Germany Takes Step Closer to Gas Rationing With Raised Alert

  • In Business
  • 2022-06-23 08:29:20Z
  • By Bloomberg

(Bloomberg) -- Germany elevated the risk level in its national gas emergency plan to the second-highest "alarm" phase, following steep cuts in supplies from Russia.

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The heightened alert tightens monitoring of the market, and some coal-fired power plants will be reactivated, the Economy Ministry said in a statement on Thursday. The government said it would hold off on an option of enacting legislation to allow energy companies to pass on cost increases to homes and businesses.

"It will be a rocky road that we have to travel as a country," Economy Minister Robert Habeck. "Even if we don't feel it yet, we are in a gas crisis."

Europe's largest economy faces the unprecedented prospect of businesses and consumers running low on energy as Russian President Vladimir Putin gradually squeeze supplies. The standoff escalated last week after steep cuts to the main gas link to Germany.

Dutch front-month gas futures, the European benchmark, rose 1.7% to 129.30 euros ($136.62) per megawatt-hour in Amsterdam. The contracts have gained more than 50% since state-owned gas giant Gazprom PJSC cut flows on the key Nord Stream pipeline by about 60%.

Germany, which relies on Russia for more than a third of its gas supplies, enacted the initial "early warning" phase at the end of March, when the Kremlin's demands for payment in rubles prompted Germany to brace for a potential cutoff in supply. The third and highest "emergency" level would involve state control over distribution.

Habeck, who is also vice chancellor, said Russia's move to cut gas deliveries through the Nord Stream pipeline makes it all but impossible to secure sufficient gas reserves without additional measures. He indicated he's concerned that the Nord Stream link may not return to normal capacity after a 10-day maintenance period starts on July 11.

The government's latest move comes as Germany rushes to fill up gas-storage facilities, which are currently around 58% full. Energy companies have been building stocks to try to reach a government-mandated target of 90% capacity by November to help see the nation through the winter.

The daily fill rate dropped by about half on Wednesday to the lowest level since early June, according to figures from Germany network regulator, known as BNetzA. At that rate, it would take more than 100 days to reach the target, which would put the country well into the traditional heating season.

BNetzA would implement rationing if the government triggers the emergency level. The Bonn-based agency has said leisure venues would likely see supply cuts, while consumers and critical public services such as hospitals would be protected.

The regulator has appointed 65 staffers who will work around the clock in shifts to troubleshoot if there's a major interruption. Operating out of an annex at its headquarters near the Rhine river, the teams will be charged with making decisions that could determine the fate of some of Europe's biggest industrial firms and hundreds of thousands of jobs.

Gas is a crucial part of Germany's energy mix and more difficult to replace than Russian coal and oil, which are being phased out by the end of the year. Some 15% of Germany's electricity is generated from gas, which is also critical for heating homes and for industrial processes in the chemicals, pharmaceuticals and metals sectors.

Germany has taken steps to secure supplies, including taking control of a local Gazprom subsidiary, which was renamed Securing Energy for Europe GmbH. The country is also building infrastructure to import liquefied natural gas from the US and other suppliers.

The government is making available additional credit lines by state-owned lender KfW to guarantee gas injections at storage sites. An auction model will begin this summer to encourage industrial gas consumers to save fuel, which can then be put into storage.

"The curbing of gas supplies is an economic attack on us by Putin," said Habeck. "It is obviously Putin's strategy to try to fuel insecurity, drive up prices and divide us as a society. We will fight back against this."

(Updates with additional details and comments)

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