Europe’s energy crisis is deepening as Russia further limits natural gas exports, forcing governments to spend billions to protect businesses and consumers from rising bills as the region slides into recession.
European natural gas benchmark prices rose 28% on Monday morning, reaching 274 euros ($272) per megawatt hour – the first day of trading after Russian energy giant Gazprom halted flows. through the Nord Stream 1 pipeline indefinitely, claiming to have found an oil leak in a turbine.
Last year, the pipeline delivered around 35% of Europe’s total Russian gas imports.
But since June, Gazprom has cut flows along Nord Stream 1 to just 20% of its 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 has sparked concerns that 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 the indefinite pipeline closure on Friday caused the euro to drop below $0.99 on 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 power shortage could take on regional economic activity and government budgets.
Some countries are preparing to spend a lot to try to limit the pain.
On Sunday, the German government announced a €65 billion ($64 billion) aid package to help families and businesses deal with rising inflation.
Germany, Europe’s biggest economy, is particularly dependent on gas exports from Russia to power its homes and heavy industries.
Together with previous measures, this brings the total value of government support to 95 billion euros ($64 billion), equivalent to about 2.5% of German GDP, Holger Schmieding, chief economist at Berenberg, said in a statement. note on Monday.
Liz Truss, who will succeed Boris Johnson as UK prime minister this week, is under enormous pressure to announce more aid for homes and businesses as energy bills soar.
An electricity transmission tower near residential homes in Upminster, UK, on July 4, 2022.
Truss is considering a £100 billion ($115 billion) package to help with the rising cost of living, including support to pay energy bills, according to a report in The Sunday Times, which cited unnamed sources. in the country’s finance department.
In that case, that would exceed the cost of the country’s pandemic furlough scheme, in which the government subsidized workers’ wages to avoid mass layoffs, by around 30 billion pounds ($34 billion).
preparing for winter
For months, the European Union has been building up its energy reserves for the colder months, when use rises, as it fears Russia will cut its gas supply further.
Moscow has already stopped sending gas to several “hostile” European countries and energy companies for its refusal to pay for gas in rubles, as the Kremlin insists, rather than the euros or dollars declared in the contracts.
Friday’s Nord Stream 1 announcement came just hours after the G7 countries agreed to cap the price at which Russia can sell its oil in a bid to limit the revenue the Kremlin is using to fund its war in Ukraine.
A spokesperson for Siemens, the German maker of the allegedly defective Nord Stream 1 turbine, said on Friday that an oil leak was “not a technical reason to stop operation”.
“Regardless of that, we have already pointed out several times that there are enough additional turbines available at the Portovaya compressor station for Nord Stream 1 to work,” the spokesperson told CNN Business .
As the energy stalemate intensified, EU countries quickly filled up their gas storage facilities.
Stores are now full to 82% of their capacity, according to data from Gas Infrastructure Europe – surpassing the 80% target that authorities set for countries to reach before November.
“Despite a serious risk of energy shortages, we still expect most of Europe to go through the cold season without having to shut down significant parts of the industry by large-scale rationing of gas supplies,” Schmieding said in his note.
European leaders know they need to do more, however, to avoid widespread hardship and limit the fallout of a recession.
EU energy ministers will hold an emergency meeting on Friday to discuss plans to help protect Europeans from the worst rise in energy prices.
Initial ideas include a mechanism that decouples electricity prices from wholesale natural gas prices and an emergency credit offer for power companies at risk of bankruptcy, according to preliminary documents seen by Reuters.
Source: CNN Brasil