Germany braces for gas rationing, Europe on edge in Russian standoff

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  • Europe fears Moscow will cut gas supply
  • Kremlin says ruble payments are a good idea for other products
  • The Kremlin says it will not immediately demand rubles for gas
  • Economic stalemate increases risk of recession in Europe

BERLIN/FRANKFURT, March 30 (Reuters) – Germany on Wednesday triggered a contingency plan to manage gas supplies under which Europe’s biggest economy could ration electricity if a stalemate on Russian demand to pay for fuel in rubles disrupted or interrupted the supply.

Moscow’s insistence on ruble payments for Russian gas that meets a third of Europe’s annual energy needs has galvanized others in Europe: Greece has called an emergency meeting of suppliers, the government Dutch said it would urge consumers to use less gas and France’s energy regulator told consumers not to panic. Read more

The request for rubles, which was rejected by the Group of Seven nations, is in retaliation for crippling Western sanctions against Russia following its invasion of Ukraine. Read more

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Ratio of Russian gas imports to domestic fuel consumption

Moscow, which says it is carrying out a “special military operation”, qualifies the Western measures as “economic warfare”.

Russia’s top lawmaker said on Wednesday that Russia could also demand ruble payments for other commodities, including oil, grains, fertilizers, coal and metals, raising the risk of a recession in Europe and in the USA.

Moscow is expected to release its ruble payment plans on Thursday, although it said it would not immediately require buyers to pay for gas exports in the currency. Read more

Russian President Vladimir Putin told German Chancellor Olaf Scholz by phone on Wednesday that nothing would change for European partners and that payments would still be made in euros and transferred to the Gazprom bank, a German spokesman said. Read more

Separately, Putin presented the ruble plan during a phone call with Italian Prime Minister Mario Draghi, Draghi’s office said.

Two Russian sources told Reuters that one of the options for the change, Russia planned to maintain contract prices for gas exported to “unfriendly” countries, but demanded that payment be made in ruble equivalent on an agreed settlement day. in advance. Read more

Western countries have said paying in rubles would breach contracts that can take months or more to renegotiate, a prospect that has driven up commodity prices.

It would also lessen the impact of Western restrictions on Moscow’s access to its foreign exchange reserves and strengthen its currency.

The European Union is preparing new sanctions against the Kremlin, European sources told Reuters on Wednesday, with their scope depending on Moscow’s stance on ruble gas payments. Read more

INDUSTRY’S FIRST LINE FOR CUTS

Berlin’s unprecedented decision is the clearest sign that the European Union is preparing for Moscow to cut gas supplies unless it is paid for in roubles. Italy and Latvia have already activated the warnings.

German Economy Minister Robert Habeck implemented the “early warning phase” of an existing gas emergency plan, where a crisis team from the economy ministry, regulator and industry private sector will monitor imports and storage.

Habeck told reporters that Germany’s gas supply was guaranteed for now, but urged consumers and businesses to reduce consumption, saying “every kilowatt-hour counts”.

If supply is insufficient, Germany’s grid regulator can ration gas, with industry on the front line for cuts and preferential treatment for private households, hospitals and other critical institutions.

Even without the threat of gas shortages, Germany could face recession as rising energy costs have already forced companies, including steel and chemical makers, to cut production .

Germany’s industry association BDI on Wednesday called for government support, including loans and state stakes, to prevent companies from going bankrupt, as government economic advisers slashed growth forecasts this year because of the Ukrainian crisis. {nL2N2VX1PL]

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Half of Germany’s 41.5 million households use natural gas for heating, while industry accounts for around a third of national demand. Russia is Germany’s biggest gas supplier, accounting for 40% of imports in the first quarter of 2022. Berlin has pledged to end its energy dependence on Moscow, but it will not succeed before mid-2024, according to Habeck.

Europe faced an energy crisis even before Russian troops entered Ukraine on February 24, with European Union gas storage levels at around 26% of total capacity, below levels normal at this time of year.

The European Commission, which said on Wednesday it would work closely with member states to prepare for any gas shortages, has proposed legislation requiring countries to meet levels to at least 80% by November, but this would be nearly impossible without Russian supplies.

The 80% target would not apply if the European Commission declares an EU-wide or regional gas supply emergency – which it can do if at least two countries declare an emergency first .

‘EVERYTHING WILL BE ALRIGHT’

Jean-Francois Carenco, head of France’s energy regulator, much less dependent on Russian gas than Germany, thanks to gas and liquefied natural gas sourced elsewhere and its dependence on nuclear power plants, said the country does not should not encounter any supply problems.

“Everything will be fine, the gas storages are full, we will spend the winter,” he told BFM TV.

Greece was due to hold an emergency meeting of its energy regulator, gas transmission operator and major gas and electricity suppliers on Wednesday to assess its security of supply in case Russia halts its supplies. Read more

The Dutch government has announced that it will launch a campaign to encourage consumers to use less gas.

Investors are watching to see how the dispute over Russia’s insistence on ruble payments unfolds as European consumers grapple with energy prices that have forced governments to announce tax relief measures .

This month was the most expensive month for power prices in European history, although markets are expected to end the month at levels lower than early March.

After Germany’s announcement, German 1-year wholesale electricity hit 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 (BDEW), said Germany should have clear plans on how the government would deal with a shutdown in the delivery of gas that forced rationing.

“Now we need to take concrete steps to prepare for the emergency level, because in the event of a shutdown, things should go quickly,” Andreae said.

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Reporting by Joseph Nasr in Berlin and Vera Eckert in Frankfurt Additional reporting by Holger Hansen and Rene Wagner in Berlin, Dominique Vidalon and Benoit Van Overstraeten in Paris, Nina Chestney in London, Angeliki Koutantou in Athens and Christoph Steitz in Frankfurt; Editing by Carmel Crimmins, Barbara Lewis, Tomasz Janowski and Matthew Lewis

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