Germany moves to second level of emergency gas plan: ministry

Germany on June 23 moved to the second level of its emergency gas plan due to the cut in deliveries from Russia and continued high gas prices, and has again urged all consumers to limit gas consumption.

European gas prices rose in early trade June 23, with the TTF month-ahead contract up by 5% to as high as Eur134/MWh after the German announcement.

Berlin implemented the first phase of its gas crisis plan on March 30, but has now declared an "alert" notice, the second of three stages in the plan, which allows suppliers in theory to pass on higher costs to consumers to limit gas demand.

However, the economy ministry stopped short of making use of this so-called price adjustment mechanism.

"This mechanism may be necessary in certain situations to prevent a collapse of the energy supply," economy minister Robert Habeck said.

"But it also has downsides, so we are also working on alternative concepts. It is important to keep the market running despite high additional costs," Habeck said.

The second alert level is activated when there is disruption to gas supply -- or exceptionally high demand for gas -- leading to a significant deterioration in supply.

The third, final state of emergency is declared when there is exceptionally high demand for gas or "significant" disruption to gas supply, with all market-based measures implemented and supply still insufficient. In that case, non-market-based measures can be taken.

"Even if gas quantities can currently still be procured on the market and are still being stored, the situation is serious," Habeck said.

"We must not deceive ourselves: the curtailment of gas supplies is an economic attack by [Russian President Vladimir] Putin on us. It is obviously Putin's strategy to create uncertainty, drive up prices and divide us as a society," Habeck said.

"It will be a rocky road that we now have to take as a country. Even if you don't feel it yet, we are in a gas crisis. Gas is now a scarce commodity. Prices are already high and we have to be prepared for further increases," he said.

High prices

The Dutch TTF front-month contract was last assessed on June 22 at Eur127.75/MWh, up 55% since the start of the month and 335% higher year on year, according to Platts price assessments by S&P Global Commodity Insights.

The high prices, Habeck said, will have an impact on industrial production and will become a "major burden" for many consumers. "It's an external shock," he said.

Russia's Gazprom began limiting deliveries to Europe last year and left its own operated European storage sites -- including in Germany -- close to empty ahead of the invasion of Ukraine in February.

In April, Gazprom then began to cut off European buyers that refused to comply with a new ruble-based payment system and earlier this month reduced deliveries via the Nord Stream pipeline to just 40% of capacity.

Gazprom said the fall in deliveries via Nord Stream -- which had been the main route for Russian gas to reach Europe -- was due to maintenance issues at a key compressor station. Russia has denied that the Nord Stream curtailments were intentional.

However, Habeck has cast doubt on the explanations given by Gazprom, saying they were not "technically justifiable".

Storage level

The ministry said German storage sites were currently filled to 58% of capacity.

But it warned that if Russian gas supplies via Nord Stream remained at the low level of 40%, it would be difficult to reach a storage level of 90% by December "without additional measures."

"As a result, there is currently a disruption of the gas supply, which leads to a considerable deterioration of the gas supply situation; the declaration of the alert level is therefore necessary. The European partners were informed of the move," it said.

Germany has also approved a loan of Eur15 billion ($15.8 billion) to gas market manager Trading Hub Europe to buy gas to put into storage this summer.

Habeck also urged all consumers to save energy, saying this would be the "imperative" in the coming months.

"All consumers -- in industry, in public institutions and in private households -- should reduce gas consumption as much as possible so that we can get through the winter," he said.

In order to reduce gas consumption in power generation, the German government will, as announced on June 19, also call additional coal-fired power plants out of standby.

"To this end, the ministry has already written to the power plant operators and asked them to take the necessary steps," the ministry said.

The corresponding legislation, which enables the gas replacement reserve to be called up, is currently in the parliamentary procedure.

"We bring coal-fired power plants to the market and reduce the amount of gas. This is painful -- coal-fired power plants are simply poison for the climate. But for a transitional period, we have to do it to save gas and get through the winter," Habeck said.

Gas auctions

In addition, Germany is planning to launch this summer a gas auction model to encourage industrial gas consumers to save gas.

Work will be fast-tracked on the model in the coming weeks so that it can be launched quickly, Habeck said. "If further measures are needed beyond that, we will take them," he said.

Habeck is also to intensify talks with industry as well as with other EU member states and environmental groups in the coming days.

"In this crisis, it is important to know the different levels of concern, to combine knowledge and skills and to find better solutions again and again. We will learn in this crisis," he said.