Germany takes a step toward limiting gas

Due to a drop in gas supplies from Russia, Germany has moved closer to having to ration gas.

Germany's economy ministry said that the country has moved to the "alarm" stage of an emergency gas plan to deal with shortages.

It is the latest step in a fight between the EU and Russia over Russia's invasion of Ukraine.

Robert Habeck, who is in charge of the German economy, said that Russia was using gas "as a weapon" in response to sanctions from the EU.

"We can't trick ourselves. Putin's decision to cut off our gas supplies is an attack on our economy "Mr. Habeck said, and he added that Germans would have to cut back on their spending.

Mr. Habeck said that rationing gas for German industry would "hopefully never" be necessary, but he added, "Of course, I can't rule it out."

Plan for a crisis

Germany is now in the second part of its three-part emergency plan, which is put into action when there is a problem or a lot of demand for gas.

The government will lend €15 billion (£13 billion) to try to fill gas storage facilities and will start auctioning gas to industry to get big businesses to use less.

As the plan moves to stage two, there is more pressure on suppliers and network operators to find ways to deal with disruptions, such as finding other places to get gas.

But the country didn't let utilities pass on rising costs to their customers, which is theoretically possible under stage two.

In the first stage of the emergency plan, gas companies had to make sure there was enough gas. Gas network operators had to report to the Economy Ministry at least once a day, and electricity grid operators had to make sure the grid was stable.

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In the third stage, the government would step in when there is a big change in supply that the market can't handle. This means that supplies are limited.

In the third stage, gas would first be cut off to industry, but homes and important institutions like hospitals would still be able to get gas.

Frans Timmermans, who is in charge of climate policy for the EU, said on Thursday that Russia has cut off gas to 12 EU countries.

Last week, Russia cut the amount of oil going through its Nord Stream 1 pipeline to 40% of its capacity, citing problems with the equipment. This affected countries like Germany.

From July 11 to July 21, there will be no flow through Nord Stream 1 because it needs to be fixed.

Fatih Birol, who is in charge of the International Energy Agency, has said that Russia could cut off all gas supplies to Europe and that Europe needs to get ready right now.

Russia has already stopped sending gas to Poland, Bulgaria, the Netherlands, Denmark, and Finland because those countries won't agree to a new way of paying.

Germany's industrial power has grown a lot because it can get cheap energy from Russia. These faucets are now being turned off.

At the top of the German government, they say that they have a step-by-step plan for getting off of Russia's energy supply. With coal, it has been easy because they can just buy it and have it shipped from places like South Africa and Colombia. Even oil is mostly shipped on tankers, except for one refinery that gets its oil from Russia through a pipeline.

Gas, on the other hand, needs a big investment in alternative infrastructure, mostly LNG terminals that let gas be shipped from all over the world. This usually takes years, but Germany is looking into floating terminals that some say could be ready by the end of the year. It will take about two years to build more permanent terminals. This is part of Germany's plan to cut the amount of gas it gets from Russia from 55% to 10%.

But the much bigger question is where the gas that is shipped comes from. Even before a fire at a key US export terminal, there was a need to find space for 155 billion cubic metres of Russian gas to be sent to Europe by pipeline. The current market for shipped LNG is 500 billion cubic metres.

To meet this demand, gas producers need to pump a lot more gas. However, some countries, like Qatar, find it easy to sell gas on long-term contracts that last more than a decade. Germany wants a shorter contract because it is trying to stop using fossil fuels. In any case, if Germany moves its energy needs to this market, prices will go up everywhere.

In the short term, though, the German energy system will have to work hard to keep up with both supply and demand. And while Europe's industrial powerhouse tries to find more ways to import gas, it might need to get ready for "demand management," which means factories and homes will use less energy. This could cause a recession across Europe.

"Nothing is certain"

Nathan Piper, who is in charge of oil and gas research at Investec, said that the fact that Russia is still cutting off gas supplies to Europe was "worrying."

"There is no way to know what will happen next," he said. "It can no longer be said that Russia is a reliable source of gas."

In the summer, he said, gas supply problems are "less of a pressing concern," but in the winter, when people need more heat, the situation could get worse.

"It remains to be seen" if Germany will have to start rationing gas, he said, but if prices keep going up, industry will cut back anyway because gas will be too expensive.

German industry is already thinking about how it will deal with a shortage of supplies. Some companies are even thinking about going back to energy sources that were being phased out.

Kelheim Fibres, which sells to companies like Proctor & Gamble, is considering making its gas power plant run on oil.

"Oil has only one benefit: it's easy to get," Reuters' Wolfgang Ott said.

People in the UK want coal plants to stay open longer, and the government is thinking about whether or not to let a new coal mine in Cumbria go ahead.

Even though people around the world are trying to limit the effects of climate change by using less coal, this is still happening.

UK impact

The war in Ukraine has hurt the UK economy in many ways, like by making energy bills go up.

Inflation, which is how quickly prices go up across the board, stayed at its fastest rate in the UK in May for the past 40 years. Fuel and energy costs were the main reasons for this.

Even though less than 5% of the UK's gas comes from Russia, gas prices in the UK are affected by markets around the world.

"If gas prices go up in Europe, they will also go up in the UK because gas users will be competing for the same few sources of alternative supply," said Mr. Piper.