Tuesday, May 24, 2022

With war in Ukraine and threats from Putin, Europeans anxiously wait for energy rationing

A person using a petrol pump at a petrol station in London.

Lewis Whyld | PA Images | Getty Images

European countries are facing the possibility of energy supplies being rationed, as a dispute between Moscow and the West over payments for Russian exports rages on.

European countries are heavily dependent on Russian oil and