Nikhil Kumar
It is November 2022. After a scorching summer, Europe finds itself in the grip of a harsher-than-expected winter. And in Germany, authorities have just learned that the Nord Stream 1 gas pipeline, which brings Russian gas to the continent’s largest economy, is running empty; the Kremlin has turned off the tap. There has been no warning; it takes up to 24 hours for the Germans to realize that their biggest source of natural gas, and a principal source of the country’s energy supply, has gone dry.
It’s a nightmare scenario — and it’s also a real possibility, given German dependence on Russian gas and Russian President Vladimir Putin’s repeated reminders of the leverage his country holds regarding energy. German officials and many German citizens are imagining — and planning for — the worst.
The fallout would be immediate for the German economy: Under an emergency plan laid out by the government, the first blow would fall on German industry — to ensure that households, small businesses, schools and hospitals are not left cold and literally in the dark. Many large industrial customers get their gas on what are known as “interruptible contracts” — meaning that, in the event of a sudden crunch, they will be the first to see cuts in supplies. That in turn will lead to shutdowns at factories and reductions in working hours at large companies to ensure that broader Germany society — almost half of all German homes rely on natural gas for heating — can get through the cold months.
The hit to industry would, of course, ultimately hit ordinary Germans. While the country has moved rapidly to ease its energy dependency, the country still relies on Russia for more than a third of its gas needs, down from around 55 percent before the Ukraine invasion. One projection suggested that a complete shutdown of Russian gas supplies could shave almost 3 percent off Germany growth next year. As Petr Cingr, the chief executive of SKW Stickstoffwerke Piesteritz, a major German chemicals producer, told the Financial Times recently, a shutdown of Russian gas would mean that “we have to stop [production] immediately, from 100 to zero.”
It’s a scenario that policymakers from Berlin to Brussels and beyond are racing to avoid. Germany is ground zero for these worries, given its dependency on Russia and the Nord Stream 1 pipeline.
“There are a lot of moving parts. It depends on what Russia does, it depends on winter, on how bad it is, and it depends on demand,” Timothy Ash, a senior strategist at the London-based financial services firm Bluebay Asset Management, told Grid. “It’s touch and go, put it that way. It looks like it is going to be a very difficult winter.”
The consequences could stretch well beyond energy. Europe has surprised many observers with its reaction to the invasion of Ukraine, implementing far-reaching economic sanctions on Russia, sending billions of dollars in military and financial aid to the Ukrainian resistance — despite its long-standing dependence on Russian oil and gas. Perhaps the greatest surprise came from Germany in late February, when newly minted Chancellor Olaf Scholz proclaimed a “turning point” for his country’s foreign policy, tearing up prohibitions dating to World War II and shipping weapons to Ukraine.
But as summer ends, and the temperatures begin to dip, the difficult questions will loom. There’s already an energy crunch across Europe — felt as keenly as anywhere in Germany. Wholesale gas prices on the continent have spiked to levels as high as 14 times their average over the past 10 years; what will happen if and when Putin further weaponizes the energy card? Will the support for Ukraine last? Certainly, experts warn, Putin has a clear incentive to make things harder for Europe — and in turn, to pressure Ukraine.
“I think he will be looking for some kind of peace deal this autumn, and to prepare Europe for that he’ll probably further restrict energy supplies to create a gas crisis this winter, so Europe will try and force Ukraine to concede ground,” Ash said. “We have to assume Putin will be a bad guy.”
Preparing for the nightmare
That’s the bad news. The good news is that Germany — and the continent as whole — isn’t waiting for the nightmares to come. There are already several measures underway that would put Germany and other nations on a stronger footing before the weather turns. These involve boosting gas reserves, turning to available alternative energy sources, and imposing energy rations on businesses and individuals both. Some of these measures appear to be working.
In Germany, gas storage facilities are already nearly 80 percent full — meeting a recent European Parliament goal to raise storage levels for all member countries to that mark by Nov. 1. Overall, Europe-wide storage levels are at around 77 percent.
But questions remain about whether the resolve will last, as Russia is currently supplying only about 20 percent of what it normally does through the Nord Stream pipeline. Moscow has blamed the reduction on maintenance issues caused by Western sanctions; the flow could decrease further later this month when Russia says it will shut the pipeline completely for three days — again, it says, for maintenance. The result: German regulators are warning that they might not meet their next goal of bringing storage levels to 85 percent by October and 95 percent by early November.
Still, the progress thus far has impressed many experts. “I think Germans should be concerned but not panicked,” Noah Gordon, a fellow in the Europe program at the Carnegie Endowment for International Peace, told Grid. “Fears of people freezing in their homes because of a lack of gas are overblown. … It’s a crisis, but it is not the end of the world.”
