Commentary on Political Economy

Tuesday, 8 March 2022

 

A ticking time bomb as Europe’s Achilles heel is exposed

A woman walks along a booster compressor station at the Bovanenkovo gas field that should feed the controversial Nord Stream gas pipeline, on the Yamal peninsula in the Arctic circle.
A woman walks along a booster compressor station at the Bovanenkovo gas field that should feed the controversial Nord Stream gas pipeline, on the Yamal peninsula in the Arctic circle.

In a network of caverns more than a mile beneath the northwest German village of Rehden, the last dregs are now being sucked out of Europe’s largest natural gas storage facility.

It is an ominous time to run out of gas reserves. Overnight, Russia threatened to shut down the Nord Stream 1 pipelines, one of Germany’s most important sources of the fuel, and warned that oil prices could rise to $300 a barrel, more than double their current level.

At the same time, Germany is under pressure from the US, Ukraine and some of its European allies to sign up to an energy embargo on Russia that would, at the very least, cut off the flow of oil, if not gas and coal as well.

This is precisely the scenario the German government had hoped to avoid. Only a few months ago it was considered downright rude in Berlin even to suggest that Germany was precariously hooked on Russian hydrocarbons, let alone that this dependence was a strategic problem.

The United States and Europe has announced a ban on Russian oil, gas and energy to increase the economic pain on ... 

    Yet it is now patently clear that this vulnerability is one of Europe’s Achilles heels. Germany gets about a quarter of all its energy from Russia: 55 per cent of its gas, 45 per cent of its coal and a little more than 35 per cent of its oil.

    It is often suggested that this is simply a question of ripping off the plaster and putting up with a bit of economic pain for the greater good of the West. “Better a cold shower than Putin’s gas,” as one placard held up at a recent protest in Berlin put it.

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    It could be considerably rougher than that, though. Germans already have to cope with the highest electricity bills in Europe: last year a kilowatt-hour typically cost three times as much in Germany as in Hungary. The German government does not measure fuel poverty but it is likely that hundreds of thousands more households could be driven into serious financial difficulties.

    A man with a sign saying "No More Gas From Putin" passes the Reichstag. Overnight, Russia threatened to shut down the Nord Stream 1 pipelines, one of Germany’s most important sources of fuel.
    A man with a sign saying "No More Gas From Putin" passes the Reichstag. Overnight, Russia threatened to shut down the Nord Stream 1 pipelines, one of Germany’s most important sources of fuel.

    Some analysts believe that a sustained shock to the Russian gas supply would not only send heating and power costs even higher but also tip the grid into rolling blackouts over the next winter as the country’s last three nuclear reactors, which still supply about 10 per cent of its electricity, are taken offline.

    The German energy regulator itself has estimated that the country could be up to 6.4GW — roughly equivalent to the output of six atomic power stations — short of a secure electricity supply by the end of the year.

    It does not help that the Rehden storage facility has been owned by a subsidiary of Gazprom, the Russian state-owned energy conglomerate, since 2015.

    Germany is also short on alternatives. Giving the nuclear reactors a stay of execution at such short notice would be expensive and technically fraught, not least because each would require a fresh supply of customised fuel rods, which take months to manufacture.

    Replacing Russian pipeline gas with liquefied natural gas is also tricky because Germany has no LNG terminals and even a temporary floating facility could take 18 months to set up.

    In the long run, the government is counting on a vast and ambitious shift to renewables but this too will happen over years rather than months, particularly as the German wind and solar industries have contracted massively over the past half-decade.

    Then there are petrol prices, an awkward political issue in most countries but especially so in Germany.

    Russia says a ban on its oil would have “catastrophic consequences” for the global economy as the West continues to ... 

      Nine months ago a proposal to levy a mere extra 0.02 euros of tax per litre played a significant role in derailing the Green party’s Bundestag election campaign.

      Since then the cost of a litre of unleaded has leapt by euros 0.50 and is pushing a record 2 euros. Some politicians have begun urging the government to impose a price cap before things get out of hand.

      This is why Olaf Scholz, the chancellor, says that energy imports from Russia are of “essential importance” to his country, which he argued could not realistically get by without them.

      Even Robert Habeck, the Green economics and energy minister, who would dearly like to get shot of Russian oil and gas as soon as prudently possible, has bowed to necessity: “We need these energy imports to maintain price stability and energy security in Germany.”

      Yet there are many of their compatriots who feel that this is, nevertheless, a price worth paying for the sake of Ukraine and Europe. “Just you tell the Kharkiv families hiding in their basements how furious a petrol price of more than 2 euros makes you,” Jan Bohmermann, one of Germany’s most prominent satirists, said.

      Russia’s latest threats also suggest that Berlin could end up getting pushed down this path whether it likes it or not, should Moscow start turning the taps off or should the diplomatic pressure for an energy embargo become too overwhelming for Germany to resist.

      The Times

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