Germany launches ‘alert level’ for emergency gas plan, sees high risks of long-term supply shortages

Germany has announced it is moving to its so-called “alert level” for its emergency gas plan, as reduced Russian flows exacerbated fears of a winter supply shortage.

Economy Minister Robert Habeck announced on Thursday that Germany will move to the second phase of its three-phase plan. This means that Europe’s largest economy is now experiencing a high risk of long-term gas shortages.

Germany has seen a sharp decline in Russian gas supplies, prompting the country to warn that the situation will be “Really tight in winter“Without precautionary measures to prevent supply shortages.

“We must not deceive ourselves: cutting off gas supplies is an economic attack on us [Russian President Vladimir] Habek said in a statement, according to Putin’s translation.

“We are defending ourselves against this. But it will be a bumpy road that we as a country have to go through now. Even if you don’t feel it yet: we are in a gas crisis,” he added.

Habek said gas was now a scarce commodity and warned that unusually high prices could continue. “This will affect industrial production and will become a huge burden on many consumers. It is an external shock,” Habeck said.

According to the German emergency gas planthe alert level phase is triggered when there is an “interruption in the gas supply or an exceptional rise in gas demand resulting in a significant deterioration in the state of the gas supply but the market is still able to manage this disruption or demand without having to resort to non-existing measures.” on the market.”

This stage does not require state intervention measures. These start in the “emergency phase” of Phase III, if the government determines that market fundamentals are no longer in effect.

Policymakers in Europe are currently scrambling to fill the underground storage with natural gas supplies to provide households with enough fuel to keep lights and homes warm before the cold returns.

The European Union, which receives nearly 40% of its gas through Russian pipelines, is trying to rapidly reduce its dependence on Russian hydrocarbons in response to the Kremlin’s months-long attack on Ukraine.

Germany, which is highly dependent on Russian gas, has previously sought to maintain strong energy ties with Moscow.

Germany announced the first phase of its gas emergency plan at mach 30nearly a month after Russia’s invasion of Ukraine triggered an energy crisis in Europe.

The Early Warning Phase recognized that while there had been no supply disruptions so far, gas suppliers had been invited to advise the government as part of the crisis team. At the time, Habeck called on all gas consumers – from industry to households – to reduce their consumption as much as possible.

Along with Italy, Austria and the NetherlandsGermany has indicated that coal-fired plants could be used to offset disruption to Russian gas supplies.

Coal is the most carbon-intensive fossil fuel in terms of emissions, and therefore the most important target for substitution in the hub with alternative energy sources.

Habeck said last week that the government’s decision to limit the use of natural gas and burn more coal was a “bitter” move, but that the country should do all it can to store as much gas as possible.

“Coal is on fire again,” Ole Hansen, head of commodity strategy at Saxo Bank, told CNBC’s “Squawk Box Europe” on Thursday. “Producers were oriented toward a less demanding future but that’s clearly not what we’re seeing now.”

Speaking before Germany moved to the alert phase of its gas emergency plan, Hansen said the announcement would reaffirm the predicament in which Europe finds itself, with coal being seen as a “short-term solution” to replace declining Russian gas flows.