Daily Management Review

Germany Raises Gas Alert Level And Accuses Russia Of A 'Economic Attack'


In reaction to dwindling Russian supplies, Germany activated the "alarm level" of its emergency gas plan on Thursday, but stopped short of letting utilities to pass on rising energy bills to customers in Europe's largest economy. The move is the latest escalation in Europe's standoff with Moscow following Russia's invasion of Ukraine, which highlighted the EU's reliance on Russian gas supplies and prompted a frenzied search for alternate energy sources.
The decision is mostly symbolic, signalling to businesses and individuals that painful cuts are on the way. However, it is a significant shift for Germany, which has maintained strong energy relations with Moscow since the Cold War.
Lower gas flows prompted worries this week that Germany could enter a recession if Russian supplies were completely cut off. On Thursday, S&P Global's flash Purchasing Managers' Index (PMI) showed the economy losing steam in the second quarter.
"We must not fool ourselves: The cut in gas supplies is an economic attack on us by (Russian President Vladimir) Putin," Economy Minister Robert Habeck said in a statement, adding Germans would have to reduce consumption. read more
Gas restriction would be preferable, but it cannot be ruled out, according to Habeck, who also warned: "From now on, gas is a scarce commodity in Germany ... We are therefore now obliged to reduce gas consumption, now already in summer."
Russia has denied that the gas supply cuts were planned, blaming a delay in the return of serviced equipment caused by Western sanctions. On Thursday, the Kremlin stated that Russia remains a reliable energy supplier and "strictly fulfils all its duties" to Europe.
Berlin will give a credit line of 15 billion euros ($15.76 billion) under its Phase 2 plan to fill gas storage facilities and will introduce a gas auction model this summer to encourage industrial users to save gas.
When there is a high likelihood of long-term supply shortages, the government triggers the second "alarm stage" of a three-stage emergency plan. It includes a provision that allows utilities to promptly pass on high charges to industry and families, so helping to reduce demand.
Habeck stated that Germany was not at that point, but the provision may be invoked if prices continued to rise due to the supply pressure, compounding power companies' losses.
"Every day, every week you make a minus. And if this minus becomes so big that the companies can't bear it any more and they fall down, the whole market threatens to fall down at some point - so a Lehman Brothers effect in the energy system."
Since last week, when Gazprom reduced flows via the Nord Stream 1 pipeline across the Baltic Sea to just 40% of capacity, speculation has centred on a transition to the next phase.
Faced with declining deliveries from its primary supplier Russia, Germany has been in Phase 1 of its emergency plan since late March, which includes greater monitoring of daily flows and an emphasis on filling gas storage facilities.
"The declaration of the alarm stage does not immediately change the fundamental status quo," German energy provider E.ON (EONGn.DE) said. It was important, though, that the government was preparing for a significant drop in imports and taking steps to stabilize markets and gas supply, it said an emailed statement to the media.