Germany Raises Gas Supply Alarm Level, Fearing Russian Supply Cut
By Geoffrey Smith
Investing.com — Germany will move a step closer to rationing supplies of natural gas, fearing a total cut-off of supplies from Russia, German newswire dpa cited unnamed officials as saying, announced on Thursday.
Europe’s largest economy will trigger the second phase – ‘Alarm (NASDAQ:ALRM)’ – of a three-phase plan to guarantee security of supply, making it easier for utilities to restart coal-fired power stations in order to ensure constant electricity supply. However, Vice-Chancellor and Economy Minister Robert Habeck said that the government won’t immediately activate a clause in the plan that would allow suppliers to immediately pass on the sharp increase in their import costs.
“Gas supply is currently guaranteed. But the situation is tight,” the Economy Ministry said in a statement on Thursday.
Germany’s decision comes a week after Russia cut the supply of gas to its largest customer by 60%, blaming the absence of compression equipment that has gotten stuck in Canada due to Ottawa’s sanctions. However, Russia’s gas export monopoly Gazprom (MCX:GAZP) has chosen not to supply gas volumes via an alternative route through Ukraine. It has also cut supplies to Italy, which doesn’t use Nord Stream. Habeck rejected Gazprom’s explanations and said the move was “politically motivated”.
Supplies from Russia are set to drop temporarily to zero on July 11 when the Nord Stream pipeline, which brings Russian gas directly to Germany under the Baltic Sea, will be taken offline for scheduled maintenance. Such maintenance periods generally last for 10 days. However, even if they return to their current level, the Economy Ministry said measures are needed immediately to reduce gas consumption. Already at the weekend, it announced plans for an auction system for large users to incentivize them to cut demand.
“If Russian gas supplies through the Nord Stream 1 pipe stay at the low level of 40%, it will hardly be possible to guarantee a storage level of 90% by December without additional measures,” the Ministry said in a statement.
Germany’s gas storage is currently 58% full, slightly more than at the same stage last year, and roughly in line with long-term averages. Moreover, current demand is also at its seasonal low. However, for it to be able to meet the seasonal rise in demand from households and utilities in winter, it needs to fill its storage facilities over the summer. That is effectively impossible in the absence of Russian gas supplies over the summer..