24 Mar 2022, 14:07
Kerstine Appunn

Germany must trigger gas emergency plans after Putin's rouble demands - energy industry

Vladimir Putin’s announcement to only accept payment in roubles for gas deliveries to Europe has rattled Germany’s energy industry and sent natural gas prices soaring. Economy minister Robert Habeck called Russia’s move a “breach of contracts,” and the energy industry said that an “early warning alert” should be announced on the national emergency gas supply plan.

German energy companies have been rattled by Russian president Vladimir Putin’s announcement that Moscow will only accept payments in roubles for gas deliveries to “unfriendly countries” as of next week. Responding to this move, the German Association of Energy and Water Industries (BDEW) called on the government to announce an “early warning alert” on the country’s national emergency gas supply plan. “There are concrete and serious indications that we are heading for a deterioration of the gas supply situation,” said BDEW head Kerstine Andreae. Announcing the first of three crisis stages would emphasise the need for municipalities to prepare for a gas shortage, the Federal Network Agency (BNetzA) and the BDEW said.

Even before Putin’s announcement on Wednesday, which was widely seen as a way to undermine western sanctions on Russian banks and its currency, German authorities had begun drafting  a priority ranking and shutdown sequence for natural gas consumers. While it is clear that households, schools and firms providing essential social services will have to be protected, a sequence for industry is still wanting. Andreae told energate that she was confident that an agreement would be ready for the coming winter.

In a first response, economy and climate minister Robert Habeck called Putin’s announcement “a breach of contacts” and added that “we will discuss with our European partners a possible answer to Moscow’s announcement.” Habeck reiterated that gas supply for this spring was guaranteed and that efforts were being made to find alternative sources. “In this respect, I'm not very worried about it now. We still have to make provisions for next winter, but we are working on that at full speed,” he said.

German energy companies surprised by Russia’s announcement

Germany’s major energy companies, such as RWE, EnBW and Uniper, which have running contracts with Russian gas suppliers, were surprised by Putin’s announcement, Tagesspiegel Background reports. Gas delivery contracts generally specify the currency in which the buyer pays the supplier in euros or dollars. So far, and despite the war, Russia has delivered gas according to existing contracts – and the German economy continues to depend on them. Changing gas supply contracts, which are confidential, is usually a difficult and drawn-out process, lawyers told Politico.

“As you know, completely replacing procurement in the short term in the event of a theoretical loss of Russian gas is not feasible for us, as it is for most market participants,” EnBW CEO Frank Mastiaux said on Wednesday morning before Putin’s announcement.

EnBW procured 20 percent of its natural gas via direct agreements with Russian suppliers in 2021. The company has two direct contracts with Russian suppliers, one of which, for a volume of 35 TWh, is due to expire at the end of this year, while the other one (65 TWh) is supposed to run till 2030.

According to news agency Reuters, RWE has agreed to purchase 15 TWh of Russian gas by 2023. Germany's total consumption of Russian gas was recently around 400 TWh per year.

Energy company Uniper told Clean Energy Wire they were not commenting on the issue for now.

Timm Kehler, head of industry association Zukunft Gas, said: "We have noted with great irritation the news that Russia wants to settle gas deliveries only in roubles. At this point in time, we cannot yet assess what concrete effects this will have on gas trade.”

How will the European Union react?

European leaders are scheduled to meet on 24 -25 March to discuss the next steps in the Ukraine, energy prices and security of supply crises. In a draft of their summit conclusions seen by Reuters, the leaders will agree to "work together on the joint purchase of gas, LNG and hydrogen" ahead of next winter, and coordinate measures to fill gas storage.

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