STRATEGIC ASSESSMENT. Austria is set to reopen its Mellach coal power plant two years after it was shut down to ensure the country can meet its energy demands amid fears of a shortage of gas from Russia. A host of other European countries, including Germany and the Netherlands, are also considering using coal to make up for shortfalls in Russian gas, moving back to an energy source much of the continent has sought to phase out in recent years in order to meet carbon reduction targets.
The German economy could lose 12.5% of its annual output if Russian natural gas supplies are abruptly stopped, Bild tabloid reported on Tuesday, citing a study by the Bavarian Industry Association.
The analysis was reportedly carried out by Prognos AG, based on a scenario in which Russian gas supplies are cut off on July 1.
If this were to occur, Germany’s glass, steel, and food industries would suffer losses of €49 billion this year, which would affect production and supply chains in other industries. The costs were estimated to reach €144 billion in the second half of the year. In total, around €193 billion would be wiped out from GDP in the six months of 2022, the research shows.
“The dependence of the German economy on Russian gas is underestimated,” Prognos AG spokesman Michael Behmer said, as quoted by the Bild.
Germany had once received around 55% of its imported gas from Russia. This month, Russian gas flows via the Nord Stream pipeline to the country were cut by as much as 60% due to technical issues arising from the sanctions on Moscow. In response to this, the German government launched the second ‘alarm’ phase of its three-level gas emergency plan. Berlin has warned that it faces a severe shortage of gas amid decreasing flows from Russia.
Germany’s Federal Network Agency announced on Monday that the situation with natural gas in the country was tense and may further deteriorate.
The regulator stated it was “monitoring the situation very closely and is in constant contact with gas industry enterprises.”
However, it noted that gas supplies to the country are stable at present. The level of gas occupancy in storage facilities exceeds 60%, according to the agency.
The head of the German Association of Energy and Water Industries, Kerstin Andreae, pointed out that “because of Russia sanctions, Germany has to bet on coal <…> We are displacing gas in order to become more independent of fossil energy and Russian gas.”
Berlin announced earlier that the country had made a “bitter” decision to restart coal power plants in order to cope with a possible energy crisis this coming winter.
This month, Russian gas flows to Germany through the undersea Nord Stream pipeline were cut by as much as 60% due to technical issues arising from Western sanctions against Moscow. In response to this, the German government launched the second ‘alarm’ phase of its three-level gas emergency plan. Berlin has warned it’s facing a severe shortage of the fuel amid diminishing flows from Russia.
t may take more than three years for the EU to replace Russian gas imports if they are cut off abruptly, international ratings agency Fitch said in a report published on its website on Tuesday.
“A sudden cessation is not Fitch’s base case, but is a risk. Bulgaria and Poland have already been cut off and supplies to other EU members have been reduced. Supply and infrastructure constraints mean it could take the EU more than three years to offset a full loss of Russian gas supply,” the agency stated.
If Russian supplies cease, EU countries “would face a significant macro shock,” Fitch warns, which includes negative economic growth and higher inflation.
The agency expects Slovakia, Hungary, and the Czech Republic to be the most vulnerable to a sudden shutdown, as they depend on Russian gas the most due to the lack of alternative sources. Poland, Lithuania, and Romania are more or less safe, as they have largely secured alternative supplies or have domestic production.
In April, Bulgaria, Poland, and Finland refused to comply with Russia’s new ruble-based gas payment mechanism, which led to Gazprom cutting off supplies to them. Earlier this month, the state-run energy giant also reduced the volume of gas deliveries through the Nord Stream gas pipeline to Germany by nearly 60%, citing technical issues due to the Ukraine-related sanctions.
These events have sparked fears throughout Europe that Russia could cut off gas completely, prompting European countries to announce emergency measures, such as gas rationing and reviving coal-powered energy plants. Moscow has repeatedly said it will do its utmost to maintain its reputation as a “reliable gas supplier,” and denied plans to cut Europe off entirely.
As for the high cost of energy, an idea to cap the price of Russian oil had caused a stir in the days leading up to the summit. Embargoes on oil from Russia over the war in Ukraine have had the unintended but foreseeable effect of driving up the global price of crude, to the benefit of key exporter Russia. A cap could bring down energy prices for consumers and businesses while also hitting Russia’s war chest.
Despite their apparent enthusiasm, the leaders ultimately announced merely an agreement to “explore” a ban on transporting Russian oil sold above a certain price.
“The idea to put a cap is a very good one,” French President Emmanuel Macron said Tuesday, but he warned of a “technical difficulty” in implementing it.
The event did produce an agreement by at least some of the group’s members to stop buying newly mined gold from Russia, one of the world’s biggest producers (Red/many sources).
