Extra

Germany triggers gas alarm phase, accuses Russia of ‘economic attack’

Written by Javed Iqbal

  • West, Russia in energy standoff since Ukraine’s invasion
  • The German minister warns of ‘rocky road’ ahead
  • Minister does not rule out gas rationing
  • Says the market is threatened by the ‘Lehman Brothers’ moment
  • Alarm stage decision does not change status quo: E.ON

BERLIN, June 23 (Reuters) – Germany triggered the “alarm stage” of its emergency gas plan on Thursday in response to declining Russian supplies, but stopped allowing utilities to pass on sky-high energy costs to customers in Europe’s largest economy.

The measure is the latest escalation in a battle between Europe and Moscow since the Russian invasion of Ukraine, which has revealed the bloc’s dependence on Russian gas supplies and triggered a hectic search for alternative energy sources.

The move is largely a symbolic signal to companies and households, but marks a major shift for Germany, which cultivated strong energy ties with Moscow stretching back to the Cold War.

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Lower gas flows triggered warnings this week that Germany could fall into recession if Russian supplies stopped altogether. A survey on Thursday showed that the economy lost momentum in the second quarter. Read more

“We must not deceive ourselves: the cut in gas supplies is an economic attack on us by (Russian President Vladimir) Putin,” Economy Minister Robert Habeck said in a statement. Read more

Gas rationing would hopefully be avoided, but can not be ruled out, Habeck said:

“From now on, gas is a scarce commodity in Germany … We are therefore now committed to reducing gas consumption, now already in the summer.”

Russia has denied that supply cuts were deliberate, with state-owned supplier Gazprom (GAZP.MM) blamed for a delay in the return of serviced equipment caused by Western sanctions. The Kremlin said Thursday that Russia “strictly fulfills all its obligations” to Europe.

Berlin will provide a credit line of 15 billion euros ($ 15.76 billion) to fill gas storage and launch a gas auction model this summer to encourage industrial users to save on gas.

The second “alarm phase” in a three-step emergency plan means authorities see a high risk of long-term supply shortages. It contains a clause that allows utilities to immediately pass on high prices to industry and households. Read more

Habeck said Germany was not at the time, but the clause could be triggered if supply pressures and price increases continue, pushing electricity companies deeper into the red.

“If this minus becomes so large that companies can no longer bear it and they fall, the whole market threatens to fall at some point – then a Lehman Brothers effect on the energy system,” he said, referring to the collapse of the US investment bank in 2008, which rippled through the global financial markets.

The local utility association VKU asked the government to protect consumers with subsidies or risk utilities going bankrupt due to low-income retail customers not paying.

The chairman of the Federal Network Agency, Klaus Mueller, believed that it was possible for consumer gas prices to triple.

“If you extrapolate it, it depends a lot on how you heat how your building is built, but it can triple the previous gas bill,” he told RTL / ntv broadcasts.

The move to Phase 2 had been anticipated since Gazprom cut flows via the Nord Stream 1 pipeline across the Baltic Sea to just 40% of capacity last week.

Pipes at the landing facilities of the ‘Nord Stream 1’ gas pipeline are pictured in Lubmin, Germany, March 8, 2022. REUTERS / Hannibal Hanschke // File Photo

Data released on Thursday showed that Germany has imported 22% less natural gas in the first four months of 2022, but costs increased by 170% in the same period.

In the face of dwindling supplies from main supplier Russia, Germany has been in Phase 1 since the end of March, which includes stricter monitoring of daily flows and a focus on filling gas storage facilities.

“The declaration of the alarm stage does not immediately change the basic status quo,” says the German energy provider E.ON (EONGn.DE) said. However, it was important that the government prepared and took steps to stabilize the markets and the gas supply, it said in an email to Reuters. Read more

RISK OF FULL INTERRUPTION

In the second phase, the market is still able to function without the need for government intervention, which would start the last emergency.

Nord Stream 1 will undergo maintenance on 11-21. July, where the flow stops. Hanns Koenig from the consulting firm Aurora Energy Services in Berlin said that Gazprom could find reasons to delay the process.

“Extended maintenance of Nord Stream 1 will further tighten the market and make it more difficult to fill the gas storage facility until winter. This is, of course, in Russia’s strategic interest.”

Russia could cut off gas to Europe altogether to strengthen its political leverage, the head of the International Energy Agency (IEA) warned on Wednesday, urging Europe to prepare now.

Russian gas flows to Europe via Nord Stream 1 and through Ukraine were stable Thursday, while reverse flows on the Yamal pipeline rose, operator data showed.

Dutch wholesale gas prices, the European benchmark, rose as much as 8% on Thursday.

Several countries have outlined measures to withstand a supply squeeze and avert winter shortages of energy and a rise in inflation that could test Europe’s willingness to maintain sanctions against Russia.

Supply cuts have led German companies to consider painful production cuts and resort to polluting energy sources that were previously considered unthinkable. Read more

The European Union and Norway on Thursday unveiled an agreement allowing the bloc to tap more gas from Western Europe’s largest producer. Read more

The EU also signaled a temporary return to coal to close the gap after calling Moscow’s gas supply cuts “sluggish measures.”

Its climate policy chief Frans Timmermans said 10 of the EU’s 27 member states had issued an “early warning” on gas supplies – the first of three levels of crisis.

“The risk of full gas disruption is now more real than ever before,” he said.

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Reporting by Holger Hansen, Christoph Steitz, Christian Kraemer, Vera Eckert, Tom Sims, Marwa Rashad, Kate Abnett, Nora Buli, Tom Käckenhoff, Paul Carrel, Miranda Murray and Riham Alkousa; writing by Matthias Williams Editing by Tomasz Janowski, Elaine Hardcastle

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Javed Iqbal

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