Germany faces recession risk as Russia gas crisis deepens

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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  • More Europeans activate the first phase of gas crisis plans
  • Rising gas prices add to policy makers’ inflation headaches
  • Slowing flows hamper efforts to restock the warehouse for the winter
  • “We have a problem,” says the German regulator.

BERLIN/COPENHAGEN (Reuters) – Germany’s industry body warned on Tuesday of a certain recession if faltering Russian gas supplies were halted completely, and Italy said it would consider providing financial support to help companies refill gas stocks to avoid a deeper crisis in the country. winter.

European Union countries from the Baltic Sea in the north to the Adriatic Sea in the south have outlined measures to deal with a supply crunch after Russia’s invasion of Ukraine put energy at the center of an economic battle between Moscow and the West.

The European Union relied on Russia for up to 40% of its pre-war gas needs – up to 55% for Germany – leaving a huge gap to fill an already tight global gas market. Some countries have responded by temporarily backing away from plans to close coal-fired power plants.

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Gas prices have reached record levels, driving up inflation and adding to the challenges facing policy makers trying to bring Europe back from the economic cliff.

The German Industry Association (BDI) on Tuesday lowered its forecast for economic growth for 2022 to 1.5% from the 3.5% forecast before the war began on February 24. She said the halt in Russian gas shipments would make recession in Europe’s largest economy inevitable. Read more

Russian gas is still pumped through Ukraine but at a reduced rate. Nord Stream 1 pipeline under the Baltic Sea, a vital supply route to Germany, is only 40% operational. Moscow says Western sanctions are hampering reforms; Europe says this is an excuse to reduce inflows.

German Economy Minister Robert Habeck said the drop in supplies amounted to an economic attack and part of Russian President Vladimir Putin’s plan to create fear.

“This is a new dimension,” Habeck said. “This strategy cannot be allowed to succeed.”

The slowdown has hampered Europe’s efforts to refill storage facilities, which are now 55% full, to achieve an EU-wide target of 80% by October and 90% by November, a level that should help see the bloc through the winter if Supplies were further disrupted. .

On Tuesday, the Italian government announced preliminary measures to boost gas storage after energy company Eni (ENI.MI) I reported a lack of flows from Russia for more than a week. Read more

Environmental Transformation Minister Roberto Cingolani said in a statement that the government plans to buy coal if it needs to use coal-fired power plants to provide gas. Singolani also asked the operator of the gas network Sanam (SRG.MI) to adopt measures to help bring gas stocks close to the target level for June.

The record gas price in Europe was trading around 126 euros ($133) per megawatt-hour, down from this year’s peak of 335 euros, but up more than 300% from last year.

‘We have a problem’

Countries other than Italy, including Austria, Denmark, Germany and the Netherlands, have activated the first phase of early warning of a three-stage plan to deal with the gas supply crisis.

German gas regulator Bundesnetzagentur has outlined the details of a new auction system that will start in the coming weeks, with the aim of encouraging manufacturers to consume less gas.

The head of the Bundesnetzagentur wondered if the current gas shipments would make the country go through the winter. Earlier, he said it was too early to declare a comprehensive state of emergency, or the third phase of the crisis plan.

“As today, we have a problem,” Bundesnetzagentur president Klaus Muller said on the sidelines of an industry event.

CEO of RWE, Germany’s largest power utility (REWEG.DE) Markus Kreiber said Europe did not have much time to plan.

He said on the same occasion, “How do we redistribute the gas if we are completely cut off? There is currently no plan … at the European level … as each country is studying its own emergency plan.”

Rising European prices have attracted more shipments of liquefied natural gas (LNG), but Europe lacks the infrastructure to meet all of its LNG needs, a market that extended even before the Ukraine war.

The turmoil in one of the largest producers of liquefied natural gas in the United States added to the challenge.

Europe is seeking more pipeline supplies from its producers, such as Norway and other countries, including Azerbaijan, but most producers are already pushing production limits.

Even Sweden, a small consumer, joined European allies in launching the first phase of its energy crisis plan.

The state energy agency said supplies remained strong but was signaling “to industry players and gas consumers connected to the western Swedish gas network, that the gas market is tense and a deteriorating gas supply situation may arise”.

Sweden, where gas made up 3% of energy consumption in 2020, depends on pipeline gas supplies from Denmark, where storage facilities are now 75% full. Denmark activated the first phase of its emergency plan on Monday.

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Additional reporting by Rachel Moore and Paul Carrell in Berlin, Sten Jacobsen in Copenhagen, Nina Chestney in London, Giuseppe Fonte and Francesca Landini in Rome, Christoph Stitz and Vera Eckert in Frankfurt; Writing by Edmund Blair and Barbara Lewis; Editing by Carmel Crimmins, Mark Potter and David Gregorio

Our criteria: Thomson Reuters Trust Principles.