Following a decline in Russian supply, Germany has moved one step closer to gas rationing.

According to Germany’s economy ministry, the government has activated the “alert” level of its emergency gas plan to deal with shortages. It is the latest development in a dispute between the European Union and Russia over Russia’s invasion of Ukraine.

In reaction to EU sanctions, Russia is using gas “as a weapon,” according to German Economy Minister Robert Habeck.

“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.

Habeck stated that rationing gas for German industry would “hopefully never” be necessary, but added, “Of course, I can’t rule it out.”

Germany has already reached the second level of its three-part emergency plan, which is activated when there is an interruption or extremely high demand for gas.

The government will lend €15 billion to try to fill gas storage facilities and will begin auctioning gas to industry to encourage large enterprises to use less.

Moving to stage two of the strategy increases the pressure on suppliers and network operators to mitigate interruption by taking steps such as seeking alternate gas sources.

However, the country refrained from allowing utilities to pass on rising costs to customers, despite the fact that this is theoretically feasible under stage two.

Under the first stage of the emergency plan, gas companies already had to secure supply, while gas network operators had to report to the Economy Ministry at least once a day, and electricity grid operators had to ensure grid stability.

State involvement occurs in the third stage when there is a major disruption in supply that the market cannot handle, resulting in rationing of supplies.

Supply to industry would be reduced first in the third stage, while households and vital institutions such as hospitals would continue to receive available gas.

Russian gas supply cuts have already impacted twelve European Union countries, according to EU climate policy leader Frans Timmermans on Thursday.

Russia reduced flows through its Nord Stream 1 pipeline to 40% capacity last week, claiming equipment difficulties that impacted countries including Germany.

Nord Stream 1 will be shut down for repairs from July 11 to July 21.

Fatih Birol, the chairman of the International Energy Agency, has warned that Russia may cut off all gas supply to Europe and that Europe must prepare immediately.

Due to their failure to comply with a new payment structure, Russia has already interrupted gas supplies to Poland, Bulgaria, the Netherlands, Denmark, and Finland.

Germany’s industrial strength has benefited greatly from its access to inexpensive Russian energy. Those faucets are now being turned off.

The German government claims to have a staged plan in place to address all energy dependency on Russia. It’s been simple with coal because they can just buy it shipped from places like South Africa and Colombia. Except for one refinery connected to a pipeline from Russia, oil is mostly supplied via tanker.

However, gas requires major investment in alternative infrastructure, including LNG terminals that allow for the purchase of transported gas from throughout the world. Normally, this takes years, but Germany is looking towards floating terminals, which some say might be ready by the end of the year. Further permanent terminals will take about two years to build, as part of Germany’s effort to reduce its reliance on Russian gas from 55 per cent to 10 per cent.

But there’s also the far bigger question of where the shipped gas originates from. Even before a fire at a critical US export facility, 155 billion cubic metres of Russian gas transported to Europe through pipeline must be obtained from the present 500 billion cubic metre market for shipping LNG.

(Adapted from CNBC.com)

Categories: Economy & Finance, Geopolitics, Regulations & Legal, Strategy, Sustainability