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

The Astora natural gas depot, which is Western Europe’s largest natural gas storage, is pictured in Rehden, Germany, March 16, 2022. Astora is part of the Gazprom Germania group. REUTERS/Fabian Bimmer Reuters_tickers

This content was published on March 30, 2022 – 18:02

By Joseph Nasr and Vera Eckert

BERLIN/FRANKFURT (Reuters) – Germany on Wednesday triggered a contingency plan to manage gas supplies that could see Europe’s biggest economy ration power if a stalemate over a Russian demand to pay for fuel in rubles disrupts or interrupts the supply.

Moscow’s insistence on ruble payments for Russian gas that meets a third of Europe’s annual energy needs has galvanized others in Europe: Greece has called an emergency meeting of suppliers, the government Dutch said it would urge consumers to use less gas and France’s energy regulator told consumers not to panic.

The request for rubles, which was rejected by the Group of Seven nations, is in retaliation for crippling Western sanctions against Russia following its invasion of Ukraine.

Moscow, which says it is carrying out a “special military operation”, qualifies the Western measures as “economic warfare”.

Russia’s top lawmaker said on Wednesday that Russia could also demand ruble payments for other commodities, including oil, grains, fertilizers, coal and metals, raising the risk of a recession in Europe and in the USA.

Moscow is expected to release its ruble payment plans on Thursday, although it said it would not immediately require buyers to pay for gas exports in the currency.

Russian President Vladimir Putin and German Chancellor Olaf Scholz agreed in a call that experts from their countries would discuss how payment for Russian gas exports could be made in roubles, TASS news agency reported. .

Separately, Putin presented the ruble plan during a phone call with Italian Prime Minister Mario Draghi, Draghi’s office said.

Two Russian sources told Reuters that one of the options for the change, Russia planned to maintain contract prices for gas exported to “unfriendly” countries, but demanded that payment be made in ruble equivalent on an agreed settlement day. in advance.

Western countries have said paying in rubles would violate contracts that can take months or more to renegotiate, a prospect that has pushed up commodity prices.

It would also lessen the impact of Western restrictions on Moscow’s access to its foreign exchange reserves and strengthen its currency.

The European Union is preparing new sanctions against the Kremlin, European sources told Reuters on Wednesday, with their scope depending on Moscow’s stance on ruble gas payments.

INDUSTRY’S FIRST LINE FOR CUTS

Berlin’s unprecedented decision is the clearest sign that the European Union is preparing for Moscow to cut gas supplies unless it is paid for in roubles. Italy and Latvia have already activated the warnings.

German Economy Minister Robert Habeck implemented the “early warning phase” of an existing gas emergency plan, where a crisis team from the economy ministry, regulator and industry private sector will monitor imports and storage.

Habeck told reporters that Germany’s gas supply was guaranteed for now, but urged consumers and businesses to reduce consumption, saying “every kilowatt-hour counts”.

If supply is insufficient, Germany’s grid regulator can ration gas, with industry on the front line for cuts and preferential treatment for private households, hospitals and other critical institutions.

Even without the threat of gas shortages, Germany could face recession as rising energy costs have already forced companies, including steel and chemical makers, to cut production .

Germany’s industry association BDI on Wednesday called for government support, including loans and state stakes, to prevent companies from going bankrupt, as government economic advisers slashed growth forecasts this year because of the Ukrainian crisis. {nL2N2VX1PL]

Half of Germany’s 41.5 million households use natural gas for heating, while industry accounts for around a third of national demand. Russia is Germany’s biggest gas supplier, accounting for 40% of imports in the first quarter of 2022. Berlin has pledged to end its energy dependence on Moscow, but it will not succeed before mid-2024, according to Habeck.

Europe faced an energy crisis even before Russian troops entered Ukraine on February 24, with European Union gas storage levels at around 26% of total capacity, below levels normal at this time of year.

The European Commission, which said on Wednesday it would work closely with member states to prepare for any gas shortages, has proposed legislation requiring countries to meet levels to at least 80% by November, but this would be nearly impossible without Russian supplies.

The 80% target would not apply if the European Commission declares an EU-wide or regional gas supply emergency – which it can do if at least two countries declare an emergency first .

‘EVERYTHING WILL BE ALRIGHT’

Jean-François Carenco, head of the energy regulator in France, which is much less dependent on Russian gas than Germany, thanks to gas and liquefied natural gas sourced elsewhere and its dependence on nuclear power plants, r electricity production, said said the country should not encounter supply problems.

“Everything will be fine, the gas storages are full, we will spend the winter,” he told BFM TV.

Greece was due to hold an emergency meeting of its energy regulator, gas transmission operator and major gas and electricity suppliers on Wednesday to assess its security of supply in case Russia halts its supplies.

The Dutch government has announced that it will launch a campaign to encourage consumers to use less gas.

Investors are watching to see how the dispute over Russia’s insistence on ruble payments unfolds as European consumers grapple with energy prices that have forced governments to announce tax relief measures .

This month was the most expensive month for power prices in European history, although markets are expected to end the month at levels lower than early March.

After Germany’s announcement, German year-round wholesale power hit a three-week high of 185 euros per megawatt-hour, up 6.3%.

Kerstin Andreae, head of the Federal Association of the Energy and Water Industry (BDEW), said Germany should have clear plans on how the government would deal with a halt in the delivery of gas that forced rationing.

“Now we need to take concrete steps to prepare for the emergency level, because in the event of a shutdown, things should go quickly,” Andreae said.

(Additional reporting by Holger Hansen and Rene Wagner 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, Barbara Lewis and Tomasz Janowski)

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