Europe may shift back to coal as Russia turns down gas flows

Pipes on the landfall services of the ‘Nord Stream 1’ gas pipeline are pictured in Lubmin, Germany, March 8, 2022. REUTERS/Hannibal Hanschke/File Photo

FRANKFURT/MILAN, June 20 (Reuters) – Europe’s greatest Russian gas consumers raced to discover various gas provides on Monday and will burn extra coal to deal with decreased gas flows from Russia that threaten an vitality disaster in winter if shops are usually not refilled.

Germany, Italy, Austria and the Netherlands have all signalled that coal-fired energy vegetation might assist see the continent by way of a disaster that has despatched gas costs surging and added to the problem going through policymakers battling inflation.

The Dutch authorities stated on Monday it could take away a cap on manufacturing at coal-fired vitality vegetation and can activate the primary section of an vitality disaster plan.

Italy moved nearer to declaring a state of alert on vitality after oil firm Eni (ENI.MI) stated it was advised by Russia’s Gazprom (GAZP.MM) that it could obtain solely a part of its request for gas provides on Monday.

Germany, which has additionally skilled decrease Russian flows, introduced on Sunday its newest plan to enhance gas storage ranges and stated it might restart coal-fired energy vegetation that it had aimed to section out.

“That is painful, but it is a sheer necessity in this situation to reduce gas consumption,” stated Economy Minister Robert Habeck, a member of the Green celebration that has pushed for a quicker exit from coal, which produces extra greenhouse gases.

“But if we don’t do it, then we run the risk that the storage facilities will not be full enough at the end of the year towards the winter season. And then we are blackmailable on a political level,” he stated.

Russia on Monday repeated its earlier criticism that Europe had solely itself to blame after the West imposed sanctions in response to Moscow’s invasion of Ukraine, a gas transit route to Europe as effectively as a significant wheat exporter.

The Dutch front-month gas contract , the European benchmark, was buying and selling round 124 euros ($130) per megawatt hour (MWh) on Monday, down from this 12 months’s peak of 335 euros however nonetheless up greater than 300% on its stage a 12 months in the past, earlier than costs began rocketing.

FILLING INVENTORIES SLOWLY

The CEO of Germany’s largest energy producer RWE (RWEG.DE), Markus Krebber, stated energy costs might take three to 5 years to fall back to decrease ranges.

Russian gas flows to Germany by way of the Nord Stream 1 pipeline, the primary route supplying Europe’s greatest economic system, have been nonetheless operating at about 40% of capability on Monday, regardless that they’d edged up from the beginning of final week.

Ukraine stated its pipelines might assist to fill any hole in provide through Nord Stream 1. Moscow has beforehand stated it couldn’t pump extra by way of the pipelines that Ukraine has not already shut off.

Eni and German utility Uniper (UN01.DE) have been amongst European firms that stated they have been receiving lower than contracted Russian gas volumes, though Europe’s gas inventories are nonetheless filling – albeit extra slowly.

They have been about 54% full on Monday in opposition to a European Union goal of 80% by October and 90% by November.

Germany’s economic system ministry stated bringing back coal-fired energy vegetation might add up to 10 gigawatts of capability in case gas provide hit essential ranges. A regulation associated to the transfer goes to the higher home of parliament on July 8.

Alongside a shift back to coal, the newest German measures embody an public sale system to encourage business to eat much less gas, and monetary assist for Germany’s gas market operator, through state lender KfW (KFW.UL), to fill gas storage quicker.

RWE stated on Monday it might lengthen the operation of three 300 megawatt (MW) brown coal energy vegetation if wanted.

RUSSIA BLAMES WEST

Austria’s authorities agreed with utility Verbund (VERB.VI) on Sunday to convert a gas-fired energy plant to coal ought to the nation face an vitality emergency. OMV (OMVV.VI) stated on Monday Austria was set to obtain half the standard quantity of gas for a second day. learn extra

The Netherlands will take away a manufacturing cap at coal-fired vitality vegetation to protect gas within the mild of Gazprom’s strikes to lower provides to Europe. Dutch vitality minister Rob Jetten, who made the announcement on Monday, stated the federal government had additionally activated the primary section of an vitality disaster plan. learn extra

Russia’s state-controlled Gazprom lower capability final week alongside Nord Stream 1, citing the delayed return of apparatus being serviced by Germany’s Siemens Energy (SIEGn.DE) in Canada.

“We have gas, it is ready to be delivered, but the Europeans must give back the equipment, which should be repaired under their obligations,” Kremlin spokesman Dmitry Peskov stated.

German and Italian officers have stated Russia was utilizing this as an excuse to scale back provides.

Italy, whose technical committee for gas is predicted to meet on Tuesday, has stated it might declare a heightened state of alert on gas this week if Russia continues to curb provides.

The transfer would set off measures to scale back consumption, together with rationing gas for chosen industrial customers, ramping up manufacturing at coal energy vegetation and asking for extra gas imports from different suppliers below present contracts.

($1 = 0.9508 euros)

Additional reporting by Susanna Twidale in London, Nora Buli in Oslo, Bart Meijer in Amsterdam, Alexandra Schwarz-Goerlich in Vienna; Writing by Barbara Lewis; Editing by Edmund Blair, Jan Harvey and Susan Fenton

Our Standards: The Thomson Reuters Trust Principles.