Russia cuts gas flows as Europe rushes to stock up for winter

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Germany’s largest natural gas storage chamber lies beneath a strip of farmland the size of nine football pitches in the west of the country. The bucolic area has become something of a battleground in Europe’s efforts to defend against an impending Russian-induced gas crisis.

Since last month, the German government has been pumping fuel rapidly into the vast Rehden underground site, hoping to fill it in time for winter, when demand for gas increases to heat homes and businesses.

The scene is repeating itself at storage facilities across the continent, in an energy joust between Europe and Russia that has intensified since Moscow‘s invasion of Ukraine in February.

In the latest sign that Moscow appears determined to punish Europe for its sanctions and military support for Ukraine, Gazprom, Russia’s state-controlled energy giant, last week slashed the amount of of gas it delivers via Nord Stream 1, a critical pipeline serving Germany and other countries. It is not clear if the strangulation is a precursor to a full cut.

This decision added urgency to efforts in Germany, Italy and elsewhere to build gas stocks in a crucial effort to moderate stratospheric prices, reduce Moscow’s political clout and head off the possibility of shortages this winter. Gazprom’s actions have also forced many countries to ease restrictions on power plants burning coal, a major source of greenhouse gases.

“If storage facilities are not filled by the end of the summer, markets will interpret this as a warning of price spikes or even energy shortages,” said Henning Gloystein, director of Eurasia Group. , a political risk company.

Gasoline prices are already extraordinarily high, about six times what they were a year ago. German Finance Minister Christian Lindner has warned that persistently high energy costs threaten to plunge Europe’s biggest economy into an economic crisis, and the government has called on consumers and businesses to save gas.

“There is a risk of a very serious economic crisis because of the sharp increase in energy prices, because of supply chain problems and because of inflation,” Mr. Lindner told the Tuesday. ZDF public television.

The stage was set for an energy crisis last year. A cold spell at the end of winter ate away gas reserves and Gazprom stopped selling any supplies beyond its contractual obligations. Gazprom-owned storage facilities in Germany, including the massive Rehde underground chamber, which the German government took control of in April, have been allowed to shrink to nearly empty.

To avoid a repeat of last year and to guard against supply disruptions, the European Union agreed in May to require member states to fill their storage facilities to at least 80% capacity. by November 1. So far, countries are making good progress. towards this objective, with overall European storage levels at 55%.

The giant Rehden facility is more than 12% full, but Germany, Europe’s biggest gas consumer, has reached an overall level of 58% – both well above levels for the year last at the same time. Other large gas users, including France and Italy, have stores at similar levels, while Spain has more than 77%.

But as storage levels continue to rise, Gazprom’s cuts put those targets in doubt and threaten a crisis next winter, analysts say.

If Nord Stream were shut down completely, “Europe could run out of gas storage in January,” said Massimo Di Odoardo, vice president of gas research at Wood Mackenzie, a consultancy.

Gazprom blamed the reductions on a part of the pipeline that was sent for repairs and did not return in time. But European leaders flatly rejected that argument, and a German regulator said he saw no indication of how a mechanical problem could lead to such declines.

“The Russian side’s justification is just a pretext,” Robert Habeck, Germany’s economy minister, said last week. “That’s obviously the strategy to destabilize and drive up prices.”

The bet succeeds. European gas futures are up around 50% over the past week.

The reduction in supply from the German gas pipeline, which has also affected flows to other European countries, including France, Italy and the Netherlands, has dashed any remaining hopes of European leaders to be able to rely on gas Russian, perhaps the most difficult fuel to replace.

“It is now clear that the contracts we have with Gazprom are no longer worth anything,” said Georg Zachmann, senior researcher at Bruegel, a research institution in Brussels. Analysts say Moscow will likely continue to use gas for maximum leverage, doing what it can to curb Europe’s efforts to fill storage, to keep prices high and increase vulnerability. countries like Germany and Italy to political pressure on energy.

In recent days, the German, Dutch and Austrian governments have all taken steps to try to conserve gas, in part by turning to coal-fired power plants that had been shut down or were due to be phased out. These measures have raised fears that the European Union’s efforts to achieve net zero greenhouse gas emissions by 2050 are being sidetracked.

Bringing back the coal sends a signal “that is inconsistent with the environmental rhetoric of recent years,” said Tim Boersma, director of global natural gas markets at Columbia University’s Center on Global Energy Policy.

The Dutch government continues to resist calls from some quarters to increase production at Groningen, a huge gas field which is closed because production has caused earthquakes there.

In Berlin, Chancellor Olaf Scholz refused to consider keeping the country’s three nuclear power plants online. The reactors are to be shut down at the end of the year as part of the country’s efforts to phase out nuclear power.

Two years ago, Germany decided to phase out coal-fired power plants by 2038, as part of its mission to be carbon-free by 2045. But last week, Mr Habeck, who is a member of the Greens party, announced that the government would temporarily reverse those efforts in response to the gas cuts.

For RWE, a major energy supplier in Germany, the reversal means a reprieve for three plants that were due to close in September. Factories burn soft coal, or lignite, the dirtiest form of fuel. The company is now scrambling to find enough employees to run the factories.

The change will require a workforce of “several hundred positions”, said Vera Bücker, spokeswoman for RWE. Some of them will be filled by delaying employees’ early retirement plans, while others will be new hires for jobs that are expected to be cut by the first part of 2024 when the settlement expires.

The flip-flop on coal is a challenge for energy providers who were focused on transitioning to natural gas as a gateway to renewable energy sources. Now they must find new sources of coal and shelve plans to reduce carbon emissions.

“The amount of carbon dioxide we emit will depend on how long our plants are in operation,” said Markus Hennes, spokesman for Steag, which operates several coal-fired power plants in western Germany. “But our emissions will increase. It’s clear.

More worrying for some environmentalists, Germany and other European countries are rushing to build terminals to receive liquefied natural gas as an alternative to Russian gas.

On Tuesday, EnBW, a German utility, signed a 20-year deal starting in 2026 with Venture Global, a US supplier of liquefied natural gas. In other words, Germany will import gas until 2046 under this agreement.

“We risk locking ourselves into a new era of fossil fuels,” Bruegel’s Zachmann said.

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