Germany risks a recession if already dwindling Russian gas supplies are entirely cut off, an industry association said on Tuesday, while Italy said it would consider extending financial assistance to help firms replenish gas storage to avert a worsening winter problem.

From the Baltic Sea in the north to the Adriatic in the south, European Union governments have developed plans to deal with a supply problem after Russia’s invasion of Ukraine, which has placed energy at the center of an economic war between Moscow and the West.

Before the conflict, the EU depended on Russia for up to 40% of its gas requirements, peaking to 55% for Germany, leaving a big vacuum to fill in an already constrained global gas market. In response, several governments have temporarily halted plans to dismantle coal power stations.

Global gas prices have skyrocketed, escalating inflation and complicating policymakers’ efforts to pull Europe back from the brink of economic disaster.

The BDI industrial organization in Germany cut its economic growth prediction for 2022 to 1.5 percent on Tuesday, down from 3.5 percent before the conflict. It said that a stop in Russian gas supply would inevitably lead to a recession. more info

Russian gas is still being pumped via Ukraine, but at a slower pace, and the Nord Stream 1 pipeline beneath the Baltic, a critical supply route to Germany, is only operating at 40% capacity, which Moscow claims is due to Western sanctions impeding repairs. Europe claims that this is a ruse to decrease flows.

The delay has impeded Europe’s attempts to replenish storage tanks, which are now approximately 55% full, in order to achieve an EU-wide goal of 80% by October and 90% by November, a level that would assist the union survive through winter if supplies were interrupted further.

Italian Ecological Transition Minister Roberto Cingolani said that Italy’s refilling operations must be accelerated, and that Rome must explore ways to assist enterprises in funding the purchase of gas for storage.

According to an Italian government source, a state guarantee might assist cut the cost of funding.

“Gas currently is so expensive that operators cannot put money into it,” Cingolani said. 

On Tuesday, the European benchmark gas price was trading at 126 euros ($133) per megawatt hour (MWh), down from this year’s top of 335 euros but still up more than 300 percent from a year earlier.

Source: Reuters

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