The Russian gas cut leads Europe to coal | Economy

The European winter has begun to twist in the early stages of summer. The drastic drop in Russian gas shipments has fueled fears, throughout the continent, of a cold season without sufficient supply to meet a demand that does not respond to repeated calls for containment. If until recently the debate was whether the Twenty-seven would dare to cut ties with Russian gas to stop financing the war, in a matter of days the plane has completely changed: it is the Kremlin that has precipitated everything, cutting by two thirds its gas exports to its neighbors to the west. And it has led several large European economies to turn their eyes on coal.

Year after year, the Twenty-seven apply the moral of the cicada and the ant: they take advantage of the season of lower consumption (the end of spring and summer) to fill up the tanks to the maximum and thus pass with some ease the straits typical of the months in which the heating works at full capacity and the use of gas to generate electricity also skyrockets. This 2022, the policy of express filling of deposits to meet the Brussels threshold (80% in November) made more sense than ever: predicting Moscow’s next move on the energy board is impossible. But Russia has gone on the attack sooner than expected, turning off the tap early and putting the largest EU countries in a bind: burn more coal or apply severe energy rationing with harsh economic consequences.

All the messages emanating from the largest countries in the bloc in recent weeks go in the same direction: fasten your seatbelts. Germany has moved up a notch on its alert scale. From Berlin and also from the Netherlands, Italy and Austria have warned that they will have to use more coal – by far the most polluting source of energy – to save gas. A situation made worse by the inactivity of a good part of the once powerful French nuclear parkwhich is forcing its neighbors (Germany, Spain and Italy, fundamentally) to increase their electricity generation to supply the second most populous country in the euro.

“We must not fool ourselves: the gas supply cut-off is an economic attack by [Vladímir] Putin against us ”, assured this week the German Minister of Economy and Climate, the green Robert Habeck, when raising the alert level to the second phase – of three – in anticipation of gas rationing. Berlin is clear that the technical explanations that Moscow has given to explain the partial closure of Nord Stream 1, the main tube through which Russian gas reaches the EU, are nothing more than an excuse: “It is evident that it is a strategy to destabilize and raise prices”.

“This year, European energy companies have made an extra effort to rebuild their inventories. And it had gone well, thanks to the record imports of liquefied natural gas (LNG, in the jargon of the sector, the one that arrives by ship)”, he explains. Henning Gloystein, head of energy issues at the consulting firm Eurasia, in a recent analysis for clients. The figures support his argument: gas deposits are now at 55% in the EU, ten points more than a year ago. However, as Russia has been restricting shipments in recent days — citing technical reasons that few believe — the rate of filling has slowed down, increasingly complicating the community goal of 80%.

If and only if the LNG market operates smoothly in the remainder of 2022, says Gloystein, the EU could dodge winter rationing. Even if Russia continues to turn off the tap. “Otherwise, if there are further disruptions to shipments from other countries [al margen de Rusia]demand will have to be reduced next winter”, warns the Eurasia analyst.

That scenario, that of almost total dependence on LNG, would be especially risky. This is demonstrated, for example, by the recent explosion at the Freeport plant in Texas —key for the transfer of US gas to the EU—, which will substantially reduce transatlantic flows in the coming months, as the head of gas market analysis recalls goldman sachs native, samantha dart. The alert is not only about supply (what worries the north the most), but also about prices (what worries the south the most): the US investment bank does not see a gas price of more than 200 euros per megawatt hour in Europe, compared to the current 130 euros.

Even more forceful is Katja Yafimava, a gas specialist at the Institute of Energy Studies at the University of Oxford: “If the deposits have not been able to be refilled in winter, gas rationing and blackouts are inevitable, with Germany and a good part of Central Europe looking particularly hard hit. Even if the solidarity mechanism is applied.” In this extreme emergency, as EL PAÍS anticipated, the countries that, like Spain, have alternative sources of gas supply, would have to share their fuel with the countries affected by the cut.

So far, monthly shipments of Russian gas by tube have gone from 13 to 5 billion cubic meters (bcm), a drop that European countries have been able to cover by redirecting LNG flows, it points out. Thierry Bros., professor at Sciences Po Paris. If the flows continue to drop, however, “there will be no other alternative than rationing next winter: LNG arrivals are close to their ceiling, both due to the capacity of the market itself and that of the regasification infrastructure,” adds Bros. If one thing is clear, it is that the Kremlin will keep shipments to a minimum in the coming months as the main weapon in its permanent tug of war with the Twenty-seven.

