Germany readies plans to preserve gas this summer to boost winter storage

The German government is advancing plans to reduce gas demand this summer in power generation and industry to boost storage for winter after Russia reduced deliveries, the energy ministry said June 19.

European gas prices have jumped 50% since June 13, S&P Global Commodity Insights data showed, as cuts to Russian flows endanger targets to fill gas storage to mandatory levels.

"Gas consumption must be reduced further otherwise winter supply will be very tight," energy minister Robert Habeck said describing the situation as "serious."

Further measures would be required depending on the situation, Habeck said, with the ministry outlining three further emergency measures in addition to the seven already implemented since the outbreak of war in Ukraine late February.

"It's obviously the strategy of Putin to unsettle us, drive up prices and divide us. We will not let this happen," Habeck said.

TTF front-month gas was assessed June 17 at Eur118.50/MWh, S&P Global data showed.

The contract was seen trading June 20 above Eur127/MWh amid volatile trading, the Intercontinental Exchange data showed.

Coal generators to return

In power generation, efforts to reduce gas burn are focused on the return of some 10 GW of older coal, lignite and fuel oil reserve capacity for which the government approved a draft law June 8.

The draft law June 8 is on track to be passed by parliament by July 8, the ministry said.

In parallel, the ministry is finalizing an ordinance to penalize gas burn in some gas-fired power plants. This would not require parliamentary approval.

"We will activate the gas replacement reserve as soon as it becomes law," Habeck said, noting the immediate priority to fill gas stores was greater than qualms about increased lignite and coal burn.

The replacement plant law would be a temporary measure until March 31, 2024.

Habeck urged plant operators to start preparing units for a return.

The law waives set closure dates for 2.6 GW hard coal units and allows some 4.3 GW hard coal and 1.6 GW fuel oil currently in reserve schemes to return to the market.

In addition, the 1.9 GW lignite plant current in security reserve will be moved into a new scheme where the government can request a return to market depending on the gas supply situation, it said when the draft law was approved.

GERMAN POWER PLANT RESERVES

Source: BNetzA, BMWK, S&P Global Commodity Insights

Auctions to cut industrial gas demand

Industrial demand for gas, meanwhile, is to be reduced via an auction model to be developed by the regulator BNetzA, market operator THE as well as the ministry, the energy ministry said.

Auctions for gas balancing are to provide compensation to industrial clients that are willing to give up gas supply contracts, with the freed-up gas used to fill storage, the ministry said.

In addition, the ministry would provide further credit lines to give Germany's THE gas trading hub liquidity to buy further volumes for storage.

An initial program secured 950 million cu m of gas for storage, but has ended, the ministry said, adding that emergency measures helped boost German gas storage levels to around 56% currently, above average for this time of the year.

Germany has reformed its gas storage law to achieve 90% capacity by Nov. 1 with an interim target of 65% by Aug. 1.

Berlin has already rejected plans to reactivate more modern coal units that closed in 2021 or to extend the running times of Germany's nuclear power plants.

Curtailed flows to slow storage injections

Gas accounted for around 15% of Germany's power mix in the first quarter, with the share of coal and lignite rebounding to around 30%.

German industrial gas demand, meanwhile, accounts for the lion's share with an estimated 44 billion cu m consumed in 2021, according to Platts Analytics.

Industrial gas demand in Germany exceeded total gas-for-power demand across Northwest Europe, of which Germany accounted for around a third.

Germany received a net 254 million cu m/d of gas in May mainly from Russia and Norway, with Nord Stream inflows averaging 157 million cu m/d, according to data by Platts Analytics.

German gas demand averaged around 150 million cu m/d, with and additional 79 million cu m/d of net gas storage injections in May.

Following the latest curtailment of flows through Nord Stream, Russian gas exports to Germany have been averaging just below 64 million cu m/d for the period June 16-19, almost 60% lower than the May average.