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June 13, 2024
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Germany May Resort to Gas Rationing

A decrease in Russian supply has brought Germany one step closer to gas rationing. The “alert” stage of an emergency gas plan has been activated, according to Germany’s economy ministry.

The European Union and Russia are at odds over Russia’s invasion of Ukraine, and this is the newest development in that conflict. Robert Habeck, the minister of economy for Germany, claimed that in reaction to EU sanctions, Russia was using gas “as a weapon.” “Of course, I can’t exclude it out,” he said after saying that gas rationing for German industry would “hopefully never” be necessary.

The second stage of Germany’s three-part emergency plan, which is activated whenever there is an interruption or a particularly high demand for gas, has now been initiated. In order to persuade major corporations to use less, the government will start auctioning gas to industry and will grant €15 billion (£13 billion) in loans to fill gas storage facilities.

As the strategy enters stage two, suppliers and network operators are under increased pressure to mitigate interruption by taking actions like locating gas sources that are less disruptive.

Despite the fact that under stage two it is theoretically conceivable, the nation decided against allowing utilities to pass on rising costs to customers.

Under the first stage of the emergency plan, gas companies were already required to secure supply, while gas network operators were also required to report to the Economy Ministry at least once per day and electricity grid operators to maintain grid stability.

Read Also: “Russian gas supply may end soon”- Europe warned

When there is a substantial supply disruption that the market is unable to handle, which results in rationing of supplies, state intervention would occur under the third stage.

In the third stage, the industry would be the first to see a reduction in supplies, although gas would still be supplied to homes and other important buildings like hospitals.

According to EU climate policy leader Frans Timmermans on Thursday, the reduction in Russian gas supplies has now impacted twelve European Union nations.

Invoking technical issues, Russia reduced flows through its Nord Stream 1 pipeline to 40% of capacity last week, affecting nations including Germany.

From July 11 to 21, when flows will stop, Nord Stream 1 will be undergoing maintenance.

The chairman of the International Energy Agency, Fatih Birol, has cautioned that Russia may completely cut off gas supplies to Europe and that Europe must start preparing right away.

Poland, Bulgaria, the Netherlands, Denmark, and Finland have already had their gas supply shut off by Russia because they have refused to accept a new payment system.

By having access to inexpensive Russian energy, Germany has greatly increased its industrial prowess. They are currently being shut off.

They claim to have a staged plan to address all energy dependency on Russia at the highest levels of the German government. With coal, things have been simple because they can easily order it to be supplied from places like South Africa and Colombia. Except for one refinery that is connected to a pipeline from Russia, most oil is transported via tankers.

But in order to obtain transported gas from all over the world, LNG terminals, which are essentially alternative infrastructure, must receive a large investment.

As opposed to the traditional years-long process, Germany is looking into the possibility of floating terminals, which according to some sources may be ready by the end of the year. In order to reduce its dependence on Russian gas from 55% to 10%, Germany will need to build more permanent terminals, which will take about two years.

Where the shipped gas is produced, though, is a much more significant concern. The 500 billion cubic meters market for shipping LNG must be expanded to accommodate the 155 billion cubic meters of Russian gas that will be pipeline supplied to Europe even before a fire at a significant US export terminal.

In order to meet this demand, gas producers will need to pump considerably more gas, but some producers, like the Qataris, are finding it simple to sell gas on long-term deals lasting more than ten years. Germany wants the contract to be shorter to reflect its efforts to phase out fossil fuels. Regardless, the addition of German energy demand to this market will raise costs for everyone.

Keeping supply and demand balanced in the German energy grid, however, will be difficult in the short run. The industrial powerhouse of Europe may also need to get ready for “demand management” by using less energy in its factories and homes, which might lead to a recession across the continent. This is because it is frantically trying to increase its possibilities for importing gas.

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