Germany takes step closer to gas rationing

4 days ago 14

Gas pipelineImage source, Getty Images

Germany has taken a step closer to gas rationing after a drop in supplies from Russia.

The country has triggered the "alarm" stage of an emergency gas plan to deal with shortages, Germany's economy ministry said.

It is the latest part of a standoff between the European Union and Russia over its invasion of Ukraine.

German economy minister Robert Habeck said Russia was using gas "as a weapon" in response to EU sanctions.

"We must not fool ourselves. The cut in gas supplies is an economic attack on us by [Russian President Vladimir] Putin," Mr Habeck said, adding Germans would have to reduce consumption.

"It is obviously Putin's strategy to create insecurity, drive up prices and divide us as a society," he added. "This is what we are fighting against."

Mr Habeck said there would "hopefully never" be a need to ration gas for German industry, but he added: "Of course, I can't rule it out."

Emergency plan

Germany has now moved to the second stage of its three-part emergency plan, which is triggered when there is disruption or very high demand for gas.

The German government will provide €15bn (£13bn) of loans in an attempt to fill gas storage facilities.

It will also start to auction gas to industry to encourage big businesses to use less.

Moving to stage two of the plan puts more pressure on suppliers and network operators to balance out disruption by taking measures such as finding alternative sources for gas.

However, the country stopped short of letting utilities pass on soaring costs to customers, although that is theoretically possible under stage two.

Gas firms already had to ensure supplies under the first stage of the emergency plan, while gas network operators were reporting to the Economy Ministry at least once a day, and electricity grid operators had to ensure grid stability.

State intervention would happen under the third stage when there is a significant disruption to supply which the market cannot cope with, meaning supplies are rationed.

In the third stage, supply to industry would be restricted first, while households and critical institutions such as hospitals would continue to get available gas.

Twelve European Union countries have now been affected by cuts to gas supply from Russia, EU climate policy chief Frans Timmermans said on Thursday.

Russia cut flows through its Nord Stream 1 pipeline to 40% of capacity last week citing problems with equipment, affecting countries including Germany.

Nord Stream 1 is due to undergo maintenance from 11 to 21 July when flows will stop.

The head of the International Energy Agency, Fatih Birol, has warned that Russia may cut off gas supplies to Europe entirely and that Europe needs to prepare now.

Russia has already cut gas supplies to Poland, Bulgaria, the Netherlands, Denmark and Finland over their refusal to comply with a new payment scheme.

'All bets are off'

Nathan Piper, head of oil and gas research at Investec, said the continuing restrictions to gas supplies from Russia to Europe was a "worrying development".

"Effectively, all bets are off on what could happen next," he said. "Any pretence that Russia is a reliable provider of gas supplies has gone."

During the summer months disrupted gas supplies are "less of a pressing concern", but he said the situation could become worse as winter approaches and people need more heating.

Whether Germany has to start rationing gas "remains to be seen", but if prices surge into the winter German industry is likely to start rationing by itself as the use of gas becomes uneconomical, he said.

German industry is already looking at how it will cope with a supply squeeze, with some firms considering resorting to energy sources that were previously being phased out.

Chemical giant BASF is looking at which factories could cut output first, Reuters reported, and rival Lanxess may delay shutting some coal-fired power plants.

Kelheim Fibres, which supplies Proctor & Gamble among others, is looking at fitting out its gas power plant to run on oil.

"Oil has only one advantage: supply is secure," Wolfgang Ott, who is in charge of corporate social responsibility at the firm, told Reuters.

In the UK, coal plants have been asked to stay open longer, and the government is considering whether to let a new coal mine in Cumbria go ahead.

This is despite global efforts to reduce coal consumption to try to limit the impact of climate change.

UK impact

The Ukraine war has hit the UK economy in a number of ways, such as by pushing up energy bills.

Inflation - how quickly prices rise across the board - continued at its fastest rate for 40 years in the UK in May, with fuel and energy costs its biggest drivers.

While the UK gets less than 5% of its gas from Russia, UK gas prices are affected by fluctuations in the global markets.

"Higher prices in Europe will mean UK gas prices rise too as gas users compete for the same limited sources of alternative supply," Mr Piper said.

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