Germany warned that Russia’s moves to slash Europe’s natural gas supplies risked sparking a collapse in energy markets, drawing a parallel to the role of Lehman Brothers in triggering the financial crisis.
With energy suppliers piling up losses by being forced to cover volumes at high prices, there’s a danger of a spillover effect for local utilities and their customers, including consumers and businesses, Economy Minister Robert Habeck said Thursday after raising the country’s gas risk level to the second-highest “alarm” phase.
“If this minus gets so big that they can’t carry it anymore, the whole market is in danger of collapsing at some point,” Habeck said at a news conference in Berlin, “so a Lehman effect in the energy system.”
Europe’s largest economy faces the unprecedented prospect of businesses and consumers running out of power. For months, Russian President Vladimir Putin has gradually reduced supplies in apparent retaliation over sanctions imposed over the invasion of Ukraine. The standoff escalated last week after steep cuts to the main gas link to Germany, putting reserves for the winter at risk.
The heightened alert tightens monitoring of the market, and some coal-fired power plants will be reactivated. At the current rate of gas inflows, Germany would need 116 days to reach its target to fill 90 per cent of storage capacity, which would mean it would take until mid-October to do so — a time of year that households would usually start consuming more gas for heating.
The alert stage also gives the government an option of enacting legislation to allow energy companies to pass on cost increases to homes and businesses. Habeck said he was holding off on price adjustments for now to see how the market reacts.
“It will be a rocky road that we have to travel as a country,” he said. “Even if we don’t feel it yet, we are in a gas crisis.”
German companies were quick to respond. Chemical giant BASF SE announced it may cut production as gas prices surge. BMW AG may buy electricity from third parties instead of running its own gas-powered co-generation plants.
Germany’s gas reckoning stems from decades of deliberately expanding its reliance on Russian energy, despite warnings from the US and other allies over security risks. Former Chancellor Angela Merkel had even promoted a second direct gas link with Russia, which was close to opening before Putin invaded Ukraine.
Germany, which still relies on Russia for more than a third of its gas supplies, enacted the initial “early warning” phase at the end of March, when the Kremlin’s demands for payment in rubles prompted Germany to brace for a potential cutoff in supply. The third and highest “emergency” level would involve state control over distribution.
The crisis has spilled far beyond Germany, with 12 European Union member states affected and 10 issuing an early warning under gas security regulation, Frans Timmermans, the European Union’s climate chief, said in a speech to the European Parliament.
“The risk of a full gas disruption is now more real than ever before,” he said. “All this is part of Russia’s strategy to undermine our unity.”
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