Germany Is In Danger Of Recession As The Russian Gas Crisis Deepens

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More Europeans are activating the first phase of plans for the gas crisis Rising gas price adds to the inflation headache of policymakers Slowing down flows hinders winter storage replenishment efforts “We have a problem,” says the German regulator

BERLIN / COPENHAGEN, June 21 (Reuters) – Germany faces a certain recession if already stagnant Russian gas supplies stop completely, an industry body warned on Tuesday, as Italy said it would consider providing financial assistance to companies. refill gas storage to avoid a deeper crisis in winter. European Union states from the Baltic Sea in the north to the Adriatic in the south have outlined measures to deal with a supply crisis following Russia’s invasion of Ukraine that has put energy at the heart of an economic battle between Moscow and the West. The EU relied on Russia for up to 40% of its pre-war gas needs – rising to 55% for Germany – leaving a huge gap to fill an already narrow global gas market. Some countries have temporarily overturned plans to shut down coal-fired power plants in response. Sign up now for FREE unlimited access to Reuters.com Register Gas prices have reached record levels, leading to rising inflation and adding to the challenges for policymakers trying to pull Europe off the economic cliff. The German BDI industry union cut its forecast for economic growth for 2022 to 1.5% on Tuesday, revising it from the 3.5% expected before the start of the war on February 24. He said cutting off Russian gas supplies would make recession in Europe’s largest economy inevitable. Russian gas is still pumped through Ukraine, but at a slower pace and the Nord Stream 1 pipeline under the Baltic, a vital supply route to Germany, operates at just 40% capacity, which Moscow says is due to the fact that Western sanctions hinder repairs. Europe says this is a pretext for reducing flows. The slowdown has hampered Europe’s efforts to refill storage facilities, which are now about 55% full, to reach the EU target of 80% by October and 90% by November, a level that would help the bloc to spend the winter if supply is further disrupted. Italian Environment Minister Roberto Tsingolani said Italy needed to step up its replenishment efforts and Rome should consider helping companies finance gas storage markets. An Italian government source said a state guarantee could be an option to reduce funding costs. “Gas is currently so expensive that operators can not put money into it,” Cingolani said. The benchmark gas price for Europe traded around 126 euros ($ 133) per megawatt-hour (MWh) on Tuesday, below this year’s ceiling of 335 euros, but is still above 300% above its level. a year ago.

‘WE HAVE A PROBLEM’

Italy, as well as other countries such as Austria, Denmark, Germany and the Netherlands, have activated the first phase of the early warning of the three-phase plan to deal with a gas supply crisis. As part of Germany’s emergency plans, gas regulator Bundesnetzagentur has unveiled details of a new auction system that will be launched in the coming weeks to encourage manufacturers to consume less gas. The head of the Bundesnetzagentur has questioned whether current gas deliveries will cross the country in the winter, although he said earlier that it was too early to declare a complete emergency or the third phase of the crisis plan. “As it stands today, we have a problem,” said Klaus Müller, president of the Bundesnetzagentur, on the sidelines of an industry event in the German city of Essen. Markus Krebber, CEO of Germany’s largest electricity company RWE (RWEG.DE), said Europe had little time to come up with a plan. “How would we redistribute gas if we had stopped completely? There is currently no plan … at European level … as each country is considering the emergency plan,” he told the same event. The high European price has attracted more LNG shipments, but Europe does not have the infrastructure to meet all its needs from LNG, a market that was extensive even before the Ukraine war. Holidays to a large US liquefied natural gas producer that shipped to Europe add to the challenge. Europe is looking for more pipeline supplies from its own producers, such as Norway, and other countries, including Azerbaijan, but most producers are already pushing production limits. As the crisis spreads across Europe, even a small consumer like Sweden has joined the European allies in launching the first phase of the energy crisis plan. The state energy agency said on Tuesday that supplies were still strong, but signaled to “industry and gas consumers connected to the western Swedish gas network that the gas market is tense and could deteriorate. gas supply status “. Sweden, where gas accounted for 3% of energy consumption in 2020, is dependent on gas supplies from Denmark, where storage facilities are now 75% full. Denmark launched the first phase of the contingency plan on Monday. ($ 1 = 0.9477 euros) Sign up now for FREE unlimited access to Reuters.com Register Reports by Rachel More and Paul Carrel in Berlin, Stine Jacobsen in Copenhagen, Nina Chestney in London, Giuseppe Fonte and Francesca Landini in Rome and Vera Eckert in Frankfurt. Written by Edmund Blair and Barbara Lewis. Edited by Carmel Crimmins Our role models: The Thomson Reuters Trust Principles.