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

Germany’s largest natural gas storage room lies beneath nine football field-sized farmlands in the western part of the country. The idyllic region has become a kind of battlefield for European efforts to protect themselves from the impending gas crisis caused by Russia.

Since last month, the German government has hoped to rapidly fuel Rehden’s vast underground site to refuel in time for the burgeoning winter of gas demand to warm homes and businesses.

The scene is repeated in storage facilities across the continent over energy between Europe and Russia, which has been escalating since Moscow’s invasion of Ukraine in February.

In the latest signs that Moscow appears to be punishing Europe for sanctions and military support against Ukraine, Russia’s state-owned energy giant Gazprom last week saw an important pipeline service, Nord Stream 1. Reduced the amount of gas supplied through by 60% in Germany and other countries. It is not clear if the throttle is a precursor to a complete cutoff.

With this move, there is an urgent need to increase gas inventories in Germany, Italy and other regions. In key efforts to ease stratospheric prices, reduce Moscow’s political influence and avoid the possibility of a shortage this winter. Gazprom’s actions have also forced many countries to relax restrictions on power plants that burn coal, the main source of greenhouse gases.

“If storage isn’t full by the end of summer, the market will interpret it as a warning of rising prices and energy shortages,” said Henning Groystein, director of the Eurasia Group, a political risk company. Said.

Gas prices are already unusually high, about six times higher than they were a year ago. Germany’s finance minister, Christian Lindner, warned that sustained high energy costs could put Europe’s largest economy in an economic crisis, and the government urged consumers and businesses to save gas.

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

Last year, the stage of the energy crisis was set. At the end of winter, a cold wave ate up gas reserves and Gazprom stopped selling supplies beyond its contractual obligations. Gazprom-owned German storage facilities, including the huge basement of Rehden, which was dominated by the German government in April, were allowed to be reduced to almost empty.

To avoid repetition last year and prevent supply disruptions, the European Union agreed in May to require member states to fill storage facilities to at least 80% of their capacity by November 1. So far, each country is doing well. Toward this goal, storage levels across Europe are 55%.

Rehden’s huge facilities are more than 12% full, while Germany, Europe’s largest gas consumer, has reached the overall level of 58%. Both are well above this level last year. Other major gas users, including France and Italy, have similar levels of stores, but Spain accounts for more than 77%.

But while storage levels are still rising, gazprom cuts question those goals and threaten the crisis next winter, analysts say.

If Nord Stream is completely closed, “Europe could run out of gas storage in January,” said Massi Modio Doord, vice president of gas research at consulting firm Wood Mackenzie.

Gazprom blamed the reduction of pipeline parts sent for repairs and did not return in time. However, European leaders have flatly rejected this argument, and German regulators show no sign of how mechanical problems could lead to such a reduction. Said.

“Russia’s justification is just an excuse,” said German Minister of Economy Robert Habeck last week. “It’s clearly a strategy to destabilize and push prices up.”

Gambit is successful. European gas futures rose about 50% last week.

The decline in supply to the German pipeline has also affected flows to other European countries, including France, Italy and the Netherlands, and Russian gas, which is probably the most difficult fuel to replace among European leaders. I shattered the hope that I could rely on.

Georg Zackman, senior researcher at Bruegel, a research institute in Brussels, said: Analysts say Moscow will continue to use gas for perhaps maximum leverage, keep prices high, and Europe’s efforts to fill storage to increase the vulnerability of countries like Germany and Italy to political pressure on energy. Says he will do what he can to brake.

More recently, the German, Dutch and Austrian governments have all taken steps to attempt to save gas by looking at coal-fired power plants that have been closed or are scheduled to be phased out. This move has raised concerns that the European Union’s efforts to achieve net zero greenhouse gas emissions by 2050 will not be on track.

Bringing back coal signals a “contradiction to recent environmental rhetoric,” said Tim Boersma, director of the global natural gas market at Columbia University’s Center for Global Energy Policy.

The Dutch government continues to resist calls from several quarters to increase production in the huge gas field Groningen. It is closed because the production there caused an earthquake.

In Berlin, Prime Minister Olaf Scholz refused to consider keeping the country’s three nuclear power plants online. The reactor will be closed at the end of the year as part of an effort to stop the country’s nuclear energy.

Two years ago, Germany decided to phase out coal-fired power plants by 2038, with a mission to be carbon-free by 2045. Temporarily reverse these efforts in response to gas cuts.

For RWE, Germany’s leading energy provider, a reversal means the amnesty of three plants that were to be closed in September. Plants burn soft or lignite, the dirtiest form of fuel. The company is currently struggling to find enough employees to keep the factory up and running.

RWE spokeswoman Vera Bücker said the change would require a workforce of “hundreds of positions.” Some of them will be met by delaying employees’ plans for early retirement, while others will be new hires for jobs that will be phased out by the first half of 2024, when regulations expire. Become.

An overview of coal is a challenge for energy providers who have focused on the transition to natural gas as a bridge to renewable energy sources. Now they have to find a new source of coal and have plans to reduce carbon emissions.

“The amount of carbon dioxide we emit depends on the amount of time our plant needs to be up and running,” said Markus Hennes, a spokesman for Steag, who operates several coal-fired power plants in western Germany. Says. “But our emissions will increase. That’s clear.”

Even more troublesome for some environmentalists is that Germany and other European countries are moving fast to build terminals to accept liquefied natural gas as an alternative to Russia’s gas.

On Tuesday, German power company EnBW signed a 20-year contract with Venture Global, a US provider of liquefied natural gas, beginning in 2026. In other words, Germany will import gas until 2046 under this arrangement.

“We run the risk of being trapped in the era of new fossil fuels,” said Bruegel’s Zackman.