Germany risks recession as Russian gas crisis deepens

• Industry group warns that if Russian gas supplies totally stop, Germany will enter recession.
• Sweden joins a growing list of European countries implementing emergency plans to deal with energy supply problem.
• Nord Stream 1 pipeline under the Baltic is only operating at 40% capacity, according to Moscow.

An industry group warned on Tuesday that if already faltering Russian gas supplies totally stop, Germany will enter a recession, as Sweden joined a growing list of European countries implementing emergency plans to deal with a developing energy supply problem.

From the Baltic Sea in the north to the Adriatic coast in the south, European Union countries have been laying out plans to deal with a supply issue following Russia’s invasion of Ukraine.

Before the war, the EU relied on Russia for up to 40% of its gas needs, peaking to 55% for Germany, leaving a big gap to fill in an already constrained global gas market. As a result, some states have temporarily halted plans to shut down coal-fired power plants.

Global gas prices have soared, pushing already-rising inflation even higher and complicating policymakers’ efforts to pull Europe back from the brink of economic disaster.

On Tuesday, Germany’s BDI industrial association lowered its 2022 economic growth prediction to 1.5 percent, down from the 3.5 percent projected before the war. It said that if Russian gas deliveries were halted, a recession would be unavoidable. find out more

Russian gas is still being pumped via Ukraine, but at a reduced rate, and the Nord Stream 1 pipeline under the Baltic, a critical supply route to Germany, is only operating at 40% capacity, according to Moscow, due to Western sanctions impeding repairs. Europe claims that this is a ruse to decrease migration flows.

Germany, together with Denmark, Austria, the Netherlands, Italy, and other European countries, has activated the first stage of its three-part plan to deal with a gas supply issue.

The German gas regulator, the Bundesnetzagentur, revealed details of a new auction mechanism that will begin in the coming weeks to urge firms – notably those using gas in high-temperature processes – to consume less as part of contingency measures.

COMPETITION TO REFILL INVENTORIES

Regulators, on the other hand, said it was not yet appropriate to declare an all-out emergency or launch the third stage of the country’s crisis plan, which would see the country ration gas to industry in order to protect key services and families.

Bundesnetzagentur chief Klaus Mueller told German network BR, “I am very much in favour of carefully assessing when the correct time is for the highest alert level.”

Europe has been rushing to replenish gas storage facilities, which are currently approximately 55% full, in order to fulfil an EU-wide target of 80% by October and 90% by November, a level that would enable the bloc survive through the winter if supplies slowed or stopped.

However, reduced Nord Stream 1 pipeline flows and delays to a key US liquefied natural gas producer that supplied supplies to Europe have made those ambitions more difficult to accomplish.

On Tuesday, the European benchmark gas price was at 123 euros ($130) per megawatt-hour (MWh), down from the year’s high of 335 euros.