Germany takes step closer to gas rationing with heightened alert

Germany elevated the risk level in its national gas emergency plan to the second-highest “alarm” phase, following steep cuts in supplies from Russia.

The heightened alert tightens monitoring of the market, and some coal-fired power plants will be reactivated, the Economy Ministry said in a statement on Thursday. The government said it would hold off on an option of enacting legislation to allow energy companies to pass on cost increases to homes and businesses.

The third and highest “emergency” level would involve state control over distribution.

“It will be a rocky road that we have to travel as a country,” Economy Minister Robert Habeck. “Even if we don’t feel it yet, we are in a gas crisis.”

Habeck warned Wednesday that Europe’s biggest economy should brace for a further reduction in Russian gas flows after Moscow last week slashed deliveries on its main pipeline to Europe.

Dutch front-month gas futures, the European benchmark, rose 1.7% to €129.30 per megawatt-hour in Amsterdam. The contracts have gained more than 50% since state-owned gas giant Gazprom PJSC cut flows on the key Nord Stream pipeline by about 60%.

Germany, which relies on Russia for more than a third of its gas supplies, enacted the initial “early warning” phase at the end of March, when the Kremlin’s demands for payment in rubles prompted Germany to brace for a potential cut-off in supply.

Habeck, who is also the vice chancellor in the ruling coalition, has said Russia’s move to cut gas deliveries through the Nord Stream pipeline by about 60% was politically motivated and aimed at unsettling the markets.

The government’s latest move comes as Germany rushes to fill up gas-storage facilities, which are currently around 58% full. Energy companies have been building stocks to try to reach a government-mandated target of 90% capacity by November to help see the nation through the winter.

Germany’s network regulator, known as BNetzA, would implement rationing if the government triggers the emergency level. The Bonn-based agency has said leisure venues would likely see supply cuts, while consumers and critical public services such as hospitals would be protected.

Gas is a crucial part of Germany’s energy mix and more difficult to replace than Russian coal and oil, which are being phased out by the end of the year. Some 15% of Germany’s electricity is generated from gas, which is also critical for heating homes and for industrial processes in the chemicals, pharmaceuticals and metals sectors.

Germany has taken steps to secure supplies, including taking control of a local Gazprom subsidiary, which was renamed Securing Energy for Europe GmbH. The country is also building infrastructure to import liquefied natural gas from the US and other suppliers.