EU rushes to protect industry as Russia gas shutdown shakes markets

LONDON/OSLO, Sept 5 (Reuters) – Gas prices in Europe jumped, stocks tumbled and the euro tumbled on Monday after Russia cut off gas flows through a major pipeline, sending a fresh wave of shock in the economies of the region which are still struggling to recover from the pandemic.

European Union governments are pressing for multi-billion euro packages to prevent utilities from collapsing under a cash crunch and to protect households from soaring energy bills.

Prices could rise further after Russian state-controlled Gazprom said it would stop pumping gas through Nord Stream 1.

Europe has accused Russia of militarizing energy supplies in retaliation for Western sanctions imposed on Moscow following its invasion of Ukraine. Russia accuses these sanctions of having caused the gas supply problems, which were due to a failure of the gas pipeline.

Many European electricity distributors have already collapsed and some large producers could be at risk, hit by caps that limit the price increases they can pass on to consumers or trapped by hedging bets, prices gas is now 400% higher than a year ago.

Finland aims to offer 10 billion euros ($10 billion) and Sweden 250 billion Swedish krona ($23 billion) in liquidity guarantees to their power companies.

“The government program is a last resort financing option for companies that would otherwise be at risk of insolvency,” Finnish Prime Minister Sanna Marin said.

Utilities often sell electricity in advance to guarantee a certain price, but must keep a “minimum margin” deposit in case of default before supplying the electricity. This has increased with soaring electricity prices, leaving companies struggling to find cash.

The benchmark gas price rose 35% at some point on Monday after Gazprom (GAZP.MM) said on Friday that a leak in equipment on the Nord Stream 1 pipeline meant it would remain closed beyond last week’s three-day maintenance shutdown.

European financial markets were rocked by the news, with the euro falling to a 20-year low and stocks falling. Read more

Nord Stream 1, which runs under the Baltic Sea to Germany, historically supplied around a third of the gas Russia exported to Europe, although it was already operating at only 20% capacity before the shutdown last week’s maintenance.

WESTERN SANCTIONS

“Gas supply problems have arisen because of the sanctions imposed on our country by Western states, including Germany and Britain,” Kremlin spokesman Dmitry Peskov said on Monday.

“There are no other reasons that lead to supply problems,” Peskov added. Read more

Adding to the standoff, he also said Russia would retaliate if G7 states imposed a price cap on Russian oil. Read more

Although Russia is also sending gas to Europe via a pipeline through Ukraine, those supplies have also been cut during the crisis, leaving the EU scrambling to find alternative supplies to fill gas storage facilities for the EU. ‘winter.

Germany, more dependent than most EU states on Russian gas, has offered a multi-billion euro bailout to power utility Uniper (UN01.DE). Berlin also said it would spend at least 65 billion euros to protect customers and businesses from soaring inflation, fueled by soaring energy prices. Read more

Berlin said on Monday it planned to keep two of its three remaining nuclear power plants on standby, beyond a year-end deadline to completely phase out fuel, to ensure it has enough electricity during the winter.

German Economy Minister Robert Habeck said in a statement on Monday that the move does not mean Berlin is backtracking on its long-standing promise to phase out nuclear power by the end of 2022.

Meanwhile, French President Emmanuel Macron said after a call with German Chancellor Olaf Scholz that in the event of an energy shortage resulting from the Ukraine conflict, Berlin and Paris would support each other. Read more

“Germany needs our gas and we need electricity from the rest of Europe, especially Germany,” Macron said at a press briefing.

And Ukrainian Prime Minister Denys Shmyhal has urged the EU to supply more weapons to Kyiv, while offering to help with gas deliveries to reduce the bloc’s dependence on Russia, which has supplied about 155 billion m3 of gas to Europe last year.

RECESSION FEARS

Some energy-intensive industries in Europe, such as fertilizer makers and aluminum producers, have already cut production. Other industries, already struggling with chip shortages and logistical bottlenecks, are facing soaring fuel bills.

Several EU states have triggered emergency plans that could lead to energy rationing and stoke fears of recession, with inflation soaring and interest rates rising.

“We cannot rule out that Germany is considering gas rationing,” Uniper chief executive Klaus-Dieter Maubach told Reuters on the sidelines of the Gastech conference in Milan.

Germany, which is installing liquefied natural gas (LNG) terminals so it can ship fuel and expand its range of global suppliers, is in phase two of a three-stage emergency gas plan. Phase three would see some rationing of industry. Read more

German households will be given priority if the plan is activated but will not be able to heat swimming pools or saunas, the energy regulator said on Monday.

The global LNG market was already stretched as the global economy sucked up supplies during the post-pandemic recovery. The Ukrainian crisis has increased demand.

Norway, a major European producer, has pumped more gas into European markets but cannot fill the void left by Russia.

Energy ministers from EU countries are due to meet on September 9 to discuss options to curb soaring energy prices, including gas price caps and emergency credit lines for energy market players, according to a document seen by Reuters. Read more

Klaus Mueller, chairman of energy regulator Germany’s Federal Network Agency, said in August that even though its gas reserves were 100% full, they would be empty in 2.5 months if Russian gas flows were completely cut off. .

German storage facilities are now around 85% full, while facilities across Europe reached a target of 80% last week.

Reporting by Susanna Twidale in London, Nora Buli in Oslo, Supantha Mukherjee in Stockholm and Essi Lehto in Helsinki; Written by Edmund Blair and Alexander Smith; Editing by Mark Potter and Carmel Crimmins

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