New York Times – Europe, Facing Energy Shortages, Moves to Shore Up Providers
Berlin and Paris are preparing bailouts as Europe braces for further cuts to gas supplies next week and economists warn of a recession.
By Melissa Eddy and Stanley Reed — July 6, 2022
BERLIN — Leaders in Europe, facing their worst energy crisis in decades, are taking extraordinary steps to secure supplies for winter amid fears of fuel shortages and near-record electricity and natural gas prices.
In Berlin, lawmakers prepared to approve legislation that would pave the way for Germany to bail out the country’s largest importer of Russian gas. In Paris, the prime minister announced her government’s intention to take full control of France’s state-backed electric utility provider.
There are mounting fears that skyrocketing energy costs, driven by steadily diminishing Russian gas shipments, will force energy companies into collapse — a spiral that Germany’s energy minister has likened to the way the fall of Lehman Brothers triggered the global financial crisis in 2008.
“The scale of the crisis and risk of disruption and further price spikes is now so big that there is a sense in the major E.U. governments that it requires national bailouts,” said Henning Gloystein, a director at Eurasia Group, a political risk firm. “Private companies won’t be able to shoulder these costs.”
The disruption is being felt across the continent as countries including Austria, France and the Czech Republic try to find enough gas to fill their storage tanks before the temperatures drop — and, many fear, before Russia stops shipping gas altogether, possibly as soon as late July.
But it is felt most acutely in Germany, Europe’s largest economy, which for years has relied on Russia for most of its gas. Looming is the threat that shortages next winter could lead to gas rationing and industry shutdowns — and, in turn, job losses and protests. Last month, Germany enacted the second stage of its three-step gas emergency plan; the third stage allows the government to introduce rationing.
Residents of a municipal housing complex in Saxony recently learned that their hot water would be shut off for up to four hours a day to conserve gas. Companies are already taking steps to reduce the gas they consume and making contingency plans should flows be cut further.
A measure that will be put to a vote in the German Parliament on Thursday is intended to allow the government to throw a lifeline to companies struggling with the record-high price of gas and cuts in supplies from Russia.
It would also allow suppliers to pass price increases on to consumers if authorities determine that a “significant reduction in total gas import volumes to Germany is imminent.” Some economists have argued for months that such a measure, which would cause residential power bills to soar, is essential to moving beyond dependence on Russian gas.
Uniper, an energy provider that is Germany’s largest importer of Russian gas, could be the first beneficiary of the changed legislation. Last week, it said it was talking to the government about a possible bailout after it revised a financial forecast, expecting earnings to be “significantly below” those of previous years.
The company employs 5,000 people in Germany, owns several gas-fired power plants and gas storage facilities, and is a critical supplier of electricity to hundreds of cities and towns.
Uniper has been facing mounting losses since Gazprom, the Russian gas giant, crimped deliveries of natural gas through the Nord Stream 1 pipeline last month by 60 percent, forcing Uniper to turn to the spot market to buy gas at significantly higher prices to fulfill its longstanding contracts with municipalities and companies.
Analysts at S&P Global Ratings, which assesses the creditworthiness of companies, estimated on Wednesday that the shortfall from Gazprom, which normally supplies more than 50 percent of Uniper’s gas, was saddling the company with enormous daily losses in “the low- to mid-double-digit” millions of euros. S&P wrote that the red ink was likely to increase if supplies from Gazprom were reduced further.
Robert Habeck, Germany’s economics minister, warned that the situation could get worse, but said the government would not allow the collapse of one energy company to bring down the entire European market.
“We will not allow a systemic effect in the German and European gas market, because domino effects will then occur and a company bankruptcy will affect other sectors or even the security of supply as a whole,” he told reporters on Tuesday.
In France, Prime Minister Élisabeth Borne announced a similar move concerning the country’s state-backed nuclear power operator, Électricité de France. EDF has been forced to take around half its reactors offline, driving the already troubled company deeper into debt.
“I confirm today the intention of the state to hold 100 percent of the capital of EDF,” Ms. Borne told lawmakers, without providing details. To weather the energy crunch, France has been betting on its nuclear plants, which provide about 70 percent of its electricity, a bigger share than in any other country.
A new threat to energy supplies will occur on Monday when Nord Steam 1, the pipeline connecting Germany’s northern coast with Russia’s gas fields, is scheduled to be shut down for 10 days for annual routine maintenance.
Fears are mounting that Gazprom’s shipments to Europe “could be cut for good, raising the possibility of gas shortages next winter,” Mr. Gloystein of Eurasia Group wrote in a recent note.
The cuts from Russia have increased the importance of Norway, which has become Europe’s largest gas supplier, pushing its exports to counteract the Russian cuts. A strike by Norwegian gas field workers this week threatened to cut off up to 60 percent of supplies to Western Europe, but the government quickly intervened to halt the work stoppage.
“Norway plays a vital role in supplying gas to Europe, and the planned escalation would have had serious consequences for Britain, Germany and other nations,” Marte Mjoes Persen, Norway’s labor minister, told Reuters, speaking about the strike. The “impact would have been dramatic in light of the current European situation,” she added.
Norwegian gas has been essential to efforts to fill Germany’s storage facilities, several of which were owned by Gazprom and ran dry in the months leading up to the invasion of Ukraine. Facilities are now more than 62 percent full, a government agency said, adding that if Russia halted all gas flow through Nord Stream 1, it would be nearly impossible to reach the 90 percent target by November.
The concerns have led to a doubling of already high natural gas prices in Europe over the last month to about 160 euros a megawatt-hour. That price is comparable to around $280 a barrel for oil, almost triple what West Texas Intermediate, the American standard, is now fetching.
Economists are warning that the high price of energy, combined with a lack of stored gas, could tip Germany, and all of the European Union, into a recession that lasts well into 2023.
If Russia did not turn Nord Stream 1 back on by July 21, “the E.U. would likely be running on empty at the end of winter,” Holger Schmieding, chief economist at Berenberg, wrote in a research note. “If Russia shuts down its other pipelines to Europe as well in late July, the situation would be even more dire.”
Melissa Eddy reported from Berlin, and Stanley Reed from London.
Melissa Eddy is a correspondent based in Berlin who covers German politics, social issues and culture. She came to Germany as a Fulbright scholar in 1996, and previously worked for The Associated Press in Frankfurt, Vienna and the Balkans. @meddynyt • Facebook
Stanley Reed has been writing from London for The Times since 2012 on energy, the environment and the Middle East. Before that he was London bureau chief for BusinessWeek magazine. @stanleyreed12 • Facebook