ABOUT:
INCOTERMS AND NORDSTREAM 1 GAS TURBINES MAINTENANCE
SUMMARY:
The turbine saga with Nord Stream AG became a focal point
for illustrating how sanctions, maintenance of critical infrastructure,
and international politics can intertwine,
affecting energy supply chains and diplomatic relations.
IN RETROSPECT, WERE UK ACTIONS INTENTIONAL OR BY-PRODUCT?
7 Sept 2022 - Eastern Economic Forum plenary session
The President took part in a plenary session of the Eastern Economic Forum. The theme this year is On the Path to a Multipolar World.
Vladimir Putin: Nord Stream 1 is practically closed, and everyone is saying:
“Russia is using its energy weapon.” More nonsense and rubbish. What weapon are we using? We supply as much gas as our partners need, as much as they order. We are not pumping gas into the air but supplying the amount ordered. We fill the orders that we receive.
What has happened? The operation of one of the two gas pipelines running across Ukraine was suspended by Ukraine for a made-up reason, alleging that there was no control over it. They closed it themselves. It was not us who closed it, Ukraine did it. This is my first point.
Another pipeline, Yamal–Europe, runs across Poland. Poland imposed sanctions on this gas pipeline and suspended its functioning. Was it us who did this? No, the Poles did it. The Ukrainians did it and the Poles.
Regarding Nord Stream 1, our German partners have agreed that all technical aspects of Nord Stream 1, including the maintenance of gas-pumping turbine units, are subject to British law because – I myself was unaware of this and learned about this from Mr Miller – Gazprom had to sign a contract for the maintenance of these units made by Siemens not with the Siemens main office but with its subsidiary based in the United Kingdom, which slapped sanctions on Gazprom, and agreed to repair the turbines at a Siemens plant in Canada.
What do we have to do with all of that? Canada finally took it but yielded to numerous requests coming from Germany and gave it to Germany, whereas under an agreement with a Siemens subsidiary in the UK, the turbines were to be shipped straight to St Petersburg. Logistics arrangements have changed and the contract has to be revised. The British-based Siemens subsidiary will not even respond to Gazprom’s inquiries.
[MRT: I stated in early 2023 that INCOTERMS changed hence the delay - I have deducted that issues were with INCOTERM documents - see here May 17, 2023]
You can take as many photos with the turbine as you want, but give us the documents, for crying out loud. This is our property. We need to understand the legal status of this property and its technical condition. They give us nothing but chit-chat.
The last turbine is now out of order, so Siemens representatives came to look at it. There is an oil leak, which is an explosion and fire hazard. There is no way for the turbine to remain operational given its current condition. Give us the turbines, and we will turn on Nord Stream 1 overnight. They do not give us anything. They say we are weaponising it. What are they talking about? They themselves messed things up big time and are now not sure what to do about it. They drove themselves into a sanctions dead end.
There is only one way out. In Germany, people are rallying to turn on Nord Stream 2. We are supportive of the demands by German consumers and we are ready to turn it on as early as tomorrow. All we need to do is press the button, but we are not the ones who imposed sanctions on Nord Stream 2. It was done under pressure from the United States. Why is it exerting pressure? Because it wants to sell its gas for a pretty penny. We are aware of the position of the former US administration as well. They said, “Yes, we sell at a higher price, but let them buy ours because we offer them protection.” Let them buy then if they choose to. We will sell our product.
Ilya Doronov: Since we are talking about Britain, I have a follow-up question for you. Liz Truss is the new Prime Minister succeeding Boris Johnson. What are your expectations regarding the new Prime Minister? Am I right to think that there is no hope to see our relations improve after everything she had to say?
Vladimir Putin: Listen, the UK process for electing the head of state is far removed from the principles of democracy. It is confined to the party that won the previous parliamentary election. The people of Great Britain have no say in the change of government. The ruling elite stick to their rules. We know where the Tories stand on these issues, including with regard to Russia. It is up to them to decide how they are going to build relations with the Russian Federation. Our job is to protect our interests. We will do so consistently, let there be no doubt about it.
16 Sept 2022 - News conference following visit to Uzbekistan
Putin: "...These are erroneous reference points in the green agenda, rushing things, and the green energy being unprepared to meet to the demand for huge energy resources to support economic and industrial growth. The economy is growing while the energy sector is shrinking.
This is the first drastic mistake.
The second mistake concerns natural gas.
We made attempts to persuade the Europeans to focus on long-term contracts rather than solely on the market. Why? I said it before and will repeat it once again: Gazprom needs to invest billions in development but it must be confident that it will sell gas before making investments. This is what long-term contracts are about.
Mutual obligations are incurred by the sellers and the buyers. They said, “No, let the market regulate itself.“ We kept telling them, “Don't do it or it will lead to drastic consequences.” But in fact, they forced us to include a significant share of the spot price in the contract price. They forced us to do this, and Gazprom had to include both the oil and oil product basket but also the spot price in the gas price. The spot price began to grow, causing the increase in the price envisaged even in long-term contracts. But what does it have to do with us? This is the first thing.
Second, I told them many times. “Gazprom is not supplying gas.”
