Germany girds for gas rationing, Europe on edge in Russian standoff

Joseph Nasr and Vera Eckert, Reuters

Posted at Mar 30 2022 08:47 PM

Combustible exhaust gases are flared with a gas flare on an oil field near the German-Durch border in Emlichheim, Germany, 22 March 2022 (issued 25 March 2022). Sascha Steinbach, EPA-EFE
Combustible exhaust gases are flared with a gas flare on an oil field near the German-Durch border in Emlichheim, Germany, 22 March 2022 (issued 25 March 2022). Sascha Steinbach, EPA-EFE

BERLIN/FRANKFURT - Germany triggered an emergency plan to manage gas supplies on Wednesday that could see Europe's largest economy ration power if a standoff over a Russian demand to pay for fuel with roubles disrupts or halts supplies.

Moscow's insistence on rouble payments for Russian gas that has met a third of Europe's annual energy needs has galvanized other European states: Greece called an emergency meeting of suppliers, the Dutch government said it would urge consumers to use less gas and the French energy regulator told consumers not to panic. 

The demand for payment in roubles, which has been rejected by G7 nations, is in retaliation for the West imposing crippling sanctions on Russia for its invasion of Ukraine. 

Moscow, which calls its actions in Ukraine a "special military operation", says Western measures amount to "economic war".

The Kremlin signaled on Wednesday it could widen the demand for rouble payments to other commodities including oil, grain, fertilizers, coal and metals, raising the threat of recession in the United States and Europe where inflation is already skyrocketing.

Berlin's unprecedented move is the clearest sign yet that the European Union is preparing for Moscow to cut gas supplies to the region unless it gets payment in roubles. Italy and Latvia have already activated warnings.

Moscow is expected to unveil its plans for rouble payments on Thursday, although said it would not immediately demand that buyers pay for gas exports in the currency. 

Germany Economy Minister Robert Habeck activated the "early warning phase" of an existing gas emergency plan meaning that a crisis team from the economics ministry, the regulator and the private sector will monitor imports and storage.

Habeck told a news conference that Germany's gas supplies were safeguarded for now but he urged consumers and companies to reduce consumption, saying that "every kilowatt-hour counts".

"We must increase precautionary measures to be prepared for an escalation on the part of Russia," said Habeck.

If supplies fall short, Germany's network regulator can ration gas supplies, with industry being first in line for cuts. Preferential treatment would be given to private households, hospitals and other critical institutions.

Even without the threat of gas shortages, Germany is at risk of recession as exploding energy costs have hammered industry, forcing some steel producers to curtail production. The government's council of economic advisers on Wednesday more than halved their growth forecast for this year to 1.8 percent. 

Half of Germany's 41.5 million households heat with natural gas while industry accounted for a third of the 100 billion cubic meters of national demand in 2021.

'EVERYTHING WILL BE FINE'

Russia is Germany's top gas supplier, accounting for 40 percent of imports in the first quarter of 2022. Berlin has pledged to end its energy dependency on Moscow but it will not achieve full independence before mid-2024, according to Habeck.

Europe was facing an energy crunch even before Russia invaded Ukraine, with gas storage levels in the EU now at about 26 percent of total capacity, below normal levels at this time of year.

The EU Commission, which said on Wednesday it would work closely with member states to prepare for any gas shortages, has proposed legislation requiring countries to fill levels to at least 80 percent by November but that would be almost impossible if Russia halts supplies.

"It is not possible to build stocks this year and curtail Russian flows," said Joel Hancock, vice president of commodities research at Natixis.

Jean-François Carenco, head of the energy regulator in France, which is far less reliant on Russian gas than Germany, said the country should not encounter any supply issues.

"Everything will be fine, the gas storage facilities are well filled, we'll make it through the winter," he told BFM TV.

Greece was set to hold an emergency meeting of its energy regulator, gas transmission operator and its biggest gas and power suppliers on Wednesday to assess its supply security in case Russia stops supplies.

The Dutch government said it would launch a campaign to get consumers to use less gas.

Investors are watching with growing concern to see how the dispute over Russia's insistence on rouble payments play out as consumers in Europe grapple with exploding energy prices that have forced governments to announce fiscal relief measures.

"Gas markets are still anxious in expectation of clear rules of roubles payment by Thursday," said Rystad Energy senior analyst Vinicius Romano. "Both sides remain at odds over the prospect, of changing the currency terms of dollar and euro contracts, waiting for the other side to blink first."

After Germany's announcement, German year-ahead wholesale electricity set a three-week high of 185 euros per megawatt-hour, up 6.3 percent. 

Kerstin Andreae, head of the Federal Association of the Energy and Water Industry (BDEW), said Germany should have clear plans in place laying out how the government would deal with a gas delivery stoppage that force rationing measures.

"We must now take concrete measures to prepare for the emergency level, because in case of a stoppage things would have to move fast," Andreae said.

(Additional reporting by Holger Hansen in Berlin, Dominique Vidalon and Benoit Van Overstraeten in Paris, Nina Chestney in London, Angeliki Koutantou in Athens and Christoph Steitz in Frankfurt; Editing by Carmel Crimmins)

 

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