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Germany Prepares to Trigger Next Stage of Emergency Gas Plan

·2 min read

(Bloomberg) -- Germany is preparing to trigger the next stage of its emergency gas plan, a decision that may mean passing along higher prices to industry and households.

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Deliberations over the move show there are serious concerns that the supply situation may deteriorate further, after Moscow slashed deliveries on its main pipeline to Europe last week. Germany, among the biggest buyers of fossil fuels from Russia, is seeking to cut gas demand as it shores up stockpiles for winter.

The government may soon move to the “alarm” phase, the second stage of its three-stage plan, according to a person familiar with the matter. It enacted the “early warning” phase at the end of March, when the Kremlin’s demands for payment in rubles prompted Germany to brace for a potential cutoff in supply.

Triggering the second stage could mean a change in the law to allow energy companies to pass on cost increases to homes and businesses. It may also include firing up more coal-fired power plants to minimize gas consumption. The measures are still being analyzed by the government.

Read more: Germany Plans Coal U-Turn, Gas Funding to Offset Russian Cut

A further hike in bills for households and businesses would be another blow to Europe’s biggest economy as it grapples with soaring inflation. Industries from chemicals to steelmakers have already warned they may have to reduce output or close factories because of surging energy costs.

Economy Minister Robert Habeck said Russia’s move to cut gas deliveries through the Nord Stream pipeline by about 60% was politically motivated and aimed at unsettling the markets.

European gas futures have jumped by a third this month, and are trading at four times their level of a year ago, near 128 euros a megawatt-hour.

That makes it hard for Germany’s gas buyers to secure enough supplies to replenish inventories ahead of winter. The government is seeking to fill storage facilities to 90% by November, up from 58% now. The country’s energy regulator last week urged consumers and industry to rein in gas use to aid the effort.

Read more: Cold Winter Could Push Europe Toward Gas Supply Shortages

Germany, which still depends on Russian gas for 35% of its needs, has sought to reduce its reliance following the invasion of Ukraine. Its plans include fast-tracking terminals to bring in liquefied natural gas, as well as securing more piped supplies from elsewhere.

If the country ratchets up its gas plan to the highest level -- “emergency” -- the state would assume control of the nation’s entire distribution network.

(Updates with gas price in seventh paragraph.)

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