Europe may return to coal as Russia rejects gas flows

A photo of pipes is taken at the landing facilities of the “Nord Stream 1” gas pipeline in Lubmen, Germany, March 8, 2022. REUTERS/Hannibal Hanschke/File Photo

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  • Germany may take ‘painful’ step to ignite coal power
  • Italy and Austria are also looking to burn more coal
  • High gas prices add to the already high inflation rates

FRANKFURT/MILAN (Reuters) – Europe’s biggest buyer of Russian gas raced to find alternative fuel supplies on Monday and could burn more coal to counter lower gas flows from Russia threatening a winter energy crisis if shops are not refilled.

Germany, Italy, Austria and the Netherlands have indicated that coal-fired power plants can help see the continent go through a crisis that has driven up gas prices and increased the challenge for policymakers battling inflation.

The Dutch government said on Monday it will raise the production ceiling at coal-fired power plants and activate the first phase of its energy crisis plan.

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Italy is close to declaring an energy alert after the oil company Eni (ENI.MI) Russia’s Gazprom said (GAZP.MM) It will receive only a portion of its order for gas supplies on Monday.

Germany, which has also seen lower Russian flows, announced on Sunday its latest plan to increase gas storage levels and said it may restart coal-fired power plants that it was intended to phase out.

“It hurts, but in this case it is absolutely necessary to reduce gas consumption,” said Economy Minister Robert Habeck, a Green Party member who has pushed for a faster exit from coal that produces more greenhouse gases.

“But if we don’t, we risk that the storage facilities will not be full enough at the end of the year in the winter season. And then we get blackmailed at the political level,” he said.

Russia on Monday repeated its earlier criticism that Europe has only itself blaming After the West imposed sanctions in response to Moscow’s invasion of Ukraine, it is a route for transporting gas to Europe as well as a major source of wheat.

The Dutch gas contract for the month of the nearest maturity, the European standard, was trading at around 124 euros ($130) per megawatt-hour on Monday, down from this year’s peak of 335 euros, but still more than 300% above its level a year ago. , before prices start to rise.

Slowly fill stocks

CEO of Germany’s largest energy producer RWE (REWEG.DE)Marcus Kreiber, said energy prices could take three to five years to fall to lower levels.

Russian gas flows to Germany via the Nord Stream 1 pipeline, the main supply route to Europe’s largest economy, were still operating at around 40% of capacity on Monday, although they had risen since the start of last week.

Ukraine has said its pipelines can help fill any supply gap through Nord Stream 1. Moscow said earlier that it could not pump more through pipelines that Ukraine had not already closed.

Eni and German utilities Uniper (UN01.DE) It was among the European companies that said they were receiving less contracted Russian gas, even though gas stocks in Europe remain full – albeit slower.

It was about 54% full on Monday versus the EU’s target of 80% by October and 90% by November.

The German Economy Ministry said restoring coal-fired power plants could add up to 10 gigawatts of power if gas supplies reach critical levels. The transition law will be presented to the Senate on July 8.

Besides switching to charcoal, the latest German version measures An auction system to encourage the industry to consume less gas, and financial assistance to the German gas market operator, via state lender KfW (KFW.UL), to fill gas storage faster.

On Monday, RWE said it could extend the operation of three 300 megawatt brown coal power plants if necessary.

Russia blames the West

The Austrian government agreed with Verbund (VERB.VI) Sunday to convert a gas-fired power plant to coal if the country faces an energy emergency. OMV (OMVV.VI) On Monday, Austria is set to receive half of the usual amount of gas for the second day. Read more

The Netherlands will raise production ceilings at coal-fired power plants to conserve gas in light of Gazprom’s moves to cut supplies to Europe. Dutch Energy Minister Rob Getten, who made the announcement on Monday, said the government had activated the first phase of the energy crisis plan. Read more

Russia’s state-controlled Gazprom reduced capacity last week along Nord Stream 1, citing delays in returning equipment served by Germany’s Siemens Energy. (SIEGn.DE) in Canada.

“We have gas and it is ready for delivery, but the Europeans must return the equipment that should be repaired in accordance with their obligations,” Kremlin spokesman Dmitry Peskov said.

German and Italian officials said Russia was using this as an excuse to cut supplies.

Italy, whose gas technical committee is expected to meet on Tuesday, said it may declare a heightened alert on gas this week if Russia continues to curb supplies.

The move would trigger measures to reduce consumption, including rationing gas for specific industrial users, ramping up production at coal-fired power plants, and requiring more gas imports from other suppliers under existing contracts.

(1 dollar = 0.9508 euros)

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Additional reporting by Susanna Tudel in London, Nora Polley in Oslo, Bart Meijer in Amsterdam, Alexandra Schwartz-Gurlich in Vienna; Written by Barbara Lewis. Editing by Edmund Blair, Jean Harvey and Susan Fenton

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