A Stress Test for Solidarity
Looming Natural Gas Shortages Has the EU Scrambling for Solutions
With the threat of recession and further inflation, Vladimir Putin could deal a devastating blow to the European Union if he cuts gas supplies this winter. Should that happen, it would be a major test of solidarity for the block.
By Claus Hecking, Martin Knobbe, Ralf Neukirch, Jan Puhl und Gerald Traufetter
This time, the Germans want to be good Europeans right from the start.
"We will help each other with gas supplies," German Economics Minister Robert Habeck asserted on Monday during a visit to the Czech Republic.
"We will also do the same from Germany for the Czech Republic."
Habeck had traveled to Prague to prepare a solidarity agreement in case Russia halts gas supplies to the European Union, the absolute worst-case scenario for European energy supplies.
Similar agreements already exist with Austria and Denmark, and the one with the Czech Republic will likely be ready by winter.
The hope is that things will be different between the Europeans this time than they were at the beginning of the coronavirus pandemic two years ago.
In March 2020, the German government imposed an export ban on masks, protective clothing, gloves and other medical products.
France had already banned the export of protective masks a short time before.
Both countries drew the ire of the others, and for a time, it seemed as if the European Union's internal market would break apart under pressure from the crisis due to the egoism of the member states.
A repeat this time around is to be avoided at all costs.
The German government wants to conclude solidarity agreements with all European countries, with our "direct neighbors, but also beyond, such as with Italy," Habeck said in Prague.
His message is clear: Europe will not allow itself to be divided by Putin.
The first stress test for European solidarity could come on July 21.
That's when the annual mandatory maintenance on the Nord Stream 1 pipeline, which delivers gas directly from Russia to Germany, will be completed.
Russian gas should start flowing to Europe again on that day, unless Russian President Vladimir Putin decides otherwise.
Whether the Europeans will truly succeed in sticking together is, of course, an open question.
In June, when Russia throttled gas deliveries via the Nord Stream 1 pipeline, onward shipments of Russian natural gas from Germany to France came to a halt.
The French, though, already have the means to meet their (much lower) demand using other sources – by importing liquified natural gas through their four LNG terminals, for example.
But if there is a total loss of Russian gas, radically different distribution issues are likely to arise.
Will Germany still deliver sufficient gas to the Czech Republic, even if its own industry is suffering?
And will partners be ready to help a Germany that they perceived as not showing much solidarity during the euro crisis?
Worse than the Euro Crisis
The gas crisis could have repercussions that dwarf even the euro debacle.
Recession, unheated apartments, high prices – solidarity within the EU would be subjected to a stress test.
During the euro crisis, it was primarily the smaller EU countries like Greece or Portugal that had to make significant cutbacks.
This time, though, it could be the EU's largest country that gets hit hardest.
Germany not only consumes more natural gas than all other EU member states – it is also the most important transit country for the fossil fuel.
Habeck said at the end of June that there would be no permanent reduction in the amount of gas transmitted to the neighboring countries.
"That would be illegal – and absurd."
But the situation isn't quite so clear-cut.
The European Commission and the European Council agreed on a solidarity mechanism five years ago requiring member states to supply fuel to distressed member states as a "last resort" in extreme situations - provided they were connected to those struggling countries through existing natural gas networks.
This applies when the other country requests assistance and no longer has enough gas to supply private households, hospitals or social institutions.
But for that to work, member states would have to conclude the kind of bilateral solidarity agreement that Germany and the Czech Republic are now preparing.
The agreement is to contain the technical, legal and financial details of emergency supplies: which pipelines will be used, the quantities that will be provided and the prices that will be paid in the event of an emergency.
Without these contracts, there's a risk of complicated negotiations in the event of an emergency, for which there is no time.
And therein lies the problem: So far, only six of these agreements exist in the EU.
If significantly more countries don't negotiate with each other by the winter the form that aid should take if there's an emergency, then it could become difficult to provide mutual support.
Next Wednesday, the European Commission is slated to present how it believes the EU should deal with the impending gas shortage.
Sources in Brussels say that no specific recommendations will be made to individual member states about, for example, how they should save energy.
Block members will have to decide for themselves how they want to manage the bottlenecks.
The most that is being discussed in Brussels is setting of an EU-wide conservation target of 8 percent.
Coordinating, not Going It Alone
More important is the European Commission's role in sharing information on key metrics such as gas demand and supply chains.
For example, Brussels intends to offer its services in coordinating the emergency plans of member states to prevent the shutdown of a factory in one country from leading to the unintended shutdown of production in another.
Habeck and his staff are insisting that everyone must show solidarity.
If shortages do begin to appear in the autumn or winter, then industrial companies in Germany would have to cut back on production and citizens would also be forced to cut back on energy consumption.
Russian President Vladimir Putin during an online cabinet meeting: What will happen to German gas supplies after July 21? Foto: Mikhail Klimentyev / AP"But that will only work if the countries to which we transport the gas reduce their consumption as well," says a senior official.
That would be the only way of explaining to the populace why natural gas continued to flow to those countries from Germany.
But the idea of European solidarity isn't being met with enthusiasm everywhere.
"Where was Europe's energy solidarity and energy security when the Germans built Nord Stream 1 against the will of Poland and many others?" asks Joachim Brudziński, a member of the Polish parliament with the governing PiS party in Warsaw.
"No matter how much fresh Brussels-speak there is about European solidarity, about European energy policy, about the rule of law and European values – in the end, it's always about German or French interests."
In Southern Europe, too, where the euro crisis has left deep scars, the willingness to step up to help Germany remains limited.
Portuguese politician Bruno Maçães negotiated with the Germans as his county's secretary of state for European affairs during the euro crisis.
He says the German government spent years blocking alternatives to Russian gas.
As a result, he says there is a dearth of pipelines between the Iberian Peninsula and the rest of Europe.
Solidarity with the Germans?
"During the euro crisis, (then German Finance Minister Wolfgang) Schäuble always said that the costs should not be socialized," Maçães says.
"Why should that happen now – after all the German mistakes?"
Germany's actions on the international gas markets have done little to assuage such resentment.
The German government has so far made 15 billion euros available to fill its own gas storage facilities.
Largely unnoticed by the German public, the market area manager for the German gas market, Trading Hub Europe, has used this money to buy up whatever natural gas is available on the world markets.
It has been a success, at least from a German perspective.
Domestic gas storage facilities had filled up to over 64 percent by this week, almost 2 percent more than the European average.
Another consequence, however, is rising prices.
It is becoming increasingly difficult for many European countries to pay for gas.
An additional source of resentment, especially in Eastern Europe, is the fact that Germany has lobbied to send a gas turbine serviced in Canada for the Nord Stream 1 pipeline to Russia, even though this would mean an exemption to Russian sanctions.
In the Baltic states and Poland, this is seen as evidence of German energy egoism.
The German government, on the other hand, argues that Putin still thinks legalistically on some issues.
And Berlin doesn't want to give him any excuse to continue blocking gas supplies to Europe once maintenance on the Nord Stream 1 pipeline is completed.
The German government also took early action in other areas.
For example, Berlin commissioned the construction of floating LNG terminals at a time when they could still be obtained on the market.
They should be ready to go into operation by the end of the year.
That need not be problematic for other countries.
On the contrary, it could prove helpful as long as Germany provides some of that gas to its partners in the event of an emergency.
Germany Blocks Joint Gas Purchases
A number of EU countries have come out in favor of making joint gas purchases, as has the European Commission.
This, it is hoped, would allow more favorable prices to be achieved because member states would not be competing against each other.
The gas purchased would then be distributed to individual countries, similar to the way coronavirus vaccines were disbursed during the pandemic.
The plan, though, has been blocked at several EU summits by German Chancellor Olaf Scholz, even though the government in Berlin is anything but united on the issue.
There are influential advocates of making these pooled purchases within Habeck's Economy Ministry, for example.
But resistance is coming from large natural gas utilities in Germany, like RWE, and from industrial customers as well.
They want to buy their own gas and fear that they won't be allocated sufficient supplies by the EU.
They are exerting pressure through the unions, the result being that European leaders were only able to agree on a voluntary procurement pact at the last EU summit.
In addition to all the political issues, it is unclear whether the European gas network is at all equipped to meet the challenges of winter.
Thus far, most of the gas has flowed from Russia to the West via three pipelines.
If Putin turns off the gas taps for any length of time, then natural gas will have to be pumped into the interconnected European energy system from the south, west and north.
Pipelines from the south carry gas from North Africa and Italy's LNG ports, while western pipelines originate from terminals in Spain and France.
From the north, meanwhile, Norwegian supplies will increase in importance.
Can Europe's Grid Handle Flows?
A research group from the Munich-based technology academy Acatech this week presented a series of expert reports on whether the European gas grid can handle these flows.
"The further east the country, the more complicated the supply is in a situation like this," says Mario Ragwitz, one of the study leaders at the Fraunhofer Institution for Energy Infrastructures and Geothermal Energy. "
As an important transit country, Germany plays a key role in ensuring secure supplies to its Eastern European neighbors such as the Czech Republic and Slovakia."
The LNG terminal in the Polish port city of Świnoujście: "The further east the country, the more complicated the supply is in a situation like this." Foto: KACPER PEMPEL / REUTERSThe experts warn that in the event of a Russian embargo, there could be a shortage of 20 percent of the gas needed throughout Europe and as much as 30 percent in Germany.
As such, they are strongly advising a technical upgrade of the grid to reflect the new direction in which the gas is to flow.
Among other things, they have identified weak points between Germany, Austria and Italy that could affect the flow of Norwegian gas to the south and LNG gas from Italy to the north.
The hope in Brussels is that governments of the EU member states have learned their lessons from the coronavirus crisis.
A senior EU officials says that the pandemic nearly brought the single market to collapse.
"The last two years have shown that everyone in the EU has benefited from solidarity."
The question is whether this applies exclusively to the European Union.
How will the EU states respond if Ukraine also runs out of gas?
Kyiv may not be an EU member, but a united Europe would look disastrous if people in the war-torn country had to freeze in winter because Western countries preferred to save their industries.
"It's like so many times in recent years," says one Brussels insider.
"The crisis is so huge that it will either cause the EU to break apart – or continue to grow together."
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