As MRP noted in yesterday's DIBs, Potential Nord Stream Sabotage Strikes Latest Blow in Global Struggle for Energy Supplies, damage caused to the Nord Stream 1 and Nord Stream 2 pipelines in the Baltic Sea was likely the result of a targeted assault on the pipeline. Over the past 24 hours, more details have emerged, indicating that four separate leaks have been detected along the lines. Though both were offline at the time of the blasts, Reuters notes that 778 million cubic meters of natural gas that was idled inside of the pipes continues to spill out into the sea, bubbling to the surface and diffusing into the atmosphere as nearly pure methane.
Russia has denied any suggestion that they may have bombed their own pipeline, calling such a notion "quite predictable and also predictably stupid". Kremlin Spokesperson Dmitry Peskov went on to note that "This is a big problem for [Russia]. Both lines of Nord Stream 2 are filled with gas, the entire system is ready to pump gas, and this gas is very expensive." Indeed, it does seem unlikely that Russia would bomb the most critical piece of infrastructure giving them leverage in their proxy conflict with Ukraine's European allies. It would also be quite an expensive gambit, considering the loss of the gas in the pipeline, as well as the costs for repair if they ever should hope to resume shipments of natural gas to Europe.
Whatever actually happened to Nord Stream 1 and 2, a conclusive investigation is unlikely to be resolved in the short-term, and the geopolitical reality is that it probably doesn't necessarily matter who was actually behind the sabotage. Parties on each side of the pipeline will blame the other and it is hard to believe they will ever agree on what actually happened. Russia is could be sending a message that they are done with Western Europe and have decided to burn any remaining bridge with them completely by destroying the pipelines, or they now see themselves as a victim of sabotage and can never be sure their western adversaries will not simply do this to the pipelines again in the future. In any scenario, this moment likely represents a total breakdown of Russia's willingness to fully engage with the European Union (EU) in the energy trade and mending the relationship between the two bodies is not unlikely to happen anytime soon.
The EU is likely in a position where it can no longer change posture on supporting Ukraine and attempt to re-open gas flows via the Nord Stream lines. This will make the diversification of the its energy suppliers more urgent than ever. As European nations look to negotiate prices and contracts with major LNG producers like the US and Gulf States, leverage will lean even more strongly toward suppliers, increasing the likelihood of longer-term deals at higher prices. Moreover, it will increase demand for more gas output in these markets to ship overseas.
We believe that will be a boon to new exploration and production of oil and gas. As such, MRP will be adding a new theme, LONG Oil & Gas, Exploration & Production, to our List of Active Themes. To track this theme, we will be utilizing the SPDR S&P Oil & Gas Exploration & Production ETF (XOP). |