Europe may need to return to coal as Russia reduces gas flows

Europe may need to return to coal as Russia reduces gas flows




Europe’s biggest buyers of Russian gas raced to find different fuel supplies on Monday and could burn more coal to cope with reduced gas flows from Russia that threaten an energy crisis in winter if stores are not refilled.

Germany, Italy, Austria and the Netherlands have all signalled that coal-fired strength plants could help see the continent by a crisis that has sent gas prices surging and additional to the challenge facing policy-makers battling inflation.

Italy’s Eni said it was told by Russia’s Gazprom that it would receive only part of its request for gas supplies on Monday, pushing the country closer to declaring a state of alert that will cause gas saving measures.

Germany, which has also experienced lower Russian flows, announced on Sunday its latest plan to raise gas storage levels and said it could restart coal-fired strength plants that it had aimed to phase out.

“That is painful, but it is a sheer necessity in this situation to reduce gas consumption,” said economy minister Robert Habeck, a member of the Green party that has pushed for a faster exit from coal, which produces more greenhouse gases.

Russian-owned Gazprom, the logo of which is seen here, told Italian energy company Eni that Italy will only receive part of its request for gas supplies. (Reuters)

“But if we don’t do it, then we run the risk that the storage facilities will not be complete enough at the end of the year toward the winter season. And then we are blackmailable on a political level.”

Russia on Monday repeated its earlier criticism that Europe had only itself to blame after the West imposed sanctions in response to Moscow’s invasion of Ukraine, which is a gas transit route to Europe in addition as a major wheat exporter.

The Dutch front-month gas contract, the European benchmark, was trading around 124 euros ($170 Cdn) per megawatt hour (MWh) on Monday, down from this year’s peak of 335 euros ($458 Cdn) but nevertheless up more than 300 per cent on its level a year ago, before prices started rocketing.

Filling inventories slowly

The chief executive of RWE, Germany’s largest strength producer, Markus Krebber, said strength prices could take three to five years to fall back to lower levels.

Russian gas flows to Germany by the Nord Stream 1 pipeline, the main route supplying Europe’s biggest economy, were nevertheless running at about 40 per cent of capacity on Monday, already though they had edged up from the start of last week.

Ukraine said its pipelines could help to fill any gap in supply via Nord Stream 1. Moscow has before said it could not pump more by the pipelines that Ukraine has not already shut off.

Pipes at the landfall facilities of the ‘Nord Stream 1’ gas pipeline are pictured in Lubmin, Germany, on March 8. (Hannibal Hanschke/Reuters)

Eni and German utility Uniper were among European companies that said they were receiving less than contracted Russian gas volumes, although Europe’s gas inventories are nevertheless filling, albeit more slowly.

They were about 54 per cent complete on Monday against a European Union target of 80 per cent by October and 90 per cent by November.

Germany’s economy ministry said bringing back coal-fired strength plants could add up to 10 gigawatts of capacity in case the gas supply hits basic levels. A law related to the move goes to the upper house of parliament on July 8.

Alongside a shift back to coal, the latest German measures include an auction system starting in coming weeks to encourage industry to consume less gas, and financial help for Germany’s gas market operator, via state lender KfW, to fill gas storage facilities faster.

RWE said on Monday it could prolong the operation of three 300 megawatt (MW) brown coal strength plants if required during the gas supply crisis.

Russia blames West

Austria’s government agreed with utility Verbund on Sunday to transform a gas-fired strength plant to use coal should the country confront an energy emergency. OMV said on Monday that Austria was set to receive half the usual amount of gas for a second day.

Dutch broadcaster NOS reported on Monday that coal-fired energy plants in the Netherlands would be allowed to increase production to help reliance on Russian gas, citing government supplies. The Dutch energy minister was due to make an announcement about gas supplies at 1530 GMT.

Russia’s state-controlled Gazprom cut capacity last week along Nord Stream 1, a major pipeline supplying Germany and others, citing the delayed return of equipment being serviced by Germany’s Siemens Energy in Canada.

“We have gas, it is ready to be delivered, but the Europeans must give back the equipment, which should be repaired under their obligations,” Kremlin spokesman Dmitry Peskov said.

German and Italian officials have said Russia was using this as an excuse to reduce supplies.

Italy, whose technical committee for gas is expected to meet on Tuesday, has said it could declare a heightened state of alert on gas this week if Russia continues to curb supplies.

The move would cause measures to reduce consumption, including rationing gas for chosen industrial users, ramping up the production at coal strength plants and asking for more gas imports from other suppliers under existing contracts.

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