European governments are scrambling to fill underground storage with gas supplies to provide households with enough fuel to keep homes warm through winter.
Image Alliance | Image Alliance | Getty Images
Germany’s natural gas storage facilities surpassed a full level of more than 75% this month, two weeks ahead of schedule, as Europe’s biggest economy scrambles to prepare for winter coming.
The latest data compiled by industry group Gas Infrastructure Europe shows that gas storage facilities in Germany are just over 77% full.
Chancellor Olaf Scholz’s government originally expected gas storage levels to reach 75% by September 1. The next federally mandated goals are 85% by October 1 and 95% by November 1.
European governments are racing to fill underground storage facilities with natural gas so they have enough fuel to keep homes warm for months to come.
Russia has significantly reduced its natural gas supplies to Europe in recent weeks, with flows through the Nord Stream 1 gas pipeline to Germany currently operating at just 20% of the agreed volume.
Moscow blames defective and delayed equipment. Germany, however, sees the supply cut as a political maneuver designed to sow European uncertainty and drive up energy prices amid the Kremlin’s assault on Ukraine.
“Germany developed an economic model that was largely based on reliance on cheap Russian gas and therefore also reliance on a president who disrespects international law. [and] to whom liberal democracy and its values are declared enemies,” Economy Minister Robert Habeck said at a press conference on Monday, according to a translation. “This model has failed, and it is not coming back.”
His comments came as German gas market operator Trading Hub Europe announced that households in the country would have to pay nearly 500 euros ($507.3) more a year for gas.
The new tax is designed to help utilities cover the cost of replacing Russian supplies, although the German government has been called on to provide further relief to the public.
“All measures, and this is undisputed, have a price,” Habeck said. “All measures have consequences and some of them are also impositions, but they make us less susceptible to blackmail and allow us to decide our energy supply independently of Russia.”
“Uncertainty is poison”
Europe’s race to save enough petrol to get through the colder months comes at a time when prices are skyrocketing. Soaring energy costs are driving up household bills, pushing inflation to its highest level in decades and squeezing people’s purchasing power.
Germany, until recently, bought more than half of its gas from Russia. And the government is now battling to shore up winter gas supplies, fearing that Moscow will soon completely shut off the taps.
“I think there’s a good chance that Germany will reach 90% storage capacity by the start of winter, but that’s still not enough to really avoid a gas shortage,” he said. said Marcel Fratzscher, president of the German Institute for Economic Research (DIW). ), CNBC’s “Squawk Box Europe” told Tuesday.
“Even if Germany goes through the winter, the problem could come in the spring of next year, so the uncertainty is there and businesses are worried,” Fratzscher said.
“Uncertainty is poison for the economy. Businesses invest less, consumers consume less – and so the result is that we are seeing a massive downturn in the German economy,” he added.
“Gas storage is not enough”
Analysts told CNBC that Germany has been able to rapidly fill its gas stockpiles in recent weeks due to a number of factors. These include strong supply from Norway and other European countries, falling demand amid soaring energy prices, companies switching from gas to other types of combustibles and the government providing more than 15 billion euros of lines of credit to replenish the storage facilities.
“If you’re spending a lot of money, it’s relatively simple to fill the storage of course,” Andreas Schroeder, head of energy analysis at ICIS, a commodity intelligence service, told CNBC by phone.
If the German government “wants to see this as a success, then fine. We’ll see,” Schroeder said. “But Germany is still not doing better than other countries, like France or Italy. They filled their storage more without paying the huge subsidies.”
One of the reasons Germany has found itself at a “strategic disadvantage” compared to other major European economies, Schroeder said, is that German gas storage was previously partly owned by facilities controlled by Gazprom.
The Rehden natural gas storage facility in Germany is considered crucial to the country’s energy security.
Image Alliance | Image Alliance | Getty Images
This was for example the case of the huge storage facility in Rehden in Germany, a critical site for the country’s energy security.
“In other countries, [such as] France and Italy, you didn’t have that problem initially,” Schroeder said, adding that he remains skeptical about Germany’s ability to meet the “quite ambitious” stocking level target of 95% by November.
“Gas storage is not enough. You also need demand reductions,” Schroeder said.
The European Union agreed last month to cut natural gas use to offset the prospect of further Russian supply cuts. The bill is designed to reduce gas demand by 15% from August to March with voluntary measures.
However, mandatory cuts would be triggered for the 27-nation bloc if there were not enough savings.
What about other EU countries?
Zongqiang Luo, a gas analyst at energy consultancy Rystad Energy, told CNBC that Germany’s position as the biggest consumer of natural gas in Europe means it’s difficult to compare storage levels of Berlin to those of other European countries.
Luo said that only France, Spain and Italy were comparable in terms of the scale of their gas consumption, but France’s reliance on nuclear generation for electricity generation, use by the Spain’s LNG import terminals and Spain’s and Italy’s dependence on Algerian gas exports means they are all different from Germany.
France’s gas storage facilities were last seen at nearly 87%, according to the GIE, while Spain’s and Italy’s gas stocks stood at around 81% respectively and 77%.
“So I will say that in relation to Germany’s stockpiling plan with these three countries, Italy, France and Spain, I will say that so far Germany has done a good job,” Luo said.
“But let’s see how they are going to achieve the target for the next two months,” he said. “It will be very, very critical for the winter ahead.”