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EU Leaders Brace for Hard Winter as Russia Tightens Gas...

Business Maverick

Business Maverick

EU Leaders Brace for Hard Winter as Russia Tightens Gas Grip

A worker turns a valve wheel at a gas well on the Gazprom PJSC Chayandinskoye oil, gas and condensate field, a resource base for the Power of Siberia gas pipeline, in the Lensk district of the Sakha Republic, Russia, on Tuesday, Oct. 12, 2021. European natural gas futures declined after Russia signaled that it may offer additional volumes soon.
By Bloomberg
24 Jun 2022 0

European Union leaders are preparing for a further reduction in gas supplies from Russia, seeking ways to cushion the effects of the unprecedented crisis, as well as a surge in energy prices, on the region’s economy.

The impact of Russia’s invasion of Ukraine and its use of energy as a weapon forced its way into a meeting of EU leaders on Friday, after cuts in shipments from Moscow affected 12 member states and pushed Germany to raise its gas-risk level to the second-highest “alarm” phase.

Read More: Germany Fears Russia Could Permanently Close Main Gas Pipeline

“We have an obligation to prepare for the worst-case scenario, and indeed the worst-case scenario for Europe would be a complete cutoff of gas supplies from Russia to European markets,” Greek Prime Minister Kyriakos Mitsotakis told reporters after the two-day EU summit ended on Friday. “European coordination is needed to tackle such a scenario. Not every country can move on its own.”

A day earlier Germany — the bloc’s biggest economy — warned that Russia’s moves to slash EU gas supplies risked sparking a collapse in energy markets, drawing a parallel to the role of Lehman Brothers in triggering the financial crisis. The supply woes have already pushed gas and power prices to record levels.

German power for next year keeps getting more expensive

 

“The notion of cheap energy is gone and the notion of Russian energy is essentially gone and we are all in the process of securing alternate sources,” Latvian Prime Minister Krisjanis Karins said. “This is a result of the war that Russia is waging in Ukraine — it’s causing difficulties for all of us, but in the end we will all come out much more resilient.”

The supply situation is pushing up the cost of electricity across Europe, fueling inflation and increasing the economic burden on businesses and households still recovering from the pandemic. The nervousness in energy markets is exacerbated by uncertainties over what the next move by the Kremlin will be. Luxembourg’s prime minister, Xavier Bettel, said the decision on whether or not to turn off the gas tap was exclusively in the hands of Russia’s President Vladimir Putin.

“The best is always to hope for the best and prepare for the worst,” said European Commission President Ursula von der Leyen, who took part in the leaders meeting. The EU’s executive arm will put forward next month a plan for how to reduce demand to help cushion the impact of reduced supplies, she added.

Russia’s move to tighten the grip on supplies comes as Europe is trying to fill up gas reserves before the next heating season, which usually starts around October. The bloc’s gas storage was 55% full on June 22 compared with the five-year seasonal norm of 57% for this time of year. The goal is to reach 80% by Nov. 1 to avoid problems during the winter.

Coordinated Solution

German Chancellor Olaf Scholz told reporters in Brussels that member states are “well prepared” for the challenge but that they’ll need to accelerate efforts to diversify energy infrastructure.

Asked if he was worried that Russia might use routine technical maintenance as an excuse next month to fully stop gas deliveries to Germany via the Baltic sea pipeline Nord Stream 1, Scholz said that it would not make sense to speculate about such a scenario.

But the chancellor dismissed Russia’s narrative that the recent reduction of gas flows through the pipeline by 60% was caused by technical problems linked to the maintenance of turbines. “Nobody trusts those technical arguments that are being brought forward there,” Scholz said.

The issue of preparedness for disruptions will also be raised by EU energy ministers when they meet in Luxembourg on Monday. Belgium’s Prime Minister Alexander De Croo called on the European Commission to coordinate a solution among EU countries to help navigate the difficult winter. The EU’s executive arm will discuss readiness for emergency situations and possible additional measures with the ministers, said the bloc’s energy chief Kadri Simson.

“There is no immediate risk for our security of supply, but the situation is serious,” Simson told Bloomberg News. “The disruptions make it more difficult to fill the storage and we must be prepared for further cuts. Member states need to update their contingency plans and conclude solidarity agreements.”

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