The heads of Siemens Energy and BASF have warned of dramatic repercussions if Germany cuts off Russian gas deliveries. An embargo would threaten the existence of small- and medium-sized companies, BASF chief executive Martin Brudermüller said, suggesting it would take up to five years to substitute supply from Gazprom with other sources.
An emergency plan, activated today, could see the German government ration electricity use if Russian gas supplies will be disrupted or halted over a dispute on payment terms. Markets are anxious as to whether the Kremlin will insist on rouble payments, making German year-ahead power prices soar 6.3% to a three-week high of €185/MWh.
Germany can manage to wean itself off Russian oil and coal imports by the end of this year, but finding alternative gas supply poses a big challenge. Economy minister Robert Habeck said it could take until mid-2024 for Germany to forgo deliveries from Russia, though RWE and Uniper are rushing to lease three FLNG terminals to import LNG directly.
Gas-burn in the European power sector could be halved and fuel costs curbed, if electric generators rapidly scaled up renewables. Modelling by Wärtsilä shows that investment to deliver up to 80 GW per year of new wind and solar power capacity, backed by balancing technologies, would help utilities save €323 billion ($356bn) in fuel costs by 2030.
High gas prices, combined with electricity supply imbalances due to coal plant closures and a strong rebound in demand are propelling up power prices. Fitch Ratings expects prices will soar to well above €200/MWh in some major European markets, vs €120/MWh on average last year and a slight drop in prices is deemed unlikely before 2023.
Japan is considering diverting additional LNG cargoes to Europe from April, government officials said after a meeting in Brussels. In March, Japan had already offered its surplus LNG cargoes to the EU to alleviate the bloc’s gas crisis after Russia lowered supplies. Shifting to green energy sources, both sides now want to cooperate on hydrogen.
Suddenly stopping all energy imports from Russia would plunge Europe’s economy into recession, German Chancellor Olaf Scholz warned. Defying criticism about the EU’s slow reaction, he said the bloc is unprepared for an embargo which would have “incalculable consequences” – though German authorities and power generators already discuss a shutdown sequence in case of an emergency.
Responding to the UK Chancellor’s Spring Statement, Shell has announced plans to invest between £20 and £25 billion into the UK energy system over the next decade. Over 75% of this will be spent on low and zero-carbon products and services – notably offshore wind, hydrogen and electric mobility, said Shell UK country chair David Bunch.
BP, Shell and the likes have been spared a windfall tax on promises to boost upstream spending. The UK Treasury’s takings from the North Sea are forecast to more than double to £7.8 billion in 2022/23 as companies cash in on soaring oil and gas prices, but Chancellor Rishi Sunak refuted calls for a windfall tax as this might jeopardise investment.
The world needs to double-down on efforts to limit the rise in temperatures to within 1.5˚C by 2050. Electrification, renewables build-out and carbon capture retrofits will help – but to reach Net Zero emission the global carbon price would need to soar from of $25 per tonne of CO2 today to $175/t CO2 in 2050, Wood Mackenzie finds.