Russia Cuts Gas Flows as Europe Races to Stock Up for Winter

Russia Cuts Gas Flows as Europe Races to Stock Up for Winter

Germany’s largest natural gas storage chamber stretches under a swath of farmland the size of nine football fields in the western part of the country. The bucolic area has become something of a battlefield in Europe’s effort to fend off an impending Russian-driven gas crisis.

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

The scene is repeated in storage facilities across the continent, in an energy joust between Europe and Russia that has been intensifying since Moscow’s invasion of Ukraine in February.

In the latest sign that Moscow appears intent on punishing Europe for sanctions and military support for Ukraine, Gazprom, the Russian state-controlled energy giant, last week cut by 60 percent the amount of gas it delivery via Nord Stream 1, a critical gas pipeline serving Germany and other countries. It is unclear if strangulation is a precursor to a full cut.

The move has added urgency to efforts in Germany, Italy and elsewhere to build up gas inventories. in a crucial effort to temper skyrocketing prices, reduce Moscow’s political clout and stave off the possibility of shortages this winter. Gazprom’s actions have also forced many countries to relax their restrictions on power plants that burn coal, a major source of greenhouse gases.

“If storage facilities aren’t full by the end of the summer, markets will interpret that as a warning of price increases or even power shortages,” said Henning Gloystein, a director at Eurasia Group, a political risk firm.

Gasoline prices are already extraordinarily high, about six times what they were a year ago. Germany’s finance minister, Christian Lindner, warned that persistently high energy costs threatened to plunge Europe’s largest economy into economic crisis, and the government called on consumers and businesses to save gas.

“There is a risk of a very serious economic crisis due to sharply rising energy prices, supply chain problems and inflation,” Lindner told ZDF public television on Tuesday.

The stage was set for an energy crisis last year. A cold snap in late winter devoured gas reserves and Gazprom stopped selling supplies beyond its contractual obligations. Gazprom-owned storage facilities in Germany, including the huge underground vault in Rehde, which the German government took control of in April, were allowed to shrink to almost empty.

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

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

But while storage levels are still rising, Gazprom’s cuts call those goals into question and threaten a crisis next winter, analysts say.

If Nord Stream were to 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 consulting firm.

Gazprom blamed the cuts on a part of the pipeline that was sent for repair and was not returned on time. But European leaders have roundly rejected this argument, and a German regulator said he saw no indication how a mechanical problem could result in such declines.

“The justification on the Russian side is simply a pretext,” Robert Habeck, Germany’s economics minister, said last week. “Obviously it is the strategy to destabilize and drive prices up.”

The gambit is succeeding. European gas futures have risen 50 percent over the past week.

The reduction of supplies to the German pipeline, which also affected flows to other European countries such as France, Italy and the Netherlands, shattered any remaining hopes among European leaders that they could count on Russian gas, perhaps the most difficult fuel to obtain. replace.

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

In recent days, the governments of Germany, the Netherlands and Austria have taken steps to try to conserve gas, in part by turning to coal-fired power plants that had been closed or were scheduled for phase-out. The moves have raised concerns that the European Union’s effort to achieve net-zero greenhouse gas emissions by 2050 could be sidetracked.

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

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

In Berlin, Chancellor Olaf Scholz has refused to consider keeping the country’s three nuclear power plants in operation. The reactors are scheduled to be shut down by 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-burning power plants by 2038, in its mission to be carbon-free by 2045. But last week, Habeck, who is a member of the Green party, announced that the government would be temporarily reversing those efforts in response to gas cuts.

For RWE, a major energy provider in Germany, the reversal means a reprieve for three plants that were supposed to close in September. The plants burn soft coal or lignite, the dirtiest form of fuel. The company is now struggling to find enough employees to keep the plants running.

The change will require a workforce of “several hundred positions,” said Vera Bücker, a spokeswoman for RWE. Some of them will be covered by delaying plans for employees to retire early, while others will be new hires for jobs that are scheduled to be phased out in the early part of 2024, when the regulation expires.

The radical shift away from coal is a challenge for energy providers who were focusing on the transition to natural gas as a bridge to renewable energy sources. Now they have to find new sources of coal and shelve plans to cut carbon emissions.

“The amount of carbon dioxide we emit will depend on how long our plants need to run,” said Markus Hennes, the spokesman for Steag, which runs several coal plants in western Germany. “But our emissions will increase. That’s clear.”

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

On Tuesday, EnBW, a German utility company, signed a 20-year agreement 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 ushering in a new era of fossil fuels,” said Bruegel’s Mr. Zachmann.

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