Europe braces for a potential gas crisis as historic heatwave boosts demand

By Anna Cooban, CNN Business

Europe is bracing for the potential of a full-blown gas crisis later this week just as an historic heatwave has hiked demand for energy to help cool the continent’s homes and businesses.

On Thursday, the Nord Stream 1 pipeline — a crucial artery linking Russia’s gas to the bloc — is due to reopen after 10 days of routine maintenance work. But concern is building that Russia will keep the taps turned off in retaliation for sanctions the European Union has imposed since Moscow’s invasion of Ukraine in February.

Robert Habeck, Germany’s economy minister, said earlier this month that the country must “prepare for the worst.”

“Anything can happen. It could be that the gas flows again, even more than before. It could be that nothing will come at all,” Habeck said in a radio interview.

The pipeline delivers 55 billion cubic meters of gas per year to Europe, or about 40% of its total pipeline imports from Russia.

A full break with Moscow’s gas is not out of the question. The country has already cut its gas exports to several European countries. Last month, Germany, the region’s biggest economy, declared a “gas crisis” after Gazprom, Russia’s state gas company, slashed exports through the pipeline by 60%.

Gazprom blamed the move on the West’s decision to withhold vital turbines because of sanctions.

German gas distributor Uniper confirmed Monday that it had received a letter from Gazprom claiming a force majeure on past and current shortfalls in gas deliveries. A force majeure is a contract clause which excuses a company for failing to meet its obligations. It is usually invoked in extreme circumstances such as natural disasters.

But a spokesperson for Uniper told CNN that it has “formally rejected” the claim. On Monday, the embattled company also drew down a €2 billion ($2.04 billion) credit facility with bank KfW because of the impact of Russian gas supply disruptions.

Awful timing

A gas crunch this week would also come at the worst time. Europe is sweltering under record heat — parts of France and Spain are battling wildfires as temperatures are expected to climb above 40 degrees Celsius (104 degrees Fahrenheit) over the coming days.

Soaring temperatures have pushed up demand for electricity to power air conditioning units. Enagas, Spain’s gas transmission system operator, said last week that demand for natural gas to produce electricity hit a new record of 800 gigawatt hours.

“This huge increase in the demand for natural gas for electricity production has been mainly due to the high temperatures recorded as a result of the heatwave,” Enagas said in a press statement last Thursday.

Some analysts were more optimistic, given Europe’s alternate sources of power and the fact that the heatwave is set to end by mid-week.

“Although power consumption in the EU will be a bit higher this week amid the heatwave due to high usage rates of aircon units, this will be offset by record supply of solar power generation,” Henning Gloystein, director of energy, climate and resources at Eurasia Group, told CNN Business.

Meanwhile, European countries are racing to fill up their gas storage facilities to avoid a potentially catastrophic energy shortage over the winter.

The “next few months will be critical” to shore up the bloc’s supplies, said Fatih Birol, executive director of the International Energy Agency, in a Monday press statement.

“If Russia decides to completely cut off gas supplies before Europe can get its storage levels up to 90%, the situation will be even more grave and challenging,” he added.

Gas storage levels across the European Union are currently around 64%, according to the Gas Infrastructure Europe.

The bloc is hurriedly securing gas supplies from other countries as it winds down imports of Russian gas. On Monday, the European Commission signed a memorandum of understanding with Azerbaijan to double the capacity of a key gas delivery route over the next few years.

Prices for Dutch natural gas, the European benchmark, were up 3% to €165 ($167) per megawatt hour on Monday from Friday, according to data from the Intercontinental Exchange.

Earlier this month, fears of a major gas cut off pushed prices to their highest levels since the early days of Russia’s invasion of Ukraine, hovering around €183 ($186) per megawatt hour. Prices have soared 129% since the start of the year.

— Julia Horowitz, Sharon Browne-Peter, Sharon Braithwaite and Chris Liakos contributed reporting.

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