Look, are you normal people or what? Poland chose to impose sanctions against the Yamal-Europe gas pipeline and shut off the route. I told Mr [German Chancellor Olaf] Scholz: “Why are you calling me? Call Warsaw and ask them to reopen the route.” That is all there is to it. That’s the first.
Second. Two lines of the gas pipeline run through Ukraine. Ukraine is being supplied with weapons, but it went ahead and closed one of the lines for them. They also shut off another line that supplied 25 billion cubic metres of gas – I will not talk about the exact amount, but they shut off the entire route. What for? Call Kiev and ask them to reopen the second line.
And finally, Nord Stream 1. One turbine goes out of order after another. Are we breaking them? As regards the latest turbine breaking down and being taken out of service – what actually happened?
There was supposed to be a routine inspection and maintenance works; they opened the unit in the presence of Siemens specialists and found an oil leak there, which created a danger of an explosion. They saw it, and they put their signatures under the document. The turbine has to be repaired and it is not operational, with a risk of fire and explosion. But what does it have to do with us? Go ahead and repair it.
We were told: look, they delivered a turbine from Canada but Gazprom will not accept it. But Gazprom is right in doing so. We said so many times: Gazprom’s contract for servicing turbines is not with Siemens but with a UK-based Siemens subsidiary. That is what it is all about.
And this UK-based subsidiary must provide documents that specify that sanctions have been lifted from the turbine as this is our property, and Gazprom must be sure of it because it may choose to sell it, say, to Iran, China or some other country. It means that the sanctions have been lifted and it is in a proper technical condition. The Siemens subsidiary must provide [guarantees] but has not provided anything but idle talks. That is what it is all about.
Also, it was necessary to make amendments in the logistics contract as the turbine was supposed to be delivered from Canada to St Petersburg, but it was delivered to Germany. This may seem unimportant at first glance but it has practical importance. Look, are we making all this up? And this is what led to Nord Stream 1 stopping operation.
[MRT: This is exactly as I expected, the place of delivery changed into 3rd country so new documents needed to be issued, turbines needed to be re-certified by Siemens engineers in Germany that they have NOT gotten any damage through transportation. This is about logistics, not politics, often engineers/technicians have their schedule with different customers so I guess the delay could be explained rather by natural events than intent.]
After all, if they need it urgently, if things are so bad, just go ahead and lift sanctions against Nord Stream 2, with its 55 billion cubic metres per year – all they have to do is press the button and they will get it going. But they chose to shut it off themselves; they cannot repair one pipeline and imposed sanctions against the new Nord Stream 2 and will not open it. Are we to blame for this?
Let them think hard about who is to blame and let none of them blame us for their own mistakes. Gazprom and Russia have always fulfilled and will fulfil all obligations under our agreements and contracts, with no failures ever.
ANALYSIS
Several layers of complexity, primarily revolving around maintenance and sanctions:
Turbine Maintenance: Gas turbines are critical for compressing gas to maintain pressure in pipelines like Nord Stream. These turbines require regular maintenance to ensure they operate efficiently and safely.
Siemens Energy: the division responsible for energy-related products including gas turbines, had a repair facility in Canada, specifically in Montreal. This facility was indeed involved in the maintenance of the Nord Stream turbines.
Siemens UK Subsidiary: Siemens AG operates through numerous subsidiaries globally. In this scenario, the maintenance contract for the Nord Stream turbines was reportedly signed with a Siemens subsidiary based in the United Kingdom. This contractual arrangement means that the terms, including those related to maintenance and repair, could fall under UK jurisdiction or at least be influenced by UK law, particularly concerning sanctions.
Contractual Complications: If the maintenance contract was governed by or influenced by British law, any sanctions or legal restrictions imposed by the UK would apply. This could mean that the UK subsidiary of Siemens might have had to comply with UK sanctions, potentially preventing or complicating the straightforward repair and return of the turbine to Russia.
Documentation and Compliance: The turbine's return would require documentation that complies with multiple legal frameworks - from export controls to sanction waivers. The UK's role in sanctioning Gazprom could have led to:Delayed Documentation: Proper documentation for the turbine's return might have been delayed or more complex to obtain due to the need to navigate UK sanctions law alongside Canadian and German laws.
Legal Review: The turbine's journey back might have necessitated a thorough legal review to ensure compliance with CAN, UK, US, EU sanctions, which have slowed down the process.
PROGRESS
- Maintenance in Canada: Siemens Energy, the manufacturer of the turbines, typically sent these for maintenance and repair to facilities in Canada. However, due to Western sanctions imposed on Russia following its invasion of Ukraine in 2022, Siemens faced challenges in returning a repaired turbine to Russia.
Sanctions Complications in Canada: The sanctions included restrictions on exporting technologies and services to Russia, which initially seemed to apply to the turbines. This led to a situation where a repaired turbine could not be legally returned to Russia for reinstallation in the Nord Stream pipeline.Russian Stance: "When Putin mentions a "Regarding Nord Stream 1, our German partners have agreed that all technical aspects of Nord Stream 1, including the maintenance of gas-pumping turbine units, are subject to British law because – I myself was unaware of this and learned about this from Mr Miller – Gazprom had to sign a contract for the maintenance of these units made by Siemens not with the Siemens main office but with its subsidiary based in the United Kingdom, which slapped sanctions on Gazprom, and agreed to repair the turbines at a Siemens plant in Canada."
He's likely referring to Siemens Gamesa Renewable Energy, which Siemens AG had significant control over, especially before its subsequent restructuring. Siemens Gamesa is involved in wind energy but not directly in gas turbine repairs. However, Siemens AG, the parent company, operates globally, and its UK operations could indirectly influence or be involved in corporate decisions, including those related to sanctions.
[MRT: Are there LEGAL consequences of this actions which could contribute to the decision to trigger blowing up Nordstream pipelines? Was the UK government pressuring this company or created a framework specifically for this to happen?]
German and European Response: Germany and the European Union faced a dilemma. On one hand, they wanted to uphold the sanctions; on the other, they needed to ensure energy security. Germany, in particular, lobbied for an exemption to allow the turbine's return, arguing that this was about maintaining existing energy infrastructure rather than new sales to Russia.
Temporary Resolution: After considerable diplomatic and legal wrangling, an exception was granted. Canada issued a time-limited waiver in July 2022 allowing Siemens to return one turbine to Germany, from where it was to be transported to Russia. However, even after this, there were delays and uncertainties about whether the turbine would actually be installed by Russia.
Routing Through Germany: The turbine was sent to Germany rather than directly to Russia due to the sanctions environment. This routing could have been part of the strategy to comply with UK sanctions while still attempting to fulfill the maintenance contract. However, this added layer of logistics would naturally lead to delays and further documentation issues.
Correct Accompanied Papers: When Canada returned the supposedly fixed turbine, there were issues with the documentation. Gazprom, the Russian state-controlled company, stated that they had received documents from Siemens Energy AG on the component, but these documents did not resolve all problems. After studying the documents, Gazprom concluded that they did not eliminate previously identified risks and raised additional questions. Gazprom requested Siemens to provide prompt support in obtaining the required documents and clarifications to solve pending issues. Gazprom issued retroactively "Force Majeure" for the volume which could not have been supplied due to turbines issue.
Incoterms and the Stop in Germany: The turbine was not sent directly to Russia but was first returned to Germany, which posed potential Incoterms (International Commercial Terms) issues. This indirect route was chosen to comply with Canadian sanctions against Russia, allowing Canada to say it was not breaching any sanctions. However, this stop in Germany likely necessitated new or adjusted Incoterms to reflect the change in the delivery route. There's no explicit mention of whether new Incoterms were issued, but the complexity of the situation suggests that logistics and legal terms would need to be re-evaluated. News report that Canadian engineers were busy and it took some time for them to be flown to Germany to do new re-assesment of the turbines to make sure they have not been damaged or mingled with on the transport.
Siemens Re-certification: There isn't clear information indicating that Siemens was explicitly asked to re-certify the fixed turbines, but given the documentation issues highlighted by Gazprom, it's noted that Siemens need to address additional discrepancies or provide additional assurances. Siemens officials were not immediately available for comment on these matters when the turbine issue was discussed in public.
Broader implications: The turbine issue became symbolic of the broader geopolitical tensions, showcasing how energy could be weaponized. It also highlighted the vulnerabilities of Europe's energy infrastructure, particularly its dependence on Russian gas, and the complexities of maintaining such systems under sanctions.
[MRT: UK, Canada, US, EU - through sanctions which effected Nord Stream AG operations "weaponized" maintenance and threatened operations of active key energy pipeline]
Subsequent developments: Even after the turbine was sent back, gas flows through Nord Stream continued to be unpredictable, with Russia citing various reasons for reduced capacities. Eventually, the Nord Stream pipeline was damaged in acts of sabotage (or a terrorist act, or Armed attack), ending the immediate relevance of the turbine issue but underlining the fragility of critical energy infrastructure amidst international conflicts. The issue itself may play further role in legal cases as Gazprom´s case had been sent to arbitration for not delivery. Due to sanctions Russian lawyers were not able and/or allowed to visit the Stockholm behind closed doors ruling and lost the case. Russia created a mirror case in which challengers lost the same amount.
SUMMARY:
The UK played a pivotal role indirectly and perhaps even directly by:
Imposing sanctions that legally bound the Siemens UK subsidiary in its operations with Gazprom.
Creating a legal environment where compliance with UK law was necessary for the turbine's maintenance and return, which likely contributed to delays in proper documentation and the overall logistics of returning the turbine to Russia.
The direct un/intentional involvement of the UK in the mis-managment of papers for Turbines is documented. Putin mentioned that in his speech on 16th of September 2022, just 10 days before Nordstream pipelines are blown up.
This description illustrates how international sanctions can affect even routine business operations, leading to significant delays and complications, especially when dealing with critical infrastructure like the Nord Stream pipeline.
Big question will remain whether there would be some legal actions for not delivering papers for the UK and whether that played role in the destruction of Nordstream pipelines?
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