High Dimension

Germany risks recession as Russian gas crisis deepens

Pipes from the landing facilities of the ‘Nord Stream 1’ gas pipeline are pictured in Lubmin, Germany March 8, 2022. REUTERS/Hannibal Hanschke/File Photo

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  • More and more Europeans are activating the first stage of gas crisis plans
  • Soaring gasoline prices add to policymakers’ inflation puzzle
  • The slowdown in flows is hampering efforts to fill the storage for the winter
  • “We have a problem”, says the German regulator

BERLIN/COPENHAGEN, June 21 (Reuters) – Germany faces some degree of recession if the already tight Russian gas supply comes to a complete halt, an industry body warned on Tuesday, while Italy said ‘She would consider offering financial support to help companies replenish gas storage to avert a deeper crisis. in winter.

European Union states, from the Baltic Sea in the north to the Adriatic in the south, have mapped out measures to deal with a supply crisis after the Russian invasion of Ukraine put energy at the heart of an economic battle between Moscow and the West.

The EU depended on Russia for up to 40% of its gas needs before the war – rising to 55% for Germany – leaving a huge gap to fill in an already tight global gas market. Some countries have temporarily canceled plans to shut down coal-fired power plants in response.

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Gas prices have risen to record highs, driving inflation soaring and adding to challenges for policymakers trying to pull Europe out of an economic precipice.

Germany’s industry association BDI on Tuesday slashed its 2022 economic growth forecast to 1.5%, revising it down from the 3.5% expected before the war began on Feb. 24. She said a halt in Russian gas supplies would make recession inevitable in Europe’s biggest economy. Read more

Russian gas is still pumped through Ukraine, but at a reduced rate and the Nord Stream 1 gas pipeline under the Baltic, a vital supply route to Germany, is operating at only 40% capacity, which , according to Moscow, is because Western sanctions are hampering reparations. Europe says it’s a pretext to reduce flows.

German Economy Minister Robert Habeck said on Tuesday the cut in supplies was an economic attack and part of Russian President Vladimir Putin’s fearmongering plan.

“It’s a new dimension,” Habeck said. “This strategy cannot be allowed to succeed.”

The slowdown has hampered efforts across Europe to fill storage facilities, now around 55% full, to reach a European target of 80% by October and 90% by November, a level that would help the block weather the winter if supplies were further disrupted. .

Italy’s Ecological Transition Minister Roberto Cingolani said Italy needed to step up its filling efforts and Rome should consider how to help companies finance gas purchases for storage.

An Italian government source said a state guarantee could be an option to reduce the cost of financing.

“Gas is currently so expensive that operators cannot invest money in it,” Cingolani said. Read more

Europe’s benchmark gas price was trading around 126 euros ($133) per megawatt-hour (MWh) on Tuesday, below this year’s peak of 335 euros but still up more than 300% from its level a year ago.

‘WE HAVE A PROBLEM’

Italy, along with others, such as Austria, Denmark, Germany and the Netherlands, has activated the first early warning stage of its three-step plan to deal with a crisis of gas supply.

As part of Germany’s contingency plans, gas regulator Bundesnetzagentur has outlined details of a new auction system that will kick off in the coming weeks, aimed at encouraging manufacturers to use less gas.

The head of the Bundesnetzagentur wondered if the current gas supplies would get the country through the winter, although he said earlier it was too early to declare a full emergency, or the third stage of the plan of crisis.

“As things stand, we have a problem,” Bundesnetzagentur president Klaus Mueller said on the sidelines of an industry event in the German city of Essen.

The CEO of Germany’s largest power company RWE (RWEG.DE), Markus Krebber, said Europe had little time to come up with a plan.

“How would we redistribute the gas if we were completely cut off? There is currently no plan … at European level … because each country is looking at its emergency plan,” he said at the same event.

The high European price has attracted more liquefied natural gas (LNG) cargoes, but Europe lacks the infrastructure to meet all its LNG needs, a market that was already tight before the war in Ukraine.

Disruptions to a major US LNG producer that was shipping to Europe add to the challenge.

Europe is seeking more pipeline supplies from its own producers, such as Norway, and other states, including Azerbaijan, but most producers are already pushing production boundaries.

As the crisis spreads across Europe, even small consumer Sweden has joined its European allies in triggering the first stage of its energy crisis plan.

The national energy agency said on Tuesday supplies were still strong, but it was warning “industry players and gas consumers connected to the gas network in western Sweden that the gas market is tense and that a deterioration of the gas supply situation could occur”.

Sweden, where gas accounted for 3% of energy consumption in 2020, depends on piped gas supplies from Denmark, where storage facilities are now 75% full. Denmark activated the first stage of its emergency plan on Monday.

($1 = 0.9477 euros)

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Reporting by Rachel More and Paul Carrel in Berlin, Stine Jacobsen in Copenhagen, Nina Chestney in London, Giuseppe Fonte and Francesca Landini in Rome, Christoph Steitz and Vera Eckert in Frankfurt; Written by Edmund Blair and Barbara Lewis; Editing by Carmel Crimmins and Mark Potter

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