The EU looks towards energy rationing this winter

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Energy rationing in Europe this winter seems all but inevitable.

German officials on Saturday insisted security of supply was guaranteed, at least for now, after Russia’s Gazprom PJSC issued a statement Last minute decision not to turn on the vital Nord Stream pipeline again after the maintenance. Storage tanks fill up and new gas sources are tapped.

But Klaus Müller, President of the Energy Regulatory Authority of the Federal Network Agency warned last month that even with a gas storage facility 95% full, demand would only last for 2 1/2 months if Russia shuts off the flows. German storage is now at about 85%.

“The EU is now in the red as further demand destruction needs to take place,” said Thierry Bros, professor of international energy at Sciences Po in Paris. He estimates another 3% of demand will need to be cut.

The European Union has already set a voluntary consumption reduction target of 15% for gas, with the option to make it mandatory if needed. As energy ministers prepare for an emergency meeting on September 9, EU diplomats say moves that previously seemed unthinkable are now likely to be considered.

Germany has drawn up its own emergency plan. The final phase – which has yet to be adopted – includes rationing.

Europe’s politicians have braced themselves for weeks for the prospect of supply cuts, scrambling to find ways to curb demand. Industry is already shutting down and the euro is slipping because of the economic damage caused by Moscow’s energy war. As winter progresses, Europe’s resolve is to support one another Ukraine can be tested against Russia.

While the 15 percent cut in gas demand the EU is pushing for could allow the bloc to avoid rationing, governments have so far been slow to act to cut consumption. The European Commission warned in July that an unusually cold winter or lower gas imports from alternative sources would increase the risk “More drastic cuts.”

Gas prices had fallen last week as traders increasingly expected Gazprom to reopen the link after signals from Moscow indicated a reopening was on the cards. Then, at the last minute, just hours after the Group of Seven agreed to seek a price cap on Russian oil, Gazprom said the link would remain closed as a bug was found during maintenance.

Already four times the level of a year ago, prices are set to jump on Monday, putting pressure on industries and households – and on policymakers – to act.

The complete halt to Nord Stream, which runs under the Baltic Sea to Germany, leaves only two main routes delivering gas to the European Union: one via Ukraine and one via TurkStream through the Black Sea. Flows through Ukraine have also been severely restricted, with only one of two branches operational.

The indefinite loss of the vital pipeline is also increasing pressure on Germany to keep nuclear power plants planned for this year open longer – a decision that would be contentious. The government says it is still awaiting the results of stress tests before making a decision, but the move is becoming increasingly likely.

BNEF calculates that the expansion of two nuclear power plants would save 2.3% of gas requirements. That is 5.4 million cubic meters per day.

“Nuclear expansion is a no-brainer for Germany and will definitely make a difference,” said Kesavarthiniy Savarimuthu, an analyst at researcher BloombergNEF. “Every mcm of gas is crucial for the security of supply and the further reduction of gas demand in the energy sector.”

With Nord Stream shut down and flows through Ukraine dammed, much now depends on the weather.

October, the start of the winter heating season, is looking mild so far, according to Maxar Technologies LLC, with above-average temperatures expected across northern and western Europe. How quickly it gets cold will determine how quickly Europe has depleted its gas supplies.

Asia and Europe are competing for LNG, and if winters are particularly cold in both regions, there is a risk that gas storage in Europe will run out towards the end of winter. Policy makers are hoping for an early spring.

“Getting through the winter will be a challenge for Germany,” said Penny Leake, research analyst at consultancy Wood Mackenzie Ltd. “That will no doubt lead to cuts in demand.”

–With the support of Anna Shiryaevskaya.

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