European governments are scrambling to stockpile underground storage to provide households with enough fuel to keep homes warm in winter.
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Germany’s natural gas storage facilities exceeded more than 75% capacity this month, two weeks ahead of schedule, as Europe’s largest economy prepares for the coming winter.
The latest data from industry group Gas Infrastructure Europe shows that Germany’s gas storage facilities are just over 77% full.
Chancellor Olaf Scholz’s government originally planned for gas storage capacity to reach 75% by September 1st. The next federally mandated targets are 85% by October 1 and 95% by November 1.
European governments are scrambling to fill up underground storage facilities with stocks of natural gas to have enough fuel to keep homes warm for months to come.
Russia has drastically reduced natural gas supplies to Europe in recent weeks, with flows via the Nord Stream 1 pipeline to Germany currently reaching just 20% of the agreed volume.
Moscow blames faulty and late equipment. However, Germany sees the supply cut as a political maneuver aimed at sowing uncertainty in Europe and pushing up energy prices in the face of the Kremlin’s attack on Ukraine.
“Germany has developed a business model that is largely based on dependence on cheap Russian gas and thus also dependence on a president who violates international law [and] for whom free democracy and its values are declared enemies,” said Economics Minister Robert Habeck at a press conference on Monday, according to a translation. “This model failed and it will not come back.”
His comments came as German gas market operator Trading Hub Europe announced that households nationwide would have to pay nearly €500 more a year for gas.
The new tax is intended to help utilities cover the cost of replacing Russian supplies, despite calls from the German government to provide further relief to the public.
“All measures, and that is undisputed, have their price,” said Habeck. “All measures have consequences and some are unreasonable, but they mean that we are less susceptible to blackmail and can make decisions about our energy supply independently of Russia.”
“Insecurity is poison”
Europe’s race to conserve enough petrol to get through the colder months comes at a time of skyrocketing prices. Rising energy costs are driving up household bills, driving inflation to the highest level in decades and squeezing people’s purchasing power.
Until recently, Germany bought more than half of its gas from Russia. And the government is now struggling to secure winter gas supplies amid fears Moscow may soon turn off taps entirely.
“I see the chances that Germany will have 90 percent storage capacity by the beginning of winter, but that’s not enough to really avoid a gas shortage,” says Marcel Fratzscher, President of the German Institute for Economic Research (DIW). ), CNBC’s Squawk Box Europe said on Tuesday.
“Even if Germany survives the winter, the problem could come in the spring of next year, so the uncertainty is there and companies are concerned,” Fratzscher said.
“Uncertainty is poison for the economy. Companies invest less, consumers consume less – the result is a massive slowdown in the German economy,” he added.
“Gas storage is not enough”
RWE CFO Michael Muller told CNBC’s Joumanna Bercetche on Aug. 11 that the company’s gas storage status is over 85%.
Mueller said the Essen-headquartered company, one of Germany’s largest energy suppliers, was “on track” to meet the government’s target by November.
Analysts told CNBC that Germany has been able to replenish its gas supplies quickly in recent weeks due to a number of factors. These include strong supply from Norway and other European countries, falling demand as energy prices rise, companies switching from gas to other types of fuel, and the government providing more than €15 billion in credit lines to fill up storage facilities .
“Obviously, when you’re spending a lot of money, it’s relatively easy to fill up the store,” Andreas Schroeder, head of energy analysis at ICIS, a commodity intelligence service, told CNBC by phone.
If the federal government “wants to see this as a success, then fine. We’ll see,” said Schröder. “But Germany is still not doing any better than other countries like France or Italy. They have filled their stores more without paying the huge subsidies.”
According to Schröder, one reason why Germany is at a “strategic disadvantage” compared to other major European economies is that Germany’s gas storage facilities were previously partially owned by Gazprom-controlled assets.
Germany’s natural gas storage facility in Rehden is considered crucial to the country’s energy security.
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This was the case, for example, at the Rehden storage facility in Germany, a site that is crucial to the country’s energy security.
“In other countries, [such as] France and Italy, they didn’t have that problem from the start,” Schröder said, adding he remains skeptical that Germany will meet the “rather ambitious” storage target of 95 percent by November.
“Gas storage is not enough. You also need demand reductions,” said Schröder.
The European Union last month agreed to cut natural gas use to offset the prospect of further Russian supply cuts. The bill calls for a 15% reduction in gas demand through voluntary measures from August to March.
For the 27-state bloc, however, forced cuts would be triggered if not enough was saved.
What about other EU countries?
Zongqiang Luo, a gas analyst at energy consultancy Rystad Energy, told CNBC that Germany’s position as the largest consumer of natural gas in Europe makes it difficult to compare storage capacity in Berlin with other European countries.
Luo said that only France, Spain and Italy are comparable in terms of the extent of their gas consumption, but France’s reliance on nuclear power to generate electricity, Spain’s use of LNG import terminals and Spain and Italy’s reliance on Algerian gas exports mean they are all different from each other distinguish Germany.
According to the GIE, France’s gas storage facilities were almost 87% full as of late, while gas supplies in Spain and Italy were at around 81% and 77%, respectively.
“So, I will say, compared to Germany’s storage plan with these three countries, Italy, France and Spain, I will say Germany has done a good job so far,” Luo said.
“But let’s see how they will meet the target for the next two months,” he said. “That will be very, very critical for the coming winter.”