Recession threatens German economy amid Russian gas crisis

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The financial district of Frankfurt, Germany. File photo: Reuters/Ralph Orlowski

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The financial district of Frankfurt, Germany. File photo: Reuters/Ralph Orlowski

Germany faces some recession if the already tight Russian gas supply stops altogether, an industry body warned on Tuesday, while Italy said it would consider offering a financial support to help companies fill gas storage to avoid a deeper crisis in winter.

European Union states, from the Baltic Sea in the north to the Adriatic in the south, have mapped out measures to deal with a supply crisis after the Russian invasion of Ukraine put energy at the heart of an economic battle between Moscow and the West.

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The EU depended on Russia for up to 40% of its gas needs before the war – rising to 55% for Germany – leaving a huge gap to fill in an already tight global gas market. Some countries have temporarily canceled plans to shut down coal-fired power plants in response. Read more

Global gas prices have soared, driving even higher inflation and creating a bigger headache for policymakers trying to pull Europe out of an economic precipice.

Germany’s industry association BDI on Tuesday slashed its 2022 economic growth forecast to 1.5%, revising it down from the 3.5% expected before the war. He said a halt in Russian gas supplies would make recession inevitable. Read more

Russian gas is still pumped through Ukraine, but at a reduced rate and the Nord Stream 1 gas pipeline under the Baltic, a vital supply route to Germany, is operating at only 40% capacity, which , according to Moscow, is because Western sanctions are hampering reparations. Europe says it’s a pretext to reduce flows.

The slowdown has hampered efforts across Europe to fill storage facilities, now around 55% full, to reach a European target of 80% by October and 90% by November, a level that would help the block weather the winter if supplies were further disrupted. .

Italy’s Ecological Transition Minister Roberto Cingolani said Italy needed to step up its filling efforts and Rome needed to think about how to help companies finance gas purchases for storage.

An Italian government source said a state guarantee was a potential option to help reduce the cost of financing.

“Gas is currently so expensive that operators cannot invest money in it,” Cingolani said. Read more

Europe’s benchmark gas price was trading around 126 euros ($133) per megawatt-hour (MWh) on Tuesday, below this year’s peak of 335 euros but still up more than 300% from its level a year ago.

EARLY ALERT

Italy, alongside others such as Germany, Denmark, Austria and the Netherlands, has activated the first early warning stage of its three-step plan to deal with a supply crisis in gas.

As part of Germany’s contingency plans, gas regulator Bundesnetzagentur has unveiled details of a new auction system which will start in the coming weeks, aimed at encouraging manufacturers to use less gas. Read more

The head of the Bundesnetzagentur wondered whether the current gas supplies would get the country through the winter, although he said earlier that it was not time to declare a full emergency or the third stage of the crisis plan.

“As things stand, we have a problem,” Bundesnetzagentur president Klaus Mueller said on the sidelines of an industry event in the German city of Essen.

The exorbitant European price has attracted more LNG shipments, but Europe lacks the infrastructure to meet all its LNG needs, a market that was already tight before the war in Ukraine.

Disruptions at a major US producer of liquefied natural gas that provided shipments to Europe add to the challenge.

Europe is seeking more pipeline supplies from its own producers, such as Norway, and other states, such as Azerbaijan, but most producers are already pushing production boundaries.

As the crisis spreads across Europe, even a small consumer like Sweden has joined European allies in triggering the first stage of its energy crisis plan. Read more

The national energy agency said on Tuesday that supplies were still strong, but it was warning “industry players and gas consumers connected to the gas network in western Sweden that the gas market is tense and that a deterioration of the gas supply situation could occur”.

Sweden, where gas accounted for just 3% of energy consumption in 2020, depends on piped gas supplies from Denmark, where storage facilities are now 75% full. Denmark activated the first stage of its emergency plan on Monday.

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