Germany braces for gas rationing in rouble standoff with Russia

BERLIN, Germany – Germany triggered an emergency plan to manage gas supplies in Europe’s largest economy on Wednesday, March 30, an unprecedented move that could see the government ration power if there is a disruption or halt in gas supplies from Russia.

The announcement is the clearest sign yet that the European Union is preparing for Moscow to cut supplies to the region after President Vladimir Putin demanded that Europe and the United States pay for gas exports in roubles.

That demand, which has been rejected by G7 nations, is in retaliation for the West imposing crippling sanctions on Russia for its invasion of Ukraine.

Moscow has not said when the currency change will take effect but it is expected to unveil its plans for rouble payments on Thursday, March 31. Russia’s top lawmaker warned on Wednesday that oil, grain, metals, fertilizer, coal, and timber exports could also soon be priced the same way.

With a potential crunch looming, Germany’s Economy Minister Robert Habeck activated the “early warning phase” of an existing gas emergency plan meaning that a crisis team from the economics ministry, the regulator, and the private sector will monitor imports and storage.

Habeck told a news conference that Germany’s gas supplies were safeguarded for the time being but he urged consumers and companies to reduce consumption, saying that “every kilowatt hour counts.”

“We must increase precautionary measures to be prepared for an escalation on the part of Russia,” said Habeck. “With the declaration of the early warning level, a crisis team has convened.”

If supplies fall short, Germany’s network regulator can ration gas supplies, with industry being first in line for cuts. Preferential treatment would be given to private households, hospitals, and other critical institutions.

Half of Germany’s 41.5 million households heat with natural gas while industry accounted for a third of the 100 billion cubic meters of national demand in 2021.

‘Everything will be fine’

Europe was facing an energy crunch even before Russia invaded Ukraine and with gas storage levels in the EU currently at about 26% of total capacity. Governments are under pressure to shore up supply and shield consumers.

In France, the head of the energy regulator said the country should not encounter any supply issues and said there was no need to panic.

“Everything will be fine, the gas storage facilities are well filled, we’ll make it through the winter,” Jean-François Carenco, head of the CRE, told BFM TV.

Russia is Germany’s top gas supplier, accounting for 40% of imports in the first quarter of 2022. Berlin has pledged to end its energy dependency on Moscow but it will not achieve full independence before mid-2024, according to Habeck.

Markets are anxious to see how the dispute over Russia’s insistence on rouble payments play out as consumers in Europe grapple with exploding energy prices that have forced governments to announce fiscal relief measures.

Consumer prices in Spain rose nearly 10% year on year in March, their fastest pace since 1985.

“Gas markets are still anxious in expectation of clear rules of roubles payment by Thursday,” said Rystad Energy senior analyst Vinicius Romano in a note.

“Both sides remain at odds over the prospect, of changing the currency terms of dollar and euro contracts, waiting for the other side to blink first.”

After Habeck’s announcement, German year-ahead wholesale electricity set a three-week high of 185 euros per megawatt hour, up 6.3%.

Kerstin Andreae, head of the Federal Association of the Energy and Water Industry, said Germany should have concrete plans in place laying out how the government would deal with a gas delivery stoppage that force rationing measures.

“We must now take concrete measures to prepare for the emergency level, because in case of a stoppage things would have to move fast,” Andreae said. – Rappler.com