December 2, 2023

BERLIN – Leaders in Europe, facing the worst energy crisis in decades, are taking extraordinary steps to secure supplies for the winter amid fears of fuel shortages and near-record prices for electricity and natural gas.

In Berlin, lawmakers prepared to approve legislation that would pave the way for Germany to bail out the country’s largest importer of Russian gas. In Paris, the Prime Minister announced her government’s intent to take full control of the state-subsidized French electricity provider.

There are growing fears that rising energy costs, driven by a steady decline in Russian gas shipments, will force energy companies to collapse — a downward spiral that Germany’s energy minister likened to the way the collapse of Lehman Brothers triggered the global financial crisis in 2008.

“The scale of the crisis and the risk of disruption and further price hikes are now so great that there is a sense in major EU governments that they require national bailouts,” said Henning Gloustein, director at Eurasia Group, a political risk firm. “Private companies will not be able to afford these costs.”

The turmoil is becoming felt across the continent as countries including Austria, France and the Czech Republic try to find enough gas to fill their storage tanks before temperatures drop — and many fear, before Russia halts gas shipments completely, perhaps as soon as possible. July.

But the sense of danger is most acute in Germany, Europe’s largest economy, which for years relied on Russia for most of its gas needs. Looming is the threat that next winter’s shortages could lead to gas rationing and industry shutdowns – thus job losses and protests. Last month, Germany enacted the second phase of its three-step gas emergency plan; The third stage allows the government to introduce rationing.

Residents of a municipal housing complex in Saxony recently learned that their hot water would be turned off for up to four hours a day to conserve gas. Companies are already taking steps to reduce the gas they consume and are making contingency plans in case flows are further reduced.

The measure, which will be put to a vote in Germany’s parliament on Thursday, aims to allow the government to throw a lifeline to companies struggling with record gas prices and supply cuts from Russia.

It will also allow suppliers to pass on price increases to consumers if the authorities decide that “a significant reduction in the total volume of gas imports into Germany is imminent”. Some economists have argued for months that such a measure, which would cause residential electricity bills to rise, is necessary to bypass dependence on Russian gas.

Uniper, an energy provider and Germany’s largest importer of Russian gas, could be the first beneficiary of the revised legislation. Last week, it said it was talking to the government about a possible rescue plan after it revised its financial forecast, predicting earnings would be “significantly lower” than those of previous years.

The company employs 5,000 people in Germany, owns several gas-fired power plants and gas storage facilities, and is an important supplier of electricity to hundreds of cities and towns.

Uniper has faced mounting losses since Gazprom, the Russian gas giant, disrupted shipments of natural gas through its Nord Stream 1 pipeline last month by 60 percent, forcing Uniper to turn to the spot market to buy gas at much higher prices to make it happen some time ago. long. Contracts with municipalities and companies.

Analysts at S&P Global Ratings, which assesses the creditworthiness of companies, estimated on Wednesday that shortages from Gazprom, which typically supplies more than 50 percent of Uniper gas, were weighing on the company with massive daily losses in the “millions of euros.” Boers that the red ink is likely to increase if supplies from Gazprom are further reduced.

Robert Habeck, Germany’s economy minister, warned that the situation could worsen, but said the government would not allow the collapse of a single energy company to cause a collapse in the entire European market.

“We will not allow a systematic impact on the German and European gas market, because domino effects will occur after that and the company’s bankruptcy will affect other sectors or even the security of supply as a whole,” he told reporters on Tuesday.

In France, Prime Minister Elisabeth Borne announced a similar move regarding the state-backed nuclear energy operator, Éelectricité de France. EDF has had to shut down about half of its reactors, driving the already troubled company deeper into debt.

“Today I confirm the state’s intent to retain 100 per cent of the EDF’s share capital,” Ms Bourne told lawmakers, without providing details. To overcome the energy crisis, France is betting on its nuclear plants, which provide about 70 percent of its electricity, a larger share than any other country.

A new threat to energy supplies will occur on Monday when the Nord Steam 1 pipeline, which connects the north coast of Germany to Russian gas fields, is scheduled to shut down for 10 days for its annual routine maintenance.

Fears are mounting that Gazprom’s shipments to Europe “could be cut off for good, raising the possibility of gas shortages next winter,” Eurasia Group’s Gloestin wrote in a recent note.

The cuts from Russia have heightened the importance of Norway, which has become Europe’s largest gas supplier, prompting its exports to counter Russian cuts. A strike by Norwegian gas field workers this week threatened to cut off up to 60 per cent of supplies to Western Europe, but the government quickly intervened to halt the shutdown.

“Norway plays a vital role in supplying gas to Europe, and the planned escalation will have serious consequences for Britain, Germany and other countries,” Norway’s Labor Minister Martje Magus Persen told Reuters of the strike. “The impact would have been dramatic given the current European situation,” she added.

Norwegian gas was essential to efforts to fill storage facilities in Germany, many of which were owned by Gazprom and dried up in the months leading up to the invasion of Ukraine. The facilities are now more than 62 percent full, a government agency said, adding that if Russia cuts off all gas flow through Nord Stream 1, it would be nearly impossible to reach the 90 percent target by November.

Concerns have doubled the already high natural gas prices in Europe over the past month to around €160 per megawatt-hour. That price is comparable to about $280 a barrel of oil, nearly three times what the US Standard West Texas Intermediate now earns.

Economists warn that rising energy prices, combined with a shortage of stored gas, could push Germany, and all EU countries, into a recession lasting until 2023.

If Russia does not restart Nord Stream 1 by July 21, “the EU will likely run empty at the end of winter,” Holger Schmieding, chief economist at Berenberg, wrote in a research note. “If Russia closes other pipelines to Europe as well in late July, the situation will be even more dire.”

Melissa Eddy writes in Berlin and Stanley Reed in London.

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