Germany and Austria consider gas rationing over payment standoff with Russia

Germany and Austria have taken the first formal steps towards gas rationing as Europe braces for a possible halt in deliveries from Russia over a dispute over payments.

Robert Habeck, Germany’s economy minister, on Wednesday morning activated the “early warning phase” of an emergency gas law put in place to deal with severe energy shortages.

The move was prompted by German fears that Russia could cut off supplies to the country and its neighbors because they push back against Moscow’s efforts to force payment for gas imports in roubles.

Russian officials said on Tuesday that Moscow would not “supply gas for free” to Europe, a day after G7 countries unanimously rejected President Vladimir Putin’s directive requiring payment in roubles.

During Germany’s early warning phase – the first of three stages of its emergency response – a team from the economy ministry, the regulator and the private sector will monitor imports and storage.

If supplies are insufficient and attempts to reduce consumption do not work, the government will cut parts of German industry off the grid and give preferential treatment to households.

Austria also said it would implement the first stage of its own three-stage national contingency plan, citing a “concrete and reliable” expectation that gas supplies will drop dramatically in the weeks to come. to come.

Russia provides 80% of Austria’s domestic gas needs and the country is one of Europe’s largest hubs for Russian gas imports.

“We will do everything possible to secure the gas supply for Austrian households and businesses, Chancellor Karl Nehammer told a press conference in Vienna.

Russian state gas supplier Gazprom and the country’s central bank are due to report to Putin on Thursday on a mechanism to implement the gas payment currency change to rubles.

Asked if the new Russian gas payment rules would come into effect on Thursday, Kremlin spokesman Dmitry Peskov said: “No, absolutely not”.

Volker Wieland, a professor of economics at the University of Frankfurt and a member of the German Council of Economic Advisers, warned that a cut in Russian energy supplies would create a “substantial” risk of recession and bring the biggest economy to Europe “close to a double-digit level”. inflation rate “.

Even without interruptions to Russian gas supplies, Germany’s inflation rate could reach 6.1% this year, said economists, who advise the German government. Without energy imports from Russia, it would reach between 7.5 and 9 percent, the council said.

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Habeck, who is also vice-chancellor, told reporters in Berlin that the step was taken in anticipation of Russian law, which conflicts with naming long-term supply contracts in euros or dollars. “We will not accept [unilateral] breach of contract,” Habeck reiterated.

Sergei Ryabkov, Russia’s deputy foreign minister, insisted that demanding payment in rubles was not a breach of contract, the official Tass news agency reported.

A White House official said, “This is yet another attempt by Russia to prop up its collapsing rouble. As you know, Mr President [Joe] Biden banned Russian energy imports, so it doesn’t apply to us. We are consulting with allies and partners and each country will make its own decision.”

The EU has set a target of filling gas storage sites to 80% capacity by early November to secure supplies for the winter, a level Germany has not reached Last year.

Gas storage facilities in Germany are about 26.5% full, after hitting a four-year low of 24.6% this month, according to Gas Infrastructure Europe.

Thomas Rodgers, European gas analyst at ICIS, an energy consultancy, said: “The national and European target of 80% by November 1 seems feasible but costly, as long as Russian flows are not disrupted. and that the continent outbids Asia to bring in LNG cargoes.

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Habeck stressed that for now gas supplies from Russia are proceeding normally.

However, as Germany attempts to wean itself off Russian gas and now imports more LNG via third countries, Russia’s market share of German imports has fallen from an average of 55% in recent years to 40 % over the past few weeks. Germany has no LNG import terminals.

Germany last week unveiled targets to rapidly reduce its reliance on Russian energy, vowing to wean itself off the country’s gas by mid-2024 and become “virtually independent” of its oil by the end of this year.

Wholesale gas prices in Europe rose 11% to 118 euros per megawatt hour on Wednesday morning, around seven times more than a year earlier.

Peskov pointed out that “payments and deliveries are a process that stretches over a certain period of time”, according to Russian news agency Interfax. “It’s not like it’s delivered tomorrow and you have to pay [immediately in roubles].”

His comments signaled that European gas buyers have at least a month before ruble payments become mandatory, analysts said. March gas deliveries have already been made and will be paid for in the coming days. Payments for most April deliveries are not due until early May.

Peskov said Russia should also consider selling a wider range of exports in rubles, such as grain, fertilizers, metals, timber and oil.

Referring to the proposal of a Russian MP, he said: “It is certain that this idea must be studied in depth. . . Many countries are showing an interest in mutual settlements in national currencies.

Italy declared on February 27 a state of “pre-alarm” on its natural gas supplies – the first level of its energy emergency plans – citing the increased risk to supplies from the conflict in Ukraine. The country, which gets 40% of its gas from Russia, did not sound the alarm further due to Russian demand for payment in roubles.

Also on Wednesday, Polish Prime Minister Mateusz Morawiecki said his country plans to stop importing Russian oil by the end of this year and end coal imports by the end of May as part of a a campaign to wean ourselves off Russian energy sources.

Poland gets around 70% of its energy from coal, most of which is mined in the country, but it also imports large volumes of gas from Russia.

Additional reporting by James Shotter in Warsaw, Amy Kazmin in Rome and James Politi in Washington

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