Germany activates ‘alert level’ of emergency gas plan, sees high risk of long-term supply shortages

Habeck previously warned that the situation will be “really difficult in winter” without precautionary measures to avoid a gas supply shortage.

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Germany has stated that it is moving to the so-called “alert level” of its emergency gas plan as reduced Russian flows exacerbate fears of a winter supply shortage.

Economy Minister Robert Habeck announced on Thursday that Germany would move to stage two of his three-stage plan. It means Europe’s largest economy now sees a high risk of long-term gas supply shortages.

Germany has seen a sharp drop in Russian gas supply, prompting the country to warn that the situation will be “really difficult in winter” without precautionary measures to avoid a supply shortage.

“Let’s not fool ourselves: cutting off the gas supply is an economic attack against us for [Russian President Vladimir] Putin,” Habeck said in a statement, according to a translation.

“We defend ourselves against this. But it will be a rocky path that we now have to walk as a country. Even if you don’t feel it yet: We are in a gas crisis,” she added.

Habeck said that gas had now become a scarce commodity and warned that an extraordinary increase in prices could persist. “This will affect industrial production and become a major burden for many consumers. It is an external shock,” Habeck said.

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According to Germany’s gas emergency plan, the alert level phase is triggered when there is a “gas supply disruption or exceptionally high gas demand resulting in a significant deterioration of the gas supply situation, but the market can still handle that disruption or demand.” without the need to resort to non-market-based measures”.

This phase does not require state intervention measures. These are activated in the “emergency phase” of stage three, if the government judges that market fundamentals no longer apply.

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

The EU, which receives about 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 onslaught on Ukraine.

Germany, which relies heavily on Russian gas, had previously sought to maintain strong energy ties with Moscow.

‘Coal is on fire once again’

Germany declared the first phase of its emergency gas plan on Mach 30, about a month after Russia’s invasion of Ukraine triggered an energy crisis in Europe.

The “early warning phase” acknowledged that while there were no supply disruptions yet, gas suppliers were invited to advise the government as part of a crisis team. At that 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 Netherlands, Germany has indicated that coal plants could be used to compensate for a cut in Russian gas supplies.

Coal is the most carbon-intensive fossil fuel in terms of emissions and therefore the most important target for replacement in the pivot to alternative energy sources.

Germany, Italy, Austria and the Netherlands have indicated that coal plants could be used to compensate for a cut in Russian gas supplies.

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

“Coal is on fire once again,” Ole Hansen, Saxo Bank’s chief commodity strategist, told CNBC’s “Squawk Box Europe” on Thursday. “Growers had been geared towards a future of lower demand, but obviously that’s not what we’re seeing right now.”

Speaking ahead of Germany’s move into the alarm phase of its emergency gas plan, Hansen said the statement would reaffirm the situation Europe finds itself in, with coal seen as a “short-term solution” to replace flows reduced Russian gas.

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