Germany activated the "alarm stage", its emergency gas plan, on Thursday (23 June) to respond to falling Russian supplies. However, it did not allow utilities to pass on rising energy costs to customers in Europe’s largest economy.
This latest development in the standoff between Europe, Moscow and Ukraine since the Russian invasion and occupation of Ukraine has exposed Europe's dependence on Russian gas supplies. It also sparked a frenetic search for other energy sources.
This is a symbolic gesture to households and companies, but it marks a significant shift for Germany which has maintained strong energy ties to Moscow since the Cold War.
This week, lower gas flows led to warnings that Germany could be in recession if Russian supplies are not halted. On Thursday, a survey showed that the economy was losing momentum in the second trimester.
"We should not fool ourselves: The cut to gas supplies by (Russian President Vladimir Putin) is an economic attack against us," Economy Minister Robert Habeck stated in a statement.
Habeck stated that gas rationing could be avoided, but not ruled out.
"Gas is now a scarce commodity in Germany. We are now required to reduce our gas consumption, already in summer."
Russia denies that the supply cuts were intentional. Gazprom, the state supplier (GAZP.MM.), blames Western sanctions for the delay in returning serviced equipment. On Thursday, the Kremlin stated that Russia "strictly fulfills all its obligations to Europe".
Berlin will offer a credit line of €15 billion ($15.76bn) to help fill gas storage tanks and launch a gas auction this summer in order to encourage industrial users save gas.
The second stage of an emergency plan, called "alarm", is where authorities consider there to be a high chance of supply shortages in the long-term. It also includes a clause that allows utilities to immediately transfer high prices to households and industry.
Habeck stated that Germany is not at this point. However, the clause could be activated if there is a supply squeeze or price gains, which would push power companies further into the red.
He said that if this minus becomes too big for companies and they can't bear anymore, then the entire market will begin to collapse at some point. This was referring to the 2008 collapse of the U.S. investment banking system that had rippled through global financial markets.
VKU, a local utility association, asked the government for protection of consumers.
Klaus Mueller, President of Federal Network Agency, believes it is possible for gas prices to triple.
He told RTL/ntv broadcasters that it could triple the gas bill if you extrapolate.
Gazprom had anticipated the move to Phase 2 as it cut flow via the Nord
On Thursday, data showed that Germany imported 22% less natural gasoline in the first four months 2022, but the price of gas rose 170% during the same time period.
Germany is facing dwindling supplies from Russia's main supplier. Since late March, Germany has been in Phase 1. This includes stricter monitoring daily flows and a greater focus on gas storage facilities.
E.ON , a German energy provider, stated that the declaration of the alarm stage did not immediately alter the fundamental status quo. However, it was vital that the government prepared and took steps to stabilize gas supplies and markets, according to an emailed statement to Reuters.
The market can still function in the second stage without state intervention, which would be required for the final emergency stage.
Nord Stream 1 will be under maintenance from 11-21 July, when flow restrictions will apply. Consultancy Aurora Energy Services Berlin's Hanns Koenig said Gazprom may find reasons to delay the process.
"Extended maintenance on Nord Stream 1 will further tighten market conditions and make it more difficult to fill gas storage tanks until winter. This is in Russia's strategic interests.
Russia could cut off all gas to Europe in order to increase its political power, warned the head of International Energy Agency (IEA). Europe is urged to prepare for this possibility now.
Operator data indicated that Russian gas flows to Europe via Nord Stream 1 were stable, while reverse flows through the Yamal pipeline edged upwards on Thursday.
The European benchmark for wholesale gas prices in the Netherlands, which rose to 8% Thursday, was the Dutch wholesale gas price.
Many countries have developed measures to resist a supply crunch and prevent winter energy shortages. This could also help to avoid an inflation spike, which could threaten Europe's resolve not to lift sanctions against Russia.
German companies have been forced to make difficult production cuts and turn to more polluting energy sources because of the shortages.
On Thursday, the European Union and Norway announced a deal that would allow them to tap more gas from Norway, which is western Europe's largest producer.
After describing Moscow's gas supply cuts as "rogue moves", the EU signaled a temporary return of coal to fill the gap.
Frans Timmermans, the EU's chief climate policy officer, said that 10 of 27 EU member countries have sent an "early warning", a first of three levels of crisis, regarding gas supply.
He stated that "the risk of full-gas disruption is now more real then ever before."
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