Europe’s energy crisis is deepening as Russia further limits natural gas exports, forcing governments to spend billions to protect businesses and consumers from soaring bills as the region slides into recession.
Benchmark European natural gas prices soared 28% on Monday morning to €274 ($272) per megawatt hour – the first day of trading after Russian energy giant Gazprom halted flows through the vital pipeline indefinitely. Nord Stream 1, saying it found an oil leak in a turbine.
Last year, the pipeline delivered about 35% of total Russian gas imports to Europe. But since June, Gazprom had reduced flows along Nord Stream 1 to just 20% of capacity, citing maintenance issues and a dispute over a missing turbine caught in Western export sanctions.
Moscow’s decision not to reopen the pipeline on Saturday raised fears the European Union could run out of gas this winter, despite a successful effort to fill storage tanks. Similar fears in the UK sent wholesale natural gas futures up more than a third on Monday.
News of Friday’s indefinite pipeline shutdown sent the euro plummeting below $0.99 Monday – its lowest level in 20 years. The pound hit $1.14, its lowest since 1985, as traders worried about the toll a potentially drastic energy shortage could take on regional economic activity and government budgets.
Some countries are preparing to spend big to try to limit the pain.
On Sunday, the German government announced a 65 billion euro ($64 billion) relief package to help households and businesses cope with soaring inflation. Germany, Europe’s largest economy, is particularly dependent on gas exports from Russia to power its homes and heavy industry.
Together with the previous measures, this brings the total amount of government support to 95 billion euros ($64 billion), or about 2.5% of German GDP, Holger Schmieding, chief economist at Berenberg, said in a note. of Monday.
Liz Truss, who will succeed Boris Johnson as UK Prime Minister this week, is under enormous pressure to announce more aid to households and businesses as energy bills soar.
Truss is considering a £100billion ($115billion) package to help with the rising cost of living, including support to pay energy bills, according to a Sunday Times report, which quotes unnamed sources from the country’s finance department.
If so, it would exceed the cost of the country’s pandemic furlough scheme, in which the government has subsidized workers’ wages to avoid mass layoffs, by around £30bn ($34bn).
For months, the European Union has been bolstering its energy reserves for the colder months, when consumption increases, because it fears that Russia could further reduce its gas supply.
Already, Moscow has stopped sending gas to several “unfriendly” European countries and energy companies because of their refusal to pay for gas in rubles, as the Kremlin insists, rather than the euros or dollars indicated in the contracts.
Friday’s Nord Stream 1 announcement came just hours after G7 nations agreed to cap the price at which Russia can sell its oil in a bid to limit the revenue the Kremlin uses to fund its war in Ukraine. .
A spokesman for Siemens (GCTAF), the German manufacturer of the allegedly faulty Nord Stream 1 turbine, said on Friday that an oil leak was not “a technical reason to stop operation”.
“Regardless of this, we have already repeatedly emphasized that there are enough additional turbines available at the Portovaya Compressor Station to keep Nord Stream 1 running,” the spokesperson told CNN Business.
As the energy stalemate intensified, EU countries quickly filled their gas storage facilities. Stores are now filled to 82% capacity, according to data from Gas Infrastructure Europe – exceeding the 80% target authorities set for countries before November.
“Despite a serious risk of energy shortages, we still expect most of Europe to get through the cold season without having to shut down significant parts of industry through large-scale rationing of supply. in gas,” Schmieding said in his memo.
European leaders know, however, that they must do more to avoid widespread difficulties and limit the fallout from a recession. EU energy ministers to hold emergency meeting Friday to discuss plans to shield Europeans from the worst of energy price hikes.
Initial ideas include a mechanism that decouples electricity prices from wholesale natural gas prices and an emergency credit offer for energy companies at risk of bankruptcy, according to draft documents seen by Reuters.