Germany triggers ‘alert level’ of emergency gas plan, sees high risk of long-term supply shortages

Germany has announced it is moving to a so-called “alert level” of its emergency gas plan, as low Russian flows raise fears of a winter supply shortage.

Economy Minister Robert Hebeck announced on Thursday that Germany would move to phase two of its three-stage plan. This means that Europe’s largest economy now faces a high risk of long-term gas supply shortages.

Germany has seen a sharp drop in Russian gas supplies, warning the country that the situation is going to be “really tight in winter” without precautionary measures to prevent supply shortages.

“Let us not confuse ourselves: gas supply cuts are an economic attack on us [Russian President Vladimir] Putin,” Habek said in a statement, according to a translation.

He said, “We defend ourselves against it. But it will be a rocky road we now have to walk as a country. Even if you don’t really feel it yet: We are in a gas crisis.”

Habeck said gas has now become a rarity and warned that an extraordinary price rally could continue. “It will affect industrial production and become a huge burden for many consumers. It is an external shock,” Hebek said.

According to Germany’s Emergency Gas Plan, the alert level phase begins when there is “a gas supply disruption or an exceptionally high gas demand, resulting in a significant deterioration in gas supply conditions, but the market is still able to manage that disruption or demand without the need to resort to non-market-based measures.”

State intervention measures are not required at this stage. These kick into the “emergency phase” of phase three, if the government decides that market fundamentals no longer apply.

Policy makers in Europe are currently scrambling to fill underground storage with natural gas supplies to provide enough fuel to light homes and keep homes warm before freezing.

The European Union, which gets about 40% of its gas via Russian pipelines, is trying to sharply reduce its reliance on Russian hydrocarbons in response to the Kremlin’s months-long attack in Ukraine.

Germany, which is heavily dependent on Russian gas, had previously sought to maintain strong energy ties with Moscow.

Germany announced the first phase of its emergency gas plan on March 30, nearly a month after Russia’s invasion of Ukraine triggered an energy crisis in Europe.

The “early warning phase” assumed that although there was no disruption in supply so far, gas suppliers were invited to advise the government as part of a crisis team. At the time, Hebeck called on all gas consumers – from industry to households – to reduce their consumption as much as possible.

Along with Italy, Austria and the Netherlands, Germany has indicated that coal-fired plants could be used to offset cuts in Russian gas supplies.

Coal is the most carbon-intensive fossil fuel in terms of emissions and therefore the most important target for replacement in the pivot to alternative energy sources.

Habeck said last week that the government’s decision to limit natural gas use and burn more coal was a “bitter” move, but that the country should do everything possible to store as much gas as possible.

“The coal is on fire again,” Ole Hansen, head of commodity strategy at Saxo Bank, told CNBC’s “Squawk Box Europe” on Thursday. “Manufacturers were prepared for a less demanding future, but that’s clearly not what we’re seeing now.”

Speaking ahead of Germany’s move to the alarm phase of its emergency gas plan, Hansen said the announcement would confirm the situation that Europe finds itself in, with coal as a “short-term fix” to replace the low flow of Russian gas. is seen as.