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Germany warns of possible natural gas rationing amid dispute with Russia – CNBC

German Economy Minister Robert Habeck holds a press conference on Wednesday, March 30, 2022.

Kay Nietfeld | Picture Alliance | Getty Images

Germany has declared an “early warning” that it could soon be facing a natural gas emergency as Europe’s largest economy prepares for the risk of a full supply disruption from Russia.

The Kremlin has repeatedly demanded that so-called “unfriendly” countries pay in rubles for gas, referring to those behind heavy economic sanctions designed to isolate Russia over its unprovoked onslaught in Ukraine.

The G-7, which induces Germany, has rejected that demand. Most countries currently pay for Russian gas in euros or dollars.

German Economy Minister Robert Habeck said Wednesday that the “early warning” measure was the first of three stages and does not yet imply a state intervention to ration gas supplies.

However, Habeck called for consumers and companies to reduce consumption, telling a news conference that scaling back energy use is a help to both Germany and Ukraine.

“We are in a situation where I have to say clearly that every kilowatt hour of energy saved helps, and that is why I would like to combine the triggering of the early warning level for gas supplies with an appeal for help to companies and private consumers,” Habeck said, according to a translation by German broadcaster Deutsche Welle.

“You are helping Germany, you are helping Ukraine, when you reduce your use of gas or energy in general.”

Crisis talks

European countries’ dependence on Russian energy exports has been thrust into the spotlight since the Kremlin launched its invasion on Feb. 24, prompting a barrage of punitive economic measures from the U.S. and international allies.

The conflict has triggered a devastating humanitarian crisis and sent shockwaves through financial markets.

The front-month gas price at the Dutch TTF hub, a European benchmark for natural gas trading, traded up over 11% at 120.5 euros ($134) per megawatt-hour on Wednesday, according to New York’s Intercontinental Exchange.

The TTF-month ahead index has traded at elevated levels in recent weeks, partly due to persistent geopolitical concerns.

Germany’s supplies were safeguarded for the time being, Habeck said, before adding the government was closely monitoring supply flows with market operators.

“Nevertheless, we need to step up our preventive measures in order to be ready to cope with any escalation by Russia,” Habeck said. “The announcement of the early warning level means that a crisis team has convened.”

Germany’s energy ministry said its crisis team would meet regularly to monitor the situation and that it was in permanent contact with the European Commission, the EU’s executive arm.

The overall supply to all German gas consumers is assured at present, the ministry said, and sufficient gas is available on the markets.

“With immediate effect, all gas consumers — from industry to households — are called on to reduce their consumption as much as they can,” the ministry said in a statement.

‘Prepare for all scenarios’

Habeck has said Germany, which imported around 55% of its gas supplies from Russia last year, would not be able to achieve full independence from Moscow before mid-2024.

The European Union, meanwhile, receives roughly 40% of its gas via Russian pipelines and several of which run through Ukraine.

Klaus Mueller, the head of German network regulator Bundesnetzagentur, said via Twitter that the early warning would help Germany and the European Union to avoid the deterioration of gas supplies. Mueller called on consumers and industry leaders to prepare for “all scenarios.”

Germany’s emergency gas plan has three levels. The first has now been triggered, with the early warning measure designed to prepare for the risk of a potential supply disruption.

The second level refers to alarm, whereby the usual balance is significantly disrupted but the government believes it can still be corrected with market-based measures.

The third level is emergency, at which point intervention is required. Germany’s Bundesnetzagentur must then decide how to distribute the remaining gas supplies nationwide.