural gas pipelines, with a total length of more than 1,000 kilometers, from Russia to Germany through the territorial waters of Finland, Sweden and Denmark. As the “main artery” of European energy, the “North Stream” natural gas pipeline is related to the energy security of the entire European continent. Data show that in 2021, the total amount of natural gas transported by “Beixi-1” will reach 59.2 billion cubic meters, accounting for nearly 40% of the EU’s imports of Russian natural gas that year. There is a view that this event will lead to the complete failure of Europe’s hopes of receiving Russian gas through Nord Stream-1 before winter. There is no doubt that the accident will have an impact on the European economy, and as the market is worried about the shortage of natural gas supplies in Europe, it may lead to drastic changes in energy prices.
   Lin Boqiang, Dean of the China Energy Policy Research Institute of Xiamen University, analyzed that considering the recent suspension of “Beixi-1” and “Beixi-2” not yet put into use, it is expected that it will not have a great impact on the current market. But in the long run, if the conflict between Russia and Ukraine does not ease, the oil and gas connection between Russia and the EU will likely be “broken” in the future, so the impact on future expectations cannot be ignored.
   How long can gas in EU gas storage last?
   Right now, Europe’s first cold snap is on its way. The news of the destruction of the “North Stream” pipeline will undoubtedly bring a heavy blow to European energy. Germany, France, Italy and Spain, the EU’s major natural gas consumers, have completed their natural gas storage targets in early September, but there are still risks behind the optimism. First, there are large inventory differences between different countries. The lack of infrastructure makes it difficult for natural gas to move across all European countries, and a full zero pipeline gas in Russia will lead to a bottleneck in supply growth. Second, LNG exporters are now operating close to full capacity, and there are restocking needs in both Asia and the United States ahead of the peak season. After entering the winter, the flow of LNG resources to Europe may be limited.
   Huarong Rongda Futures Research Institute pointed out that assuming that Russia will cut off its natural gas supply to Europe for a long time, its impact may vary from region to region. The UK, Ireland, Spain, Portugal, Sweden and Denmark, which are less dependent on Russian gas, can accommodate such supply disruptions. France, the Netherlands and Belgium are somewhat dependent on Russian gas, but they have access to LNG import capacity and alternative pipeline supply routes. Germany and Italy, which are highly dependent on Russian gas, will experience a consumption gap of about 15%.
   At present, the European energy crisis has caused a huge impact on people’s lives, and some Europeans have begun to scramble for coal and logging for heating in order to survive the winter. In addition, European industrial and agricultural production is also facing unprecedented difficulties and challenges. Denmark’s largest tomato producer has even announced that it will stop producing tomatoes and cucumbers this winter due to high fuel prices for greenhouse production. Meanwhile, high gas prices are pushing European manufacturers to turn to the United States.
   The Organization for Economic Co-operation and Development (OECD) warned in its medium-term economic outlook recently released that many European economies may experience a deeper economic downturn this winter. The report pointed out that if energy supplies from non-Russian sources fail to materialize as expected, or if demand for natural gas increases due to cold winters, energy shortages in Europe could increase significantly. These shocks could reduce European growth by more than 1.25 percentage points from the baseline in 2023 and raise inflation by more than 1.5 percentage points, pushing many European countries into recession in 2023.