Energy regulations in Europe this winter are starting to look almost inevitable.
German officials insisted on Saturday that security of supply was guaranteed, at least for now, after Russia’s Gazprom PJSC took a last-minute decision not to restart the key Nord Stream gas pipeline after maintenance. The storage is filled and new sources of gas are provided.
But Klaus Mueller, president of energy regulator the Federal Grid Agency, warned last month that even at 95 percent full gas, there would be enough for only 2-1/2 months of demand if Russia cut off flows. Storage in Germany now stands at around 85%.
“The EU is already in the red zone as further demand destruction is due,” said Thierry Bross, professor of international energy at Sciences Po in Paris. He believes a further 3% of demand should be cut.
The European Union has already established a voluntary target to reduce gas demand by 15%, with the option of making it mandatory if necessary. As energy ministers prepare to meet for an emergency meeting on September 9, steps that previously seemed unthinkable are now likely to be considered, according to EU diplomats.
Germany has its own emergency plan. The final stage to be introduced involves rationing.
European policymakers have been bracing for the prospect of supply cuts for weeks and scrambling to find ways to reduce demand. Industry is already grinding to a halt and the euro is falling due to the economic damage inflicted by Moscow’s energy war. As winter progresses, Europe’s resolve to continue supporting Ukraine against Russia may be tested.
Although the 15% cut in gas demand that the EU is pushing for could allow the bloc to avoid rationing, governments have so far been slow to reduce consumption. The European Commission warned in July that an unusually cold winter or lower gas imports from alternative sources would raise the risk of “further drastic cuts”.
Gas prices fell last week as traders increasingly expected Gazprom to reopen the link after signals from Moscow that a reopening was imminent. Then at the last minute, just hours after the Group of Seven agreed to pursue a cap on Russian oil prices, Gazprom said the link would remain closed because an error had been discovered during maintenance.
Already four times higher than a year ago, prices are expected to jump on Monday, piling more pressure on industries and households – and on policymakers to act.
The complete shutdown of Nord Stream, which runs under the Baltic Sea to Germany, leaves only two main gas delivery routes for the European Union: one via Ukraine and one via Turk Stream via the Black Sea. Flows through Ukraine are also severely limited, with only one of the two legs operating.
Losing the key pipeline indefinitely also increases pressure on Germany to keep nuclear power plants it plans to shut down this year open for longer – a decision that would be controversial. The government says it is still waiting for the results of the stress tests before making a decision, but the move looks increasingly likely.
Expanding two nuclear plants would save 2.3% of gas demand, BNEF estimates. That makes 5.4 million cubic meters per day.
“Nuclear expansion is a no-brainer for Germany and will definitely matter,” said Kesavartini Savarimuthu, an analyst at BloombergNEF. “Every mcm of gas is critical to security of supply and to continuing to reduce gas demand in the energy sector.”
With the Nord Stream closed and flows through Ukraine restricted, much now depends on the weather.
October, the start of the winter heating season, looks mild so far with above-normal temperatures expected in northern and western Europe, according to Maxar Technologies LLC. How soon it gets cold will determine how quickly Europe burns through its gas reserves in storage.
Asia and Europe compete for LNG, and if the winter is particularly cold in both regions, there is a risk that European storage will run out of gas by the end of winter. Politicians will be hoping spring comes sooner.
“It will be a challenge for Germany to get through the winter,” said Penny Leake, an analyst at consultancy Wood Mackenzie Ltd. “This will undoubtedly lead to a reduction in demand.”
– With the assistance of Anna Shiryaevskaya.
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