Russia cuts gas flows as Europe races to stock up for winter

Germany’s largest natural gas storage chamber extends beneath a swath of farmland the size of nine football fields in the western part of the country. The bucolic area has become something of a battleground in Europe’s effort to defend itself against an impending Russian-driven gas crisis.

Since last month, the German government has been rapidly pumping fuel into the vast underground site in Rehden, hoping to fill it in time for winter, when demand for gas soars to heat homes and businesses.

The scene is repeating itself at storage facilities across the continent, in an energy dispute between Europe and Russia that has escalated since Moscow’s invasion of Ukraine in February.

In the latest sign that Moscow appears intent on punishing Europe for sanctions and military support for Ukraine, Gazprom, the Russian state-controlled energy giant, last week cut the amount of gas it supplies via Nord Stream by 60%. 1, a critical pipeline serving Germany and other countries. It’s unclear whether the strangulation is a precursor to a full cut.

The move added urgency to efforts in Germany, Italy and elsewhere to build up gas inventories. in a crucial effort to moderate skyrocketing prices, reduce Moscow’s political clout and avoid the possibility of shortages this winter. Gazprom’s actions also forced many countries to ease restrictions on power plants that burn coal, a major source of greenhouse gases.

“If the storage facilities are not full by the end of the summer, markets will interpret this as a warning of rising prices or even power shortages,” said Henning Gloystein, director of the Eurasia Group, a political risk firm.

Gas prices are already extraordinarily high, about six times what they were a year ago. German Finance Minister Christian Lindner has warned that persistently high energy costs threaten to plunge Europe’s largest economy into economic crisis, and the government has urged consumers and businesses to save gas.

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

The stage was set for an energy crisis last year. A cold snap at the end of winter drained the gas reserves, and Gazprom stopped selling any supplies beyond its contractual obligations. Gazprom-owned storage facilities in Germany, including the massive underground chamber in Rehde, which the German government took over in April, have been reduced to nearly empty.

To avoid a repeat of last year and to guard against supply disruptions, the European Union agreed in May to require member states to fill their storage facilities to at least 80% capacity by November 1. So far, countries are making good progress towards this target, with overall storage levels in Europe at 55%.

The giant facility in Rehden is more than 12% full, but Germany, Europe’s biggest gas consumer, has reached an overall level of 58% – both well above levels this time last year. Other big gas users, including France and Italy, have stores at similar levels, while Spain has more than 77%.

But while storage levels are still rising, Gazprom’s cuts put those goals in doubt and threaten a crisis next winter, analysts say.

If Nord Stream is completely shut down, “Europe could run out of gas in January,” said Massimo Di Odoardo, vice president of gas research at Wood Mackenzie, a consulting firm.

Gazprom blamed the cuts on a part of the pipeline that was sent in for repairs and did not return in time. But European leaders categorically rejected that argument, and a regulator in Germany said he saw no indication of how a mechanical problem could result in such reductions.

“The Russian side’s justification is simply a pretext,” Robert Habeck, Germany’s economy minister, said last week. “Obviously it’s the strategy to destabilize and drive prices up.”

The play is working. European gas futures are up about 50% in the last week.

The reduction in supplies from the German pipeline, which has also affected flows to other European countries including France, Italy and the Netherlands, has dashed any remaining hope among European leaders that they can count on Russian gas, perhaps the most difficult fuel to to replace.

“It is now clear that the contracts we have with Gazprom are no longer worth anything,” said Georg Zachmann, a senior fellow at Bruegel, a research institution in Brussels. Analysts say Moscow will likely continue to use gas for maximum leverage, doing what it can to rein in Europe’s efforts to fill up storage to keep prices high and increase the vulnerability of countries like Germany and Italy to political pressure on energy. .

In recent days, the governments of Germany, the Netherlands and Austria have taken steps to try to save gas, in part by resorting to coal-fired power plants that have been closed or scheduled to be phased out. The measures have raised concerns that the European Union’s effort to achieve net-zero greenhouse gas emissions by 2050 will be sidetracked.

Bringing back coal sends a signal “that is inconsistent with the environmental rhetoric of recent years,” said Tim Boersma, director of global natural gas markets at the Center for Global Energy Policy at Columbia University.

The Dutch government continues to resist calls from some sectors to increase production at Groningen, a huge gas field. which is being shut down because production there caused earthquakes.

In Berlin, Chancellor Olaf Scholz refused to consider keeping the country’s three nuclear plants running. The reactors are scheduled to be shut down at the end of the year as part of the country’s efforts to move away from nuclear power.

Two years ago, Germany decided to discontinue coal-fired power plants by 2038, in its mission to be carbon-free by 2045. But last week Habeck, who is a member of the Green Party, announced that the government would be temporarily reversing those efforts in response. to gas cuts.

For RWE, a major energy supplier in Germany, the reversal means a delay to three plants that were due to close in September. Plants burn soft coal, or lignite, the dirtiest form of fuel. The company is now struggling to find enough employees to keep the factories running.

The move will require a workforce of “several hundred positions,” said Vera Bücker, a spokeswoman for RWE. Some of these will be filled by delaying plans for employees to retire early, while others will be new hires for jobs scheduled to be phased out until the first part of 2024, when the regulation expires.

The turnaround in coal is a challenge for energy providers who were focused on transitioning to natural gas as a bridge to renewable energy sources. Now they must find new sources of coal and put aside plans to reduce carbon emissions.

“The amount of carbon dioxide we emit will depend on how long our plants have to run,” said Markus Hennes, a spokesman for Steag, which runs several coal-fired power plants in western Germany. “But our emissions will increase. That is clear.”

More worrying for some environmentalists, Germany and other European countries are moving quickly to build terminals to receive liquefied natural gas as an alternative to Russian gas.

On Tuesday, EnBW, a German utility, signed a 20-year contract starting in 2026 with Venture Global, a North American supplier of liquefied natural gas. In other words, Germany will be importing gas until 2046 under this agreement.

“We are risking locking into a new fossil fuel era,” said Mr. Bruegel’s Zachmann.

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