European governments are making efforts to fill underground storage depots with gas supplies to provide households with enough fuel to keep homes warm in winter.
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Germany’s natural gas storage facilities passed a fill level of more than 75% this month, two weeks ahead of schedule, as Europe’s largest economy rushes to prepare for the winter ahead.
Latest data from industry group Gas Infrastructure Europe shows that gas storage facilities in Germany are just over 77% full.
Chancellor Olaf Scholz’s government had initially planned for gas storage levels to reach 75% by September 1. The next federally mandated targets are 85% by October 1, and 95% by November 1.
European governments are rushing to fill underground storage facilities with natural gas deposits to have enough fuel to keep homes warm for months to come.
Russia has drastically reduced natural gas supplies to Europe in recent weeks, with flows through the Nord Stream 1 pipeline to Germany currently being only 20% of the agreed volume.
Moscow blames faulty and delayed equipment. However, Germany views the supply restriction as a political maneuver designed to sow European uncertainty and raise energy prices during the Kremlin’s attack on Ukraine.
Even if Germany gets through the winter, the problem could come in the spring next year, so the uncertainty is there and businesses are concerned.
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“Germany developed a business model based largely on reliance on cheap Russian gas and thus on a president who disregards international law [and] of whom liberal democracy and its values have been declared enemies,” Economics Secretary Robert Habeck said at a news conference Monday, according to a translation. “This model has failed and is not coming back.”
His comments came when the German gas market operator, Trading Hub Europe, announced that households across the country would have to pay nearly 500 euros ($507.3) more per year for gas.
The new tax is intended to help utilities cover the costs of replacing Russian supplies, although the German government has faced calls to provide more relief to the public.
“All measures, and there is no doubt about this, come at a price,” Habeck said. “All measures have consequences and some have also been imposed, but they make us less susceptible to blackmail and that we can decide on our energy supply independently of Russia.”
‘Uncertainty is poison’
Europe’s race to save enough gas to survive the colder months comes at a time of skyrocketing prices. The sharp rise in energy costs is pushing up household bills, pushing inflation to the highest level in decades and depressing people’s purchasing power.
Until recently, Germany bought more than half of its gas from Russia. And the government is now fighting to maintain gas supplies over the winter, fearing Moscow will soon turn off its taps completely.
“I think there’s a pretty good chance that Germany will have 90% storage capacity by the start of winter, but that’s not enough to really avoid a gas shortage,” said Marcel Fratzscher, president of the German Institute for Economic Research. (DIW). ), told CNBC’s “Squawk Box Europe” Tuesday.
“Even if Germany gets through the winter, the problem could come in the spring next year, so the uncertainty is there and companies are concerned,” Fratzscher said.
“The uncertainty is poisoning the economy. Companies are investing less, consumers are consuming less – and as a result we are seeing a massive slowdown in the German economy,” he added.
‘Gas storage is not enough’
Analysts told CNBC that Germany has been able to rapidly replenish its gas supplies in recent weeks due to a number of factors. These include strong supply from Norway and other European countries, falling demand amid rising energy prices, companies switching from gas to other types of fuel and the government providing more than €15 billion in credit lines to replenish storage facilities.
“Obviously, if you spend a lot of money, it’s relatively easy to fill the storage,” Andreas Schroeder, chief of energy analysis at ICIS, a commodity intelligence agency, told CNBC by phone.
If the German government “wants to see this as a success, fine. We’ll see,” Schroeder said. “But Germany is still not doing better than other countries, like France or Italy. They have filled their storage more without paying the huge subsidies.”
One of the reasons Germany has a “strategic disadvantage” compared to other major European economies, Schroeder said, is that Germany’s gas storage was previously partially owned by Gazprom-controlled facilities.
The natural gas storage facility at Rehden in Germany is seen as crucial to the country’s energy security.
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This was the case, for example, with the huge storage facility at Rehden in Germany, a location crucial to the country’s energy security.
“In other countries, [such as] France and Italy, you didn’t have this problem in the beginning,” said Schroeder, adding that he remains skeptical whether Germany will be able to reach the “quite ambitious” storage level of 95% in November.
“Gas storage is not enough. You also need demand reduction,” said Schroeder.
The European Union agreed last month to cut its use of natural gas to offset the prospect of further cuts to Russian supplies. The bill aims to reduce gas demand by 15% from August to March through voluntary measures.
Mandatory austerity, however, would be triggered for the 27-nation bloc if there are not enough austerity measures.
What about other EU countries?
Zongqiang Luo, a gas analyst at energy consultancy Rystad Energy, told CNBC that Germany’s position as the largest consumer of natural gas in Europe means it is difficult to compare Berlin’s storage levels with other European countries.
Luo said only France, Spain and Italy were comparable in terms of the magnitude of their gas consumption, but due to France’s reliance on nuclear production for power generation, Spain’s use of LNG import terminals and Spain and Italy’s reliance on Algerian gas exports mean they are all different from Germany.
According to GIE, gas storage facilities in France were last close to 87% full, while gas reserves in Spain and Italy were approximately 81% and 77% respectively.
“So, I will say compared to Germany’s storage plan with these three countries, Italy, France and Spain, I will say that Germany has done a good job so far,” said Luo.
“But let’s see how they are going to meet the target for the next two months,” he said. “This will be very, very crucial for the coming winter.”