August 8, 2022

Europe agrees to compromise on gas restrictions as Russia cuts supplies

Europe agrees to compromise on gas restrictions as Russia cuts supplies

Model of a natural gas pipeline, flag of the European Union and Russia, July 18, 2022. REUTERS/Dado Rovich/Illustration

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  • EU ministers agree emergency cuts to gas use
  • Voluntary cuts in supplies will become binding in an emergency
  • The final deal excludes many countries and industries
  • EU races to save gas as Russia cuts supplies

BRUSSELS (Reuters) – European Union countries agreed on Tuesday a weaker contingency plan to curb gas demand after striking compromise deals to limit cuts in some countries as they prepare for further Russian supply cuts.

Europe is facing increasing pressure on gas from Wednesday when Russia’s Gazprom signed (GAZP.MM) It said it would reduce flows through the Nord Stream 1 pipeline to Germany to a fifth of its capacity. Read more

With dozens of European Union countries already facing reduced Russian supplies, Brussels is urging member states to save gas and store it for the winter, fearing Russia could halt flows entirely in response to Western sanctions over its war with Ukraine.

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Energy ministers approved a proposal for all EU countries to voluntarily reduce gas use by 15% from August to March.

The cuts could be made binding in the event of a supply emergency, but countries agreed to exempt many countries and industries, after some governments resisted the EU’s original proposal to impose a binding 15 percent cut on each country. Read more

German Economy Minister Robert Habeck said the agreement would show Russian President Vladimir Putin that Europe remains united in the face of Moscow’s recent gas cuts.

“You will not separate us,” Habek said.

Two EU officials said Hungary was the only country that opposed the deal.

Russia’s Gazprom has blamed its latest reduction on the need to decommission the turbines – a reason it was rejected by EU energy chief Kadri Simpson, who called the move “politically motivated”.

Russia, which supplied the EU with 40% of gas before the invasion of Ukraine, said it was a reliable energy supplier.

It also says the invasion, which began on February 24, is a “special military operation”.

Binding Waivers vs. Waivers

The EU agreement will exempt from binding 15% gas cuts such as Ireland and Malta not linked to gas networks in other EU countries.

News of the recent Russian supply cut has driven up gas prices, increasing the cost of filling storage, while creating incentives to use less.

Early Tuesday, the Dutch benchmark contract for the month of the nearest maturity is up nearly 10% and is more than 450% higher than a year ago, although down from record highs touched shortly after Russia began its invasion of Ukraine.

Countries that meet the European Union’s target to fill gas storage by August may face weaker targets — easing cuts to nearly a dozen countries, including Germany and Italy, based on current storage levels.

They could also exempt gas they use in critical industries, such as energy-intensive steelmaking, from the target.

In addition, those with limited ability to export gas to other EU countries can ask for a lower target, provided they export as much as they can. This could include Spain, which is not dependent on Russian gas and has said cutting its own demand will not help other countries because it lacks the infrastructure capacity to share the extra fuel.

“Everyone understands that when someone asks for help, you have to help. Help can be in different ways, but I think the spirit of cooperation will prevail,” Spanish Energy Minister Teresa Ribera said on Tuesday.

The EU plan tested the solidarity of states, with Greece and Poland among the countries that opposed mandatory gas cuts. Read more

Polish Climate Minister Anna Moskowa said the deal would not impose any restrictions on Poland’s use of gas, and opposed the idea that any country should limit the use of industrial gas to help other countries facing shortages.

Some EU diplomats have raised concerns that the number of those scrapped in the final regulation may mean it fails to ensure countries have enough gas for the winter.

Although governments, including Germany, Europe’s largest gas user, have tightened energy-saving measures, EU countries have reduced their combined gas use by just 5%, despite months of rising prices and dwindling Russian supplies.

“Maybe 15 per cent is not enough given what the Russians have just announced,” said Irish Environment Minister Eamon Ryan.

The deal requires the support of the majority of countries to launch the binding gas cuts, after many opposed the commission’s original proposal to have the last word.

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(Additional reporting by Kate Abnett, Philip Blinkinsop, Robin Emmott, Marien Strauss, Gabriella Bazinska); Editing by Philip Blinkinsop, Matthew Lewis and Barbara Lewis

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