Energy groups heighten security protocols after Nord Stream gas pipeline leaks

Energy infrastructure operators in Europe are on alert as four leaks along the Nord Stream gas pipelines, likely caused by "acts of sabotage," raise the specter of wider vulnerabilities.

Two leaks appeared this week in the Danish section of the Baltic Sea, along with two in Swedish waters.

The Danish Energy Agency recommended upping the level of security awareness for energy infrastructure, according to grid operator Energinet.dk, whose new Baltic Pipe gas pipeline between Norway, Denmark and Poland began service the same day that the first leaks in Nord Stream were found.

Damage to gas pipelines is rare and given the concurrence of several leaks, the damage is seen as intentional.

The NATO military alliance described the incident as the result of "deliberate, reckless, and irresponsible acts of sabotage," while European Commission President Ursula von der Leyen said it would lead to "the strongest possible response."

The damage will not affect the supply of gas to Denmark or more of Europe as neither of the Nord Stream pipelines were in operation when the leaks were discovered, Energinet said.

Nord Stream 1 stopped delivering gas in early September, with Russian state-owned PJSC Gazprom suspending flows while citing an oil leak, and Nord Stream 2 had its permit withdrawn by Germany in the early days of Russia's invasion of Ukraine.

"What worries me is that if this can be done to this pipeline, what stops it being done to a fully working pipeline?" an analyst at Deutsche Bank said in a Sept. 28 note following the discovery of the fourth leak.

The Danish Maritime Authority issued a navigation warning and has banned vessels from entering prohibited zones near the leaks. Ships could lose buoyancy if they enter the area and there may be risk of ignition above the water and in the air, Energinet said. So far there is no clarity on the cause of the damage, the company added.

German grid operator E.ON SE, which has a stake in the Nord Stream 1 pipeline, said it is conscious of potential danger to other assets.

"Our groupwide cybersecurity team is tracking the situation closely, while measures for prevention and reconnaissance are being updated consistently," a spokesperson said in a Sept. 29 email. E.ON is also in contact with manufacturers of equipment and government authorities, the spokesperson added.

'Self-sabotage'

Most analysts are so far placing blame for the leak on Russia, though the Russian government has denied responsibility.

"The past seven months of war have shown that there is very little the Kremlin can do at this point that would shock outside observers," analysts at Raymond James said in a Sept. 28 note. "The real question is: What would be the purpose of self-sabotage?"

Russia would be able to halt gas flows through Nord Stream 1 even if the pipeline were not damaged, the analysts noted. Meanwhile, resuming flows will require lengthy repairs of the multibillion-dollar asset, which calls into question the rationale for such an action.

"What we're seeing is probably exactly what the party responsible for this sabotage was expecting," which was to cause panic and uncertainty, said Henryk Vasilevski, gas and LNG analyst at S&P Global Commodity Insights.

Prices in the Dutch Title Transfer Facility gas hub have risen more than 10% since the leaks were discovered, reflecting an added risk premium for other infrastructure, Vasilevski said in an interview, adding that the price increases are not as high as they would have been had the lines been operational.

"Most of the market had agreed that Nord Stream was crossed out, if not forever then at least for a good few years," the analyst said.

As for other European infrastructure, Vasilevski sees limited risk because of deterrence, which could even include retaliatory sabotage in such an event. "The EU and NATO response to Nord Stream being blown up is completely different than to an attack on European infrastructure," Vasilevski said.

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