Germany launches gas warning stage and accuses Russia of ‘economic attack’

Pipes are photographed at the landing facilities of the “Nord Stream 1” gas pipeline in Lubmen, Germany, March 8, 2022. REUTERS/Hannibal Hanschke // File Photo

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  • The West and Russia are in an energy crisis since the invasion of Ukraine
  • German minister warns of a “bumpy road” in the future
  • The minister does not rule out gas rationing
  • Russian flows through Nord Stream 1 were stable on Thursday
  • Growing risk of full-blown disruption: Timmermans in the European Union

BERLIN (Reuters) – Germany on Thursday launched the “alert phase” of its emergency gas plan in response to plunging Russian supplies but did not allow utilities to transfer exorbitant energy costs to customers in Europe’s largest economy.

The measure is the latest escalation in the confrontation between Europe and Moscow since the Russian invasion of Ukraine, which exposed the bloc’s dependence on Russian gas supplies and sparked a frantic search for alternative sources of energy.

The decision, announced by the Economy Minister, represents a stark turnaround especially for Germany, which had strong energy ties with Moscow dating back to the Cold War era.

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Declining gas flows sparked warnings this week that Germany could fall into a recession if Russian supplies were halted completely. The S&P Global Purchasing Managers’ Index (PMI) showed on Thursday that the economy was losing momentum in the second quarter. Read more

“We must not deceive ourselves…Cutting off gas supplies is an economic attack on us by (Russian President Vladimir) Putin,” Economy Minister Robert Habeck said in a statement, adding that the Germans would have to cut consumption.

“It is clear that Putin’s strategy is to create insecurity, raise prices, and divide us as a society,” he added. That’s what we’re fighting against.”

Habek said it was hoped to avoid gas rationing, but it could not be ruled out.

Russia and state supplier Gazprom have denied that the cut in gas supplies was premeditated (GAZP.MM) Blame the delay in returning the fitted equipment due to Western sanctions.

Under the phase two plan, Berlin will provide a 15 billion euro ($15.76 billion) credit line to fill gas storage facilities. In addition, a gas auction model will be launched this summer to encourage industrial gas consumers to save on gas.

The government activates the second “alert phase” of a three-phase contingency plan when it sees a high risk of long-term supply shortages. It theoretically allows utilities to pass on higher prices to industry and households and thus help reduce demand. Read more

The move to the next phase has been the subject of speculation since Gazprom reduced flows through the Nord Stream 1 pipeline across the Baltic Sea to just 40% of capacity last week.

Faced with dwindling gas flows from the main supplier Russia, Germany has been since late March in the first stage of its contingency plan, which includes stricter monitoring of daily flows and a focus on filling gas storage facilities.

The risk of total disruption

In the second stage, the market is still able to operate without the need for state intervention that may start in the final emergency stage.

“We have already seen some serious cuts,” said a gas trader in Europe. “The system is still adapting, but there is not much left,” he said.

The record Dutch bulk gas contract for July delivery rose 4% to €131.50/MWh before settling at €128/MWh by 0835 GMT, still higher today.

Nord Stream 1 is scheduled to undergo maintenance on July 11-21 when the flows cease.

Russia may cut off gas from Europe entirely to boost its political influence, the head of the International Energy Agency said on Wednesday, adding that Europe needed to prepare now.

Data from operators showed that Russian gas flows to Europe through Nord Stream 1 and through Ukraine stabilized on Thursday, while reverse flows on the Yamal pipeline rose.

Several European countries have outlined measures to withstand supply pressures and avoid winter energy shortages and high inflation that could test the continent’s resolve to maintain sanctions against Russia.

Supply cuts have also prompted German companies to consider painful production cuts and to resort to polluting forms of energy previously considered unthinkable as they adjust to the prospect of Russia running out of gas. Read more

The European Union signaled on Wednesday that it would temporarily turn to coal to fill an energy shortfall, while calling cuts to gas supplies in Moscow “rogue moves”.

The bloc’s climate policy chief, Frans Timmermans, said on Thursday that 10 out of 27 EU member states had issued an “early warning” about gas supplies – the first and lowest levels of the three crises defined by EU energy security regulations.

“The risk of a complete gas outage is now more realistic than ever,” he said.

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(Reporting by Holger Hansen, Christian Kramer, Vera Eckert, Marwa Rashad, Kate Abnett, Nora Polly; Writing by Matthias Williams; Editing by Tomasz Janowski

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