Fancy a cold shower? This week perhaps yes, but in December?
Two things happened this week which made that possibility plausible. On Wednesday, the EU Commission announced a voluntary target for all EU countries to reduce their gas use by 15 per cent. On Thursday, Russia turned the Nord Stream 1 gas tap back on after a ten-day maintenance break – but at just 40 per cent of the pipeline’s capacity.
The pipeline comes into Germany. At the current rate of flow the country will struggle to fill its reserves for the winter and Moscow has the luxury of turning it off completely at a time of its choosing. The German authorities, having handcuffed themselves to Russian energy for decades, saw this coming too late. A politician in Hamburg has already warned that his city may have to ration hot water for private households and limit the maximum heating temperature. Jens Kerstan told the Welt am Sonntag newspaper: “In an acute gas shortage, warm water could only be made available at certain times of the day in an emergency.”
This is far from just a German problem, hence the EU Commission proposal for the 15 per cent reduction in use between 1 August and 31 March. Commission President Ursula von der Leyen said: “I know this is a big ask for the whole of the European Union, but it’s necessary to protect us… We have to prepare for the potential full disruption of Russian gas, and this is a likely scenario”. Energy ministers are expected to approve the proposal next Tuesday before the plan goes to individual parliaments, but Brussels is also proposing a mandatory reduction under Article 122 of the EU treaty. That’s a harder sell.
Moscow has already closed or limited supply to 12 EU countries, causing a mad scramble for alternatives. The EU has signed a deal with Azerbaijan to increase deliveries and is negotiating with Qatar, Nigeria, and other countries for extra supplies.
But there are two problems here: one, the price is right, but only for the seller, and two, what is required is mostly liquified natural gas (LNG) which can be delivered by ship, but there are not enough LNG terminals in Europe to receive what is required. This is why Germany, the Netherlands, and others are firing up the coal stations they had intended to phase out. The chances of a recession will grow if there is an energy crisis, especially in Germany which has an export-driven economy. Its pharmaceutical, chemical, aluminium, textile, ceramics, and glass industries are all very dependent on gas and would be hard-hit by shortages.
The UK is less affected than the continent as Russian gas represented less than 4 per cent of supply last year. It’s also buying extra from Norway for this winter. However, the UK is having to pay the hugely inflated prices caused by the Russian invasion of Ukraine, and, in the event of supply issues it cannot rely on any spare capacity in EU countries arriving here.
Russia’s window to use its energy weapon is closing. LNG terminals are being built. Deals for future supplies are being done – for example, this week Italian energy companies agreed a $4bn project with Algeria to bring gas to Italy. The EU is trying to reduce Russian gas and oil imports by two-thirds by the end of the year, and to zero by the end of 2027. Therefore, if Russia chooses to completely cut supplies – this winter is the time to do it.
Moscow has been earning huge sums from the inflated energy costs – well up on revenue pre-invasion. This means it can afford to reduce and even completely cut supplies to Europe. This would keep prices high, potentially cause a recession in Europe, and, as Hamburg’s Jens Kerstan said, leave people in the cold.
This destabilising scenario played out would create enormous pressure on governments to reconsider their approach to sanctions against Russia, and support for Ukraine. A split within the bloc would be likely, possibly causing one faction to put pressure on Kyiv to accept a ceasefire on terms favourable to Moscow.
If the Russians want to pull the trigger on this weapon the time to do it is not July. They know one way or another a chill wind will blow in from the East.
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