This assessment, echoed by others who spoke to Grid, is based not only on efforts to boost storage, but also cuts in consumption. The European Union has set a goal of reducing overall energy use by 15 percent by next March. Germany has responded with a broad range of steps: In Berlin, lights at some 200 historic monuments were turned off over the summer; in Hannover, hot water at public showers and baths was cut off, and air conditioning use restricted in public buildings; and hundreds of apartment complexes in Dresden have seen their supplies of hot water reduced. Companies are doing their share: Deutsche Bank, for example, has cut air conditioning use at its offices, stopped the supply of hot water in all restrooms and turned off the fountain in front of the bank’s headquarters in Frankfurt.
Meanwhile, the war has actually driven usage down by driving up energy bills. That has led many Germans to use less power — even where there are no government mandates or restrictions. And that has helped — both by moving Germany more swiftly toward its overall targets and by boosting storage levels.
“It now seems like price rises have actually reduced demand,” Ash, from Bluebay Asset Management, told Grid. “So now it’s looking a bit better.”
In Germany alone, the International Monetary Fund estimates that gas consumption was already down by 8 percent in June and 15 percent in July compared with averages for the past five years.
A comeback for coal
The energy war has led to a strange twist in Germany, a country with a powerful Green Party and commitment to the environment: Namely, coal is making a comeback. As Grid has reported, Russia’s invasion of Ukraine has prompted a reboot of global demand for the dirtiest of fossil fuels. And Germany is among those countries that have cleared plans to reopen shuttered coal-fired power plants.
Now, some lawmakers are also looking at extending the life of the last of its nuclear reactors. Germany’s last three nuclear facilities are currently slated to shut down by the end of this year; former chancellor Angela Merkel pledged to phase out nuclear power following the 2011 meltdown at the Fukushima nuclear plant in Japan. But with a potential energy crisis looming, nuclear power — much like coal — is back in the conversation.
“There’s a lot to be said to use the three nuclear power plants that we have,” German Finance Minister Christian Lindner said recently. Germany has also made efforts to boost imports of liquefied natural gas by investing in new terminals and striking new deals with international suppliers.
Energy wars — and the actual war
Critical questions remain — nearly all of them hinging on exactly how far Russia goes in using its leverage. As Ash told Grid, if supplies from Russia continue to fall, and the winter proves harsher than anticipated, “then I think Europe has more problems.”
“The great uncertainty is whether Russia will cut off all gas supplies or whether it will continue to just constrict them over time,” David Goldwyn, a former State Department coordinator for international energy affairs, told Grid.
The worst-case scenarios — a shutdown of Russian supplies and a particularly harsh winter — have led to concerns beyond the energy supply itself. In particular, the question of when and whether an energy crisis might affect German support for Ukraine.
So far, that support has proved robust, even as energy prices have skyrocketed. In a July opinion survey by the German broadcaster ZDF, some 70 percent of those polled said they backed their government’s support for Ukraine.
“German and European support for Ukraine has really remained remarkably high considering the slowdown in economic growth and the historic spike in energy prices they are already suffering,” Goldwyn told Grid. He believes the support is strong enough to withstand whatever winter might bring. “Frankly, the more hostile or the more aggressive Russia is with respect to using energy as a weapon,” Goldwyn said, “I think the more popular support there is in Europe for the defense of Ukraine, because it is not solely about protecting Ukrainians, it’s about deterring the Russian threat, which can clearly be aimed and has been aimed at other countries.”
Gordon, from the Carnegie Endowment, is also optimistic, though there might be “some more grumbling,” as he put it. “People’s attention does go away … and a lot of the high price of gas has not yet been passed through to consumers because they fixed prices and then the meter gets read at the end of the year,” he told Grid. “There will be some shock when people get their bills.” What helps, Gordon believes, is the solidarity with Ukraine that many Germans feel because of their proximity to the war zone. “It really feels close when you are in Berlin,” Gordon said. “Support for Ukraine will remain high if the government can ensure that the higher energy cost is spread around.”
Even as Berlin and other European capitals brace themselves for the coming winter, the longer-term outlook is for a clean break — an end to their dependence on Russia. Last year, the European Union relied on Russia for 45 percent of its gas imports. For policymakers in Brussels, Berlin and beyond, the clear lesson from this crisis is that such dependence is untenable; following the Russian invasion of Ukraine, the EU announced plans to end its reliance on Russian energy by 2027.
“Ultimately, we’d all agree on that Russia is not a reliable energy partner anymore for Europe,” Ash told Grid. “Europe will diversify; Russia will be cut out of European supply chains. But we still have to get through this winter, and it is going to be hard.”
No comments:
Post a Comment