Vera Eckert, Joseph Nasr

BERLIN/FRANKFURT – Germany has activated an emergency plan for managing gas supplies. This could lead to Europe’s biggest economy rationing power if a Russian demand for fuel prices with roubles is not met.

Moscow insisting on Russian gas payments in roubles for a country that supplies a third Europe’s energy requirements annually has galvanized other European countries. Greece held an emergency meeting with suppliers. The Dutch government called for a reduction of gas consumption, and France’s energy regulator advised consumers not to panic.

G7 nations have rejected Russia’s demand for payment of roubles as it is retaliation to the West’s imposition of crippling sanctions against Russia in response to its invasion in Ukraine.

Moscow calls the actions of its troops in Ukraine “special military operations”, while Western countries consider them to be “economic war”.

On Wednesday, the Kremlin indicated that it may increase the demand for rouble payment to other commodities, including oil, grain and fertilisers. This raises the risk of recession in America and Europe, where inflation has already skyrocketed.

Berlin’s unusual move shows that Moscow is being prepared to reduce gas supply to the area if it doesn’t get payment in rubles. Italy and Latvia are already suing.

Moscow expected to announce plans for rouble payments Thursday. But, Moscow said it will not demand immediately that gas exporters pay in currency.

Robert Habeck, Germany’s Economy Minister activated “early warning” phase of an existing gas emergency program. This means that an economics ministry team will oversee imports and storage.

Habeck stated that Germany’s gas supply was being protected for the moment, but that he encouraged consumers and businesses to cut down on their consumption. He said that every kilowatt hour matters.

Habeck said, “We need to increase our precautionary measures so that we are prepared for an escalated Russia.”

Germany’s network regulator has the power to ration gas supplies if supplies run out. The industry is first to be affected by cuts. Prioritized treatment would be provided to hospitals, private households and other vital institutions.

Germany could face recession even without gas shortages. Inflation has impacted industry and forced some steelmakers to cut production. Tuesday’s growth projections for the year of 1.8% by government council economic advisors was more than doubled by Wednesday. {nL2N2VX1PL]

Germany has 41.5 million heat-using households, while the industry accounts for about a third to 100 billion cubic metres national demand in 2021.

Everything will be fine

Russia was Germany’s biggest gas supplier. It accounted for 40% in Germany’s first quarter of 2022. Habeck said that Berlin had pledged to cut its dependency on Moscow for energy but would not become fully independent before the middle of 2024.

Europe faced an energy crisis even before Russia invaded Ukraine. Gas storage levels within the EU are now about 26% of its total capacity. This is below average levels for this time of year.

On Wednesday, the EU Commission stated that it will work with its member countries in preparation for gas shortages. However, legislation has been proposed by the Commission requiring all nations to meet minimum 80% levels by November. This would not be possible if Russia stops supplies.

Joel Hancock (Vice President of Commodities Research at Natixis) stated that it was impossible to increase stocks and curb Russian flow.

Jean-François Carenco, head of the energy regulator in France, which is far less reliant on Russian gas than Germany, said the country should not encounter any supply issues.

He stated that “everything will be fine”, the gas storage tanks are full and that they’ll get us through the winter.”

Greece had planned to call an emergency meeting with its gas regulator and gas transmission operator on Wednesday in order to evaluate its supply security for Russia’s possible halt of supplies.

According to the Dutch government, it will launch a campaign encouraging consumers to reduce their gas consumption.

As consumers grapple with rising energy prices and the need for fiscal relief, investors are increasingly concerned about Russia’s insistent on rouble payments.

Vinicius Romeo, Rystad Energy senior analyst, stated that the gas markets were still nervous in anticipation of payment of roubles by Thursday. “Both parties remain at odds regarding the prospect of changing the currency terms in dollar and Euro contracts. We are waiting to see which side will blink first.”

Germany made the announcement that wholesale electricity in Germany for the year was at a new record high. It reached 185 euro per megawatt-hour, an increase of 6.3%.

Kerstin Andrewe, the head of the Federal Association of the Energy and Water Industry(BDEW), stated that Germany should have clearly defined plans laying out the steps the government will take to address a stoppage in gas deliveries which would force the rationing of measures.

Andreae stated, “We need to now make concrete steps to ensure that we are prepared for an emergency level. Because in the event of a stoppage everything would have to move quickly.”