Europe plans to force countries to ration gas as Russia weaponizes energy

The “Save Gas for a Safe Winter” plan announced on Wednesday sets a target for the 27 member states to reduce their gas demand by 15% between August and March next year. This reduction is based on the average gas consumption of the countries during the same months during the previous five years.

The plan is focused on reducing demand from businesses and public buildings, rather than private residences. Among the measures proposed, the European Commission is encouraging industry to switch to alternative energy sources – including coal if necessary – and to introduce auction systems that compensate companies for reducing their gas consumption.

The Commission also hopes to pass a new law that would give it the power to compel states to reduce gas demand “where there is a substantial risk of a serious gas shortage or exceptionally high gas demand”, it said. she said in a press release. Release.

By September, countries will need to update their national gas reduction plans to show how they will meet the new target.

The measures come just a day before officials fear that Gazprom, the Russian state gas company, will refuse to resume deliveries through the Nord Stream 1 gas pipeline. Nord Stream 1 has been closed for the past 10 days for maintenance of routine.

European Commission President Ursula von der Leyen said on Wednesday that a complete Russian gas cut was a “likely scenario”.

“Russia is blackmailing us. Russia is using energy as a weapon,” she told a press conference announcing the new plan.

The pipeline is a vital artery connecting Russia’s vast gas reserves to the mainland via Germany. It delivers 55 billion cubic meters of gas a year, nearly 40% of the bloc’s total pipeline imports from Russia.

Gazprom last month cut pipeline throughputs by 60%, blaming the West’s decision to withhold vital turbines because of sanctions on Russia for its invasion of Ukraine.

Those turbines have since been allowed to travel to Germany from Canada, where they were being repaired, under a sanctions waiver, the Canadian government said last week.

But Russia could still decide to keep the taps closed. The country has already stopped delivering gas to several European countries and energy companies after they refused Russia’s demands to pay for the gas in rubles – a move that would put them in breach of European sanctions.

On Tuesday, Russian President Vladimir Putin said during a visit to Iran that Gazprom would “fully fulfill its obligations” in supplying gas to Europe. But he warned that deliveries could drop 20% next week if he did not receive the turbine, according to a Wall Street Journal report.

Gazprom confirmed on Wednesday Tweeter that it had not yet received the necessary documentation from Siemens, the turbine manufacturer, to enable its delivery to Russia.

Siemens told CNN it would not comment on Gazprom’s claims.

Ongoing uncertainty over Europe’s gas supply has driven benchmark gas prices up around 85% since the invasion in late February, according to the Intercontinental Exchange.

On Wednesday, prices rose 5% to €161 ($165) per megawatt hour as the deadline for reopening the pipeline neared.

Germany in danger

Germany would be particularly vulnerable to a reduction in gas supplies. The region’s largest economy has long depended on Russian gas to power its homes and heavy industry.

In June, the country activated the second of its three-stage emergency gas rationing program days after Russia cut flows through the Nord Stream 1 gas pipeline. Russia in its imports by 55% to 35% since the start of the war, a drastic reduction could seriously limit its ability to fill its gas reserves before winter, and tip the country into a recession. .

On Monday, struggling German gas distributor Uniper withdrew a 2 billion euro ($2.05 billion) credit facility from KfW bank due to the impact of Russian gas supply disruptions .

Robert Habeck, Germany’s economy minister, said earlier this month that the country needed to “prepare for the worst” on Thursday, when the pipeline is due to return to service.

Gas storage levels in the European Union are currently close to 65%, according to Gas Infrastructure Europe.

That’s significantly higher than the same time last year, but still far from the 80% target the bloc has set for its member states to reach by November, said Henning Gloystein, director energy, climate and resources at Eurasia Group, to CNN Business.

“Whether [Nord Stream 1] remains extinguished or only partially returns after maintenance, it will be difficult for Germany and the whole of the EU to achieve this goal, hence the possibility of further political measures to reduce gas consumption,” said said Gloystein.

A “perilous” situation

The bloc is racing to secure alternative gas supplies to avert a potentially catastrophic shortage this winter. But a crisis could come sooner than expected depending on Russia’s next move.

The International Monetary Fund said on Tuesday that a complete shutdown of Russian gas could reduce the GDP of Hungary, Slovakia and the Czech Republic – countries particularly dependent on Moscow’s exports – by up to 6%.

“The time when the crisis will bite deeper is getting closer and closer as we head into summer and then fall, it’s more and more a question of ‘when’ and not ‘if’ the crisis is coming,” Vladimir Petrov, senior analyst at Rystad Energy, said in a Monday note.

Fatih Birol, executive director of the International Energy Agency, called the situation in Europe “perilous” and said it needed to prepare for a “long and harsh winter”.

According to the IEA, even if European countries manage to fill their gas reservoirs to 90% of their capacity, they are still likely to face supply disruptions early next year if Russia decides to cut off gas deliveries from October.

The agency said earlier this week that Europe must find ways to save 12 billion cubic meters of gas – around 3% of its annual consumption – over the next 12 weeks to avoid disaster. It set out a number of actions countries could take, including burning more coal and oil.

“It’s a big ask, but it doesn’t exaggerate the magnitude of what is needed,” Birol said in a press release Monday.

“It is absolutely not enough to rely solely on gas from non-Russian sources – these supplies are simply not available in the volumes required to replace the missing deliveries from Russia,” he added.

— Mark Thompson and Nadine Schmidt contributed reporting.