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Germany makes ‘bitter’ decision to return to coal and Italy contemplates rationing as Russia cuts gas supplies to Europe

June 20, 2022, 11:21 AM UTC

Italy may start rationing natural-gas consumption to certain industrial giants, after Russia’s Gazprom halved supplies on Friday.

On the weekend, the newspaper Corriere della Sera reported that the Italian government and energy industry would meet Tuesday and Wednesday to discuss the crisis, with the likely outcome being the introduction of a state of alert under the country’s gas emergency protocol.

That’s one step below a state of emergency, and one above the current “pre-alert” level.

Italy and its industry are highly dependent on Russian gas, which until recently accounted for 40% of gas imports—the state energy agency Enea said Thursday that the percentage had fallen to below 24% in the first five months of this year, as European countries including Italy have scrambled to abandon Russian fossil fuels.

Russia retaliates

That push to starve Putin’s war machine, along with other forms of European support for Ukraine, has prompted Russia to retaliate in fits and starts.

Around a month ago, Gazprom completely cut supplies to Finland, after the Nordic nation applied to join NATO. The Russian gas giant used the same justification as it did when cutting off Poland, Bulgaria, the Netherlands and then Denmark: the countries refused to pay for their gas in rubles, as Moscow has demanded.

Last week, Gazprom cut off France entirely, while halving supplies to Italy and Slovakia. It blamed the French cutoff on sanctions, claiming that key equipment for the original Nord Stream 1 pipeline between Russia and Germany—from which France gets its Russian gas—is now stuck in Canada, where it was sent for refurbishment.

Italian Prime Minister Mario Draghi, speaking on behalf of both his country and Germany, characterized Gazprom’s justifications as “a lie”, and said the decisions were political.

Ukrainian President Volodymyr Zelenskyy said the cuts amounted to “blackmail”, and it’s hard to escape that conclusion, given that Gazprom CEO Alexei Miller has suggested Germany’s 60% reduction in Nord Stream deliveries could be solved by the opening of Nord Stream 2—the beyond-contentious pipeline that Berlin canned days before Russia invaded Ukraine.

Drastic measures

With Europe now starting to dig into gas reserves that are meant to be held back for the winter, the German government is now preparing to take drastic measures to lessen gas consumption.

On Sunday, Economy and Climate Action Minister Robert Habeck was forced to betray the latter part of that portfolio for the former—to cut down on the use of gas for electricity generation, he announced a return to its dirtier alternative, coal.

Habeck, who has been trying to phase out coal power generation by the end of the decade, described the decision to reopen shuttered coal plants as “bitter, but simply necessary in this situation to lower gas usage.”

Italy would also ramp up coal-fired power generation under its likely state of alert.

In Germany, natural gas is primarily used in industry and in domestic heating. Accordingly, Habeck also wants to cap domestic heating, and reduce industrial use by quickly establishing an auction model, under which companies would get financial compensation for cutting down on their gas consumption.

German industrial representatives responded positively, if wearily.

“Every kilowatt hour counts,” Siegfried Russwurm, president of the Federation of German Industries (BDI), told the DPA press agency—echoing Habeck’s words in a video plea to the nation last week, urging consumption cuts.

The liberal Free Democrats, who are the smallest party in Germany’s governing coalition, are also calling for Germany to reverse its fracking ban. They point out that the country is stepping up its imports of U.S. liquefied natural gas (LNG), which is largely derived from fracking.

As European countries race to ensure they have enough gas for the winter—and for the power requirements of summer heatwaves, one of which just rolled over the continent unseasonably early—they are urgently turning to a variety of gas-producing countries.

Claudio Descalzi, the CEO of Italian state-controlled supermajor Eni, told Corriere della Sera that his company was stepping up imports from Algeria and Azerbaijan, with Mozambique probably becoming an important source down the line. He said diversification—plus the measures that will likely be introduced this week—should help Italy survive the winter.

This article was updated on June 20 to note that Europe is tapping reserves meant for the winter.

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