Germany to Face “Certain Recession” if Russian Gas Supplies Stop Completely

Germany faces certain recession if faltering Russian gas supplies stop completely, an industry body warned on Tuesday, and Italy said it would consider offering financial backing to help companies refill gas storage to avoid a deeper crisis in winter

‘Golar Tundra’, an FRSU purchased by Snam for €330 million this month. Credit: Snam official website

Germany faces certain recession if faltering Russian gas supplies stop completely, an industry body warned on Tuesday, and Italy said it would consider offering financial backing to help companies refill gas storage to avoid a deeper crisis in winter.

European Union states from the Baltic Sea in the north to the Adriatic in the south have outlined measures to cope with a supply crisis after Russia’s invasion of Ukraine put energy at the heart of an economic battle between Moscow and the West.

Germany’s BDI industry association on Tuesday cut its economic growth forecast for 2022 to 1.5% from the 3.5% expected before the war began on February 24. It said a halt in Russian gas deliveries would make recession in Europe’s largest economy inevitable.

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% capacity. Moscow says Western sanctions are hindering repairs; Europe says this is a pretext to reduce flows. German Economy Minister Robert Habeck said the reduced supplies amounted to an economic attack and part of Russian President Vladimir Putin’s plan to stir up fear.

The slowdown has hampered Europe’s efforts to refill storage facilities, now about 55% full, to meet an EU-wide target of 80% by October and 90% by November, a level that would help see the bloc through winter if supplies were disrupted further.

Italy’s government has also announced initial measures to boost gas storage after energy company Eni reported a shortfall in flows from Russia for more than a week.

Ecological Transition Minister Roberto Cingolani said in a statement the government planned to purchase coal if it needed to use coal-fired power plants to save gas. Cingolani also asked gas grid operator Snam to adopt measures to help bring gas stockpiles to around their targeted level for June.

The benchmark gas price for Europe was trading around €126/MWh, below this year’s peak of €335 but up more than 300% from a year ago. Countries other than Italy, including Austria, Denmark, Germany and the Netherlands, have activated the first early warning stage of a three-stage plan to cope with a gas supply crisis.

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