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What is the EU gas crisis? Here's all you need to know

Gas prices have hit record levels in Europe, driving a surge in inflation and adding to challenges for policymakers trying to haul Europe back from an economic slowdown.

June 23, 2022 / 06:18 PM IST
Representative image (Image: Shutterstock)

Representative image (Image: Shutterstock)

Amid reduced flows of Russian gas supply, European nations are left scrambling for alternative choices buoyed by inflationary pressures and supply chain disturbances.

Gas prices have hit record levels in Europe, adding to challenges for policymakers trying to haul Europe back from an economic slowdown.

Also Read: What are Europe's options in case of Russian gas disruption?

EU relied on Russia for 40 percent of its gas needs before war: The European Union (EU) relied on Russia for as much as 40 percent of its gas needs before the Russia-Ukraine war — rising to 55 percent for Germany, leaving a huge gap to fill in an already tight global gas market.

According to experts, coal is the most carbon-intensive fossil fuel in terms of emissions, yet the most important target for replacement to alternative energy sources, reported Reuters.

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Coal as an alternative choice: The energy disruption has prompted some European governments to reconsider coal, one of the dirtiest and most polluting ways of producing energy.

Germany, Italy, Austria and the Netherlands have indicated that coal-fired plants could be used to compensate for a cut in Russian gas supplies.

Reports suggest that the energy crisis could see Europe delay its transition away from fossil fuels, although policymakers insist the burning of coal is a necessary stopgap to help prevent a winter supply shortage.

Also Read: Russia crimps gas flows just as Europe races to stock up for winter

Nord Stream 1 operating at 40 per cent capacity: Russia’s state-backed energy giant Gazprom has cut capacity through the Nord Stream 1 pipeline that runs to Germany under the Baltic Sea, citing the delayed return of equipment serviced by Germany’s Siemens Energy in Canada.

However, Russian gas is still being pumped via Ukraine, but at a reduced rate. The Nord Stream 1 pipeline under the Baltic, a vital supply route to Germany, is working at just 40 percent capacity.

Also Read: As Russia cuts gas, German industry grapples with painful choices

Germany risks recession; enters Phase 2 of 3-stage emergency gas plan: Germany faces certain recession if faltering Russian gas supplies stop completely, an industry body warned earlier in the week, and Italy said it would consider offering financial backing to help companies refill gas storage to avoid a deeper crisis in winter.

Germany has entered Phase 2 of its three-stage emergency gas plan on Thursday due to reduced supply from Russia and high prices, but is not yet triggering a clause that lets utilities pass on soaring gas costs to customers, reported Reuters.

The Phase 2 "alarm stage" kicks in when the government sees a high risk of long-term supply shortages of gas. Facing dwindling gas flows from main supplier Russia, Europe's largest economy had been at Phase 1 of its emergency plan since end-March.

It faces the unprecedented prospect of businesses and consumers running out of energy. Meanwhile, Germany has also warned that Russia’s moves to slash Europe’s natural gas supplies risked sparking a collapse in energy markets, drawing a parallel to the role of Lehman Brothers in triggering the financial crisis, reported Bloomberg news.

Also Read: What LNG can and can’t do to replace Europe’s imports of Russian gas

Europe lacks infrastructure to meet LNG storage needs: To add to the pressure, soaring European prices have attracted more liquefied natural gas (LNG) cargoes, but Europe lacks the infrastructure to meet all its needs from LNG - a market that was stretched even before the Ukraine war.

EU nations are looking to fill underground storage with natural gas supplies to provide households with enough fuel to keep homes warm during winter.

Europe is now seeking more pipeline supplies from its own producers, such as Norway, and other states, including Azerbaijan, but most producers are already pushing the limits of output.
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