What the Ukraine conflict means for Germany’s gas supply – Business

Germany’s vulnerability will be decided in the coming weeks by the weather. If the winter stays mild, things could turn lightly. If, on the other hand, there is another cold spell, it gets really tight. Then the conflict between Russia and Ukraine could also end up in our living rooms.

A first indication is the filling level of German gas storage facilities. Over the past five years, this average was 75% at the start of the year. This year, according to the INES storage initiative, the figure is barely 50%. And the mild days at the turn of the year also helped. If things continue at the current pace, only around 37% should remain at the start of February, a threatening figure. A few years ago, a report by the Federal Ministry of Economics and Technology once estimated a storage capacity of 40% to cover a seven-day cold snap – from February 1. And such a cold phase can certainly occur in February. “We have never seen such drops in the past,” says INES Director General Sebastian Bleschke. And advises: “We must be careful with the rare reserves.”

This is the situation at the start of a conflict that could cut off the gas supply to East Germany. About 40% of the gas in Germany comes from Russia. It is not possible to say with certainty, because the molecules have no designation of origin. And much of the natural gas that lands in Germany eventually ends up on its way to other European countries – which only means that if Russian troop deployment gets serious, Germany isn’t the only one with a problem.

The rise in prices has several causes

The German economy has been feeling what this means for months due to rising natural gas prices. The Federal Office of Economics and Export Control recorded a 60% increase in import prices from September to October alone. Compared to the same month last year – which was also affected by the Corona crisis – the increase was an incredible 216%. The most recent figures are not yet available. With the next gas bill, the problem will reach millions of consumers. And electricity prices are also rising along with expensive natural gas.

The rise in prices originally had more than one cause. The severe recession in the global economy initially had a massive impact on gas demand, causing prices to plummet. But the rapid recovery in Asia has also led to rapidly rising prices, accompanied by special effects such as a drought in South America – hydroelectricity has become scarce, gas-fired power plants have intervened. And in time for winter, the Europeans wanted to replenish their reserves. So fate took its course.

In the meantime, however, the European Commission also suspects that Russian gas monopoly Gazprom is involved. This suggests that a company is reducing supply despite growing demand, EU Competition Commissioner Margrethe Vestager said in Brussels on Thursday. “This is very rare behavior in the market.” The issue of energy prices is a priority.

Conflict with Ukraine also threatens gas flow from Russia

But what if the conflict in eastern Ukraine escalates? This would threaten the flow of gas from Russia in two ways. On the one hand, the West has threatened sanctions. In the case of the Nord Stream 2 gas pipeline, which has just been completed, this would be tolerable – although it has been filled with gas since Christmas, it has not yet delivered a cubic meter. It would be different with sister tube Nord Stream 1. It currently supplies 1.6 billion kilowatt hours of natural gas per day, which is about the usual level. Sanctions that do not yet make an exception to energy supplies could put an end to this influx. Added to this is the network of pipelines across Ukraine. The operator of the gas network on site, Naftogaz, already presumes that its gas pipelines would be targeted in the event of war. In the worst case, Germany and Europe would be deprived of gas from the East.

There are answers. Gas can be bought on the international market with special tenders, just Friday, the Trading Hub Europe launched one. He is responsible for the German gas market. A spokeswoman said the aim was to secure gas volumes for February and the first half of March given low storage levels. Finally, there are also a number of other suppliers: Norway, for example, the second supplier, can also deliver via pipelines. And then there is the liquefied gas market, so far dominated by Qatar and Australia, but where the USA is preparing to become the new number one. “Building up a small reserve of gas for the end of winter in a tight market situation in the middle of winter is of course not optimal winter precautions,” says INES boss Bleschke.

So maybe it won’t necessarily be a fragile winter. But certainly very expensive. And especially if Russia fails.


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