Germany Warns High Nat-Gas Prices Could Trigger Market Collapse

German Economy Minister Habeck today warned that Russia’s moves to cut Europe’s natural gas supplies risks sparking a collapse in energy markets, much like the role of Lehman Brothers in triggering the 2008 financial crisis.  Moreover, Habeck said with energy suppliers piling up losses by being forced to cover volumes at high prices, there’s a danger of a spillover effect for local utilities and their customers.

Germany, Europe’s largest economy, relies on Russia for more than a third of its gas supplies, enacted an initial “early warning” phase on gas supplies at the end of March when Russia demanded nat-gas payments be made in rubles.  Today, Germany triggered the second stage of the country’s three-phase gas-emergency plan, which allows the government to enact legislation to allow energy companies to pass on cost increases to homes and businesses. 

Habeck warned that Germany should brace for a further reduction in Russian gas flows after Russia’s Gazprom PJSC cut gas deliveries on the key Nord Stream pipeline by about 60% last week.  If Germany were to enact the third and highest “emergency” phase gas-emergency plan, then the government would implement rationing and take control over nat-gas distribution.

The nat-gas crisis has spread beyond Germany, with 12 European Union member states affected and 10 issuing an early warning about nat-gas supplies.  Habeck said Russia’s move to cut gas deliveries through the Nord Stream pipeline makes it all but impossible to secure sufficient gas reserves for the winter without additional measures.  Germany has been rushing to fill up gas-storage facilities, but only 58% of reserves are full, and energy companies are trying to reach a government-mandated target of 90% capacity by November.

Russia has gradually reduced gas supplies in apparent retaliation for sanctions imposed on it for the invasion of Ukraine.  The standoff escalated last week after steep cuts to the main gas link to Germany were made. Germany’s network regulator, BNetzA, said the daily fill rate dropped by about half on Wednesday, and it would take more than 100 days to fill gas reserves at the current rate, putting the country well into the traditional heating season.  Germany has taken steps to secure supplies, including reactivating some coal-fired power plants and building infrastructure to import liquified natural gas (KNG) from the U.S. and other suppliers, but those won’t be ready until later this year.

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