Europe braces for potential gas crisis as historic heat boosts demand

On Thursday, Nord Stream 1 pipeline — a key artery linking Russian gas to the block — is to be reopened after 10 days of routine work. maintenance. But worries are growing that Russia will keep the taps turned off in response to sanctions imposed by the European Union following Moscow’s invasion of Ukraine in February.

German Economics Minister Robert Habeck said earlier this month that the country should “prepare for the worst”.

“Anything can happen. Maybe the gas will flow again, even more than before. Maybe nothing will come at all,” Habek said in a radio interview.

The pipeline delivers 55 billion cubic meters of gas per year to Europe, or about 40% of all its imports through the pipeline from Russia.

A complete break with Moscow gas is out of the question. The country has already reduced gas exports by several European countries. Last month, Germany, the region’s largest economy, declared a “gas crisis” after Russian state-owned gas company Gazprom cut pipeline exports by 60%.

Gazprom blamed the West’s decision to suspend supplies of vital turbines due to sanctions.

German gas distributor Uniper confirmed on Monday that it had received a letter from Gazprom alleging force majeure due to past and current gas supply disruptions. Force majeure is a clause in a contract that releases a company from failing to fulfill its obligations. It is usually called upon in extreme circumstances such as natural disasters.

But a Uniper spokesperson told CNN that the company has “formally dismissed” the lawsuit. On Monday, the affected company also drew on a €2bn ($2.04bn) credit line at KfW bank due to the impact of Russian gas supply disruptions.

Terrible time

The gas crisis this week will also come at the most inopportune moment. Europe succumbs to record heat waves – parts of France and Spain fighting forest fires as temperatures are expected to rise above 40 degrees Celsius (104 degrees Fahrenheit) in the coming days.

The rapid rise in temperature has led to an increase in demand for electricity to power air conditioners. Enagas, the Spanish transmission system operator, said last week that natural gas demand for electricity generation had reached a new record of 800 gigawatt-hours.

“This huge increase in demand for natural gas for power generation is mainly due to the high temperatures recorded as a result of the heat wave,” Enagas said in a press statement last Thursday.

Some analysts were more optimistic given the alternative energy sources in Europe and the fact that the heat wave should end by midweek.

“While EU energy consumption will be slightly higher this week due to heatwaves due to high air conditioner usage rates, this will be offset by record solar power supply,” said Henning Gloystein, director of energy, climate and resources at Eurasia Group, said CNN Business.

Meanwhile, European countries are rushing to fill up their gas storages to avoid a potentially catastrophic winter energy shortage.

“The next few months will be critical” to shore up the block’s supplies, Fatih Birol, chief executive of the International Energy Agency, said in a press statement on Monday.

“If Russia decides to completely cut off gas supplies before Europe can bring its storage levels to 90%, the situation will become even more serious and complicated,” he added.

According to Gas Infrastructure Europe, the level of gas storage in the European Union is currently around 64%.

The bloc hastily secures gas supplies from other countries as Russian gas imports decline. On Monday, the European Commission signed a memorandum of understanding with Azerbaijan to double the capacity of a key gas delivery route over the next few years.

Dutch natural gas prices, the European benchmark, rose 3% to €165 ($167) per MWh on Monday compared to Friday, according to data from the Intercontinental Exchange.

Earlier this month, fears of a major gas shutdown pushed prices to the highest level since the early days of the Russian invasion of Ukraine, hovering around 183 euros ($186) per MWh. Prices have risen 129% since the beginning of the year.

Julia Horowitz, Sharon Brown-Peter, Sharon Braithwaite and Chris Liakos contributed reporting.

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