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Europe may shift back to coal as Russia turns down gas flows




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Pictured in Lubmin, Germany on 8 March 2022, are pipes at the landfall facilities for the 'Nord Stream 1’ gas pipeline.

Europe’s largest Russian gas buyers raced for alternative fuel supplies this week. They could burn more coal to deal with lower gas flows from Russia, which threaten an energy crisis in winter if stock is not replenished.

Germany, Italy and Austria have all indicated that they believe coal-fired power plants can help the continent get through the crisis that has seen gas prices rise and increased the challenges facing policymakers fighting inflation.

Monday's announcement by the Dutch government that it would lift a cap on coal-fired power plants production and activate the first phase in an energy crisis plan was a sign of its willingness to do so.

Due to uncertainty in Russian supply, Denmark has also started the first phase of an emergency gas plan.

It was closer to declaring an energy emergency after Eni , the oil company, stated that Russia's Gazprom (GAZP.MM.) had told it it would only receive a portion of its request for gas supplies Monday.

Germany has also seen lower Russian flows and has now announced its latest plan for gas storage. It could also restart the coal-fired power stations it had planned to eliminate.


Robert Habeck, Economy Minister, said that while it was painful to do so, it was necessary in order to reduce gas consumption. He is part of the Green party, which has advocated for a quicker exit from coal, which emits more greenhouse gases.

"But if it's not done, then there is a risk that the storage units will not be sufficient at the end the year towards winter. He said that if we don't do it, then we will be manipulated on a political basis."

Russia's earlier criticism of Europe was repeated Monday by Russia. The West placed sanctions following the invasion of Ukraine. This is a major gas transit route to Europe and a major exporter of wheat.

On Monday, the European benchmark Dutch front-month gas contract was trading at €124 ($130/MWh), down from €335 this year but up more than 30% over its level last year.

Markus Krebber (CEO of Germany's largest electricity producer RWE (RWEG.DE), stated that power prices could take up to five years before they return to their previous levels.

The main route supplying Europe’s largest economy with Russian gas is the Nord Stream 1 pipeline. They were running at around 40% capacity on Monday, despite having increased slightly since the beginning of last week.

According to Ukraine, its pipelines could fill any supply gap via Nord Stream 1. Moscow previously stated that it cannot pump more through pipelines Ukraine hasn't shut off.

Eni and Uniper , a German utility Uniper (UN01.DE ), were two of the European companies that claimed they were receiving less Russian gas than contracted volumes. However, Europe's gas stocks are still filling slowly.

They were 54% full Monday, against the target of 80% October and 90% November by the European Union.

Germany's economy ministry stated that bringing back coal-fired power stations could increase the capacity by up to 10 gigawatts in case of gas shortages. The upper house of parliament will vote on the law on 8 July.

The latest German measures include an Auction System to encourage industry to use less gas and financial assistance for Germany's Gas Market Operator, via KFW (KFW.UL), in order to fill gas storage more quickly.

RWE stated Monday that it could extend the operation of three 300 Megawatt (MW), brown coal power plants, if necessary.

Austria's government reached an agreement with utility Verbund to convert a gas-fired power station to coal in the event of an emergency. OMV (OMVV.VII) stated Monday that Austria would receive half of its usual gas supply for the second day.

The Netherlands will lift a production cap on coal-fired power plants in order to conserve gas given Gazprom's plans to reduce supplies to Europe. Rob Jetten, the Dutch energy minister, made the announcement Monday. He said that the government had also activated an "early warning" phase in a three-part energy crises plan.

Russia's Gazprom, a state-controlled company, cut Nord Stream 1 capacity last week. It cited the delayed return equipment that was being serviced in Canada by Siemens Energy (SIEGn.DE).

Dmitry Peskov, a Kremlin spokesperson, stated that "We have gas. It is ready to ship, but the Europeans need to return the equipment which should be repaired in accordance with their obligations."

Officials from Germany and Italy have stated that Russia is using this excuse to cut supplies.

Italy's technical committee for natural gas will meet Tuesday. It has indicated that it may declare a higher level of alert this week in response to Russia's continued reductions in supplies.

This would set off measures to reduce consumption. It could include rationing gas for select industrial users, increasing production at coal power stations, and asking for additional gas imports from other suppliers in accordance with existing contracts.

($1 = €0.9508)

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