“We are facing an economic war,” he adds. Georg Zachman, a researcher at the Bruegel study center in Berlin: “It is a chess game in which each player seeks to optimize his moves: if Russia cuts off the gas completely, it will no longer have any advantage over Europe. Right now, with two thirds of the volume less, it is earning twice as much money”, he points out in reference to the brutal rise in prices, which have quintupled in a matter of months. Putin, however, is unpredictable. And it is necessary to prepare for the total closure, which he assures would leave the continent in a “very precarious” situation: “Reducing consumption in Europe by 20% is feasible; 50% would be very painful.”

Germany, the most critical point

Fear of having to shut down industry to prioritize critical infrastructure and homes grips the EU’s largest economy. Economists warn that an abrupt halt to gas would plunge Germany into recession relatively quickly. The country is preparing to consume less, with official campaigns that urge shorter showers and lower degrees. The government of Social Democrat Olaf Scholz was already willing to unhook from Russian gas before the cuts, but was confident in the margin of facing winter with full tanks. Although that is not a panacea either. If the Russian tap was closed, with 100% storage, the country would last two and a half months before seeing empty tanks again, acknowledged Klaus Müller, the official who heads the Federal Network Agency.

The next critical moment will be on July 11, when it is time for the annual maintenance of Nord Stream 1. Usually, this process lasts about ten days, but the fear is that it will end up not reopening. “If that happens, we would have to start burning coal, with the consequent increase in emissions, and ration gas almost immediately to preserve a minimum volume for the winter,” says Gonzalo Escribano, director of the Energy and Climate program at the Real Elcano Institute. Gazprom has stopped this week, also claiming maintenance work, the TurkStream, the gas pipeline that transports gas through the Black Sea bed and through Turkey to countries such as Bulgaria, Greece, Romania and Hungary. It is scheduled to return to work on the 29th, but the shutdown adds tension to the European gas war.

Burning more coal – more than what Germany already burns: together with Poland, the EU country that continues to depend the most on this source of energy – would be very traumatic for the coalition government, which includes environmentalists and which has just over six months it agreed to abandon its use before 2030. It was precisely a minister from the Greens who was in charge of announcing the painful measure, which puts at risk the fulfillment of the country’s climate commitments. Austria and the Netherlands will also turn to that fossil fuel to produce electricity if the gas stops coming, which will increase their greenhouse gas emissions. Renewables are the only alternative for the future, but in the short term this seems to be the only way out of the quagmire.

Berlin managed to reduce its dependence on Russian gas from 55% before the war to 35% in less than two months, but Moscow has caught up with its efforts to find alternative suppliers and, above all, build regasification plants in order to receive liquefied natural gas by ship. Germany lacks these facilities because the governments of the last two decades have entrusted everything to cheap gas from Moscow and have not built alternative infrastructure to Gazprom’s gas pipelines. Giving even more scope to coal-fired power plants is a “bitter, but essential” pill to swallow, said a grumpy Habeck when he announced that the priority now is to use the gas that arrives to fill the tanks. Germany had already been burning more coal than it would like: in 2021 it produced 30% of electricity like this, compared to 24.9% the previous year.

For Austria, the decision to put the green energy transition on hold is even more controversial because the country had managed to say goodbye to coal-fired electricity generation and become a model for its European neighbors. In 2020, the last plant closed, as part of its plan to produce electricity entirely from renewables in 2030. Now Putin’s maneuvers – Gazprom has reduced its shipments to 40% – force him to back down: the Government is preparing to reopen the coal-fired power plant in Mellach, about 200 kilometers south of Vienna. Since its closure, the energy company Verbund had converted it into a research center for hydrogen and large-scale battery storage.

The return to the coal era is also a bitter pill for the Netherlands, which has its own gas reserves in Groningen, in the northwest of the country, but prefers to exploit them to a minimum because extraction generates seismic activity. Although the dependence on Russian gas is much lower than in Germany and Austria, at 15%, the Dutch government has decided to increase the production capacity of its coal-fired power plants to reduce the use of natural gas. Until now, plants have operated with limited capacity to reduce greenhouse gas emissions as much as possible. Amsterdam had set itself the same goal as Berlin: to close all of its coal-fired power plants by 2030.

“Europe has to be ready for a total cut in Russian gas supplies,” warned the director of the International Energy Agency (IEA), Fatih Birol, on Wednesday. in the Financial Times. “The cuts [en el suministro ruso de gas] they seek to prevent Europe from stocking up,” he added while predicting “more and deeper measures” to contain demand “as winter approaches.” Despite repeated warnings from national and community authorities to try to reduce gas and fuel consumption, for now the demand has not responded to these prayers. Now, it is an imperative. “If we don’t do it the easy way, we’ll do it the hard way, with rationing”, exposes Escribano. “The bad thing is that we are only at the beginning: the worst is yet to come.”