By Susanna Twidale and Nora Buli
LONDON/OSLO (Reuters) – European gas prices rose, stocks slid and the euro fell on Monday after Russia stopped pumping gas to Europe via a key supply route, sending a new tsunami through the European Union’s economy. who has yet to recover from the Covid19 pandemic.
EU governments are rushing through billions of dollars worth of packages to prevent energy companies from being crushed by a liquidity crisis and to protect households from rising bills after Russia’s state-controlled Gazprom announced it was pumping gas over a bug via the Nord Stream 1 pipeline.
Europe has accused Russia of arming energy supplies in retaliation for Western sanctions against Moscow over its invasion of Ukraine. Russia says the West has started an economic war and sanctions have hampered pipeline operations.
Plenty of European power distributors have already collapsed and some large generators could be at risk, hit by price caps that limit price increases they can pass on to consumers, or caught off guard by hedging bets with gas prices now 400% higher than a year ago be.
“It has the ingredients for a kind of Lehman Brothers of the energy industry,” Finnish Economy Minister Mika Lintila said on Sunday, referring to the US bank that collapsed in 2008 and heralded the global financial crash.
Finland intends to offer its energy companies 10 billion euros ($10 billion) and Sweden 250 billion Swedish kronor ($23 billion) in liquidity guarantees. Germany, which is more dependent on Russian gas than most EU countries, has offered the energy supplier Uniper a billion-euro bailout.
“The government’s program is a last-resort financing option for companies that would otherwise face bankruptcy,” said Finland’s Prime Minister Sanna Marin.
The benchmark gas price rose 35% to €284 per megawatt-hour (MWh) on Monday after Russia said on Friday a leak in Nord Stream 1’s equipment meant it would remain closed beyond last week’s three-day maintenance halt .
European financial markets were rocked by the news. The euro fell to a 20-year low and European stocks plummeted.
Nord Stream 1, which runs under the Baltic Sea to Germany, has historically provided about a third of the gas exported from Russia to Europe, although it was already running at just 20% of its capacity before last week’s maintenance outage.
EU politicians say Russia created pretexts to halt supplies. The Kremlin on Monday said EU anger over rising energy prices was the result of “harmful” decisions by EU governments.
EMERGENCY PLANS
Russia also sends gas to Europe via a pipeline through Ukraine, another important route. But even these stocks have been reduced during the crisis, leaving the EU desperate for alternative stocks to replenish gas storage for the winter.
Several EU countries have launched contingency plans that could lead to energy rationing and stoking recession fears, with rising inflation and interest rates.
Some energy-intensive industries in Europe, such as fertilizer manufacturers and aluminum producers, have already scaled back production. Other industries already struggling with chip shortages and logistical deadlocks are facing skyrocketing fuel bills.
“Supply is difficult, and it’s becoming increasingly difficult to replace every bit of gas that doesn’t come from Russia,” said Jacob Mandel, senior associate for commodities at Aurora Energy Research.
Energy ministers from EU countries will meet on September 9 to discuss options to stem rising energy prices, including gas price caps and emergency credit lines for energy market participants, a Reuters document showed.
Chancellor Olaf Scholz said on Sunday that Germany, the EU’s economic powerhouse, was preparing for a complete halt to gas supplies.
Germany is in phase two of a three-stage emergency gas plan. Phase three would involve some rationing of industry.
In the race for alternative supplies, Germany is installing temporary liquefied natural gas (LNG) terminals as a stopgap measure while building permanent facilities to ship gas from countries further afield.
“There is plenty of scope for now to replace this (Russian) gas with LNG imports, but when the weather gets cold and winter demand starts picking up in Europe and Asia, there is only so much LNG out there that Europe can import. ‘ said Almond.
The global market for LNG was already tight as the global economy sucked up supplies as the pandemic recovered. The Ukraine crisis has ensured further demand.
Norway, a major European producer, has pumped more gas into European markets but cannot fill the gap left by Russia.
Klaus Müller, president of the German Federal Network Agency’s energy regulator, said in August that even if Germany’s gas storage facilities were 100% full, they would be empty in 2 1/2 months if Russian gas flow were stopped entirely.
Stocks in Germany are now about 85% full, while facilities across Europe hit an 80% target last week.
(Reporting by Susanna Twidale in London, Nora Buli in Oslo, Supantha Mukherjee in Stockholm and Essi Lehto in Helsinki; writing by Edmund Blair; editing by Mark Potter)
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