Germany prepares for gas rationing, Europe on the verge of confrontation with Russia

  • Europe fears Moscow will cut gas supply
  • Kremlin says ruble payments are a good idea for other commodities
  • Kremlin says it will not immediately demand rubles for gas
  • Economic stagnation increases the risk of recession in Europe

BERLIN/FRANKFURT, March 30 (Reuters) – Germany on Wednesday activated an emergency plan to manage gas supplies that could see Europe’s biggest economy ration energy if a clash over Russia’s demand to pay for fuel in rubles interrupt or stop supply.

Moscow’s insistence on ruble payments for Russian gas that meets a third of Europe’s annual energy needs has prompted others in Europe: 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. Read more

The demand for rubles, which has been rejected by G7 nations, is in retaliation for the West’s imposition of crippling sanctions on Russia following its invasion of Ukraine. Read more

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Moscow, which calls its actions in Ukraine a “special military operation,” says the Western measures amount to “economic warfare.”

Russia’s top lawmaker said on Wednesday that Russia could expand demand for ruble payments to other commodities including oil, grain, fertilizer, coal and metals, raising the risk of recession in Europe and the United States.

Moscow is expected to make its ruble payment plans public on Thursday, though it said it will not immediately require buyers to pay for gas exports in the currency. Read more

Western countries have said payment in rubles would breach contracts that may take months or more to renegotiate, a prospect that has pushed commodity markets higher.

It would also soften the impact of sanctions on Russia by boosting the currency after it was hit by Western restrictions on Moscow’s access to its foreign reserves.

Berlin’s unprecedented move is the clearest signal yet that the European Union is preparing for Moscow to cut off gas supplies unless it receives payment in rubles. Italy and Latvia have already activated alerts.

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

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

THE INDUSTRY FIRST IN LINE FOR CUTS

If supplies fall short, Germany’s grid regulator may ration gas, with industry first in line for cuts. Preferential treatment would be given to private homes, hospitals and other critical institutions.

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

German industry is at particular risk, the BDI association said on Wednesday, calling for measures, including loans and state holdings, to prevent companies from going bankrupt.

This could see industrial production shrink by as much as 9%, depending on the length of any disruption, Deutsche Bank senior economist Eric Heymann told Reuters.

The government’s council of economic advisers more than halved its growth forecast for this year to 1.8% on Wednesday. {nL2N2VX1PL]

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Half of Germany’s 41.5 million homes are heated by natural gas, while the industry accounted for a third of the 100 billion cubic meters of national demand in 2021.

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

Europe faced an energy crisis even before Russia invaded Ukraine. Gas storage levels in the European Union are around 26% of total capacity, below normal levels for 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 fill levels to at least 80% by November, but that would be nearly impossible. if Russia stops supplies.

The target of filling storage would not apply if the European Commission declared a gas supply emergency at the EU or regional level, which it can do if at least two countries declare an emergency first.

‘EVERYTHING WILL BE FINE’

Jean-François Carenco, head of the energy regulator in France, which relies much less on Russian gas than Germany, due to pipelines and liquefied natural gas from other sources and the dominance of nuclear power for power generation, said the country you should not encounter any supply issues.

“Everything will be fine, the gas storage facilities are well filled, we will survive the winter,” he told BFM TV.

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

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

Investors are watching to see how the dispute over Russia’s insistence on ruble payments plays out as consumers in Europe grapple with energy prices that have forced governments to announce fiscal relief measures.

This month has been the most expensive month for energy prices in European history, although markets will end the month lower than in early March.

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

Kerstin Andreae, director of the Federal Association of the Energy and Water Industry (BDEW), said Germany should have clear plans for how the government would deal with a gas supply disruption that forced rationing.

“Now we need to take concrete steps to prepare for the emergency level, because in the event of a stoppage, things would have to move fast,” Andreae said.

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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; Edited by Carmel Crimmins and Barbara Lewis

Our standards: The Thomson Reuters Trust Principles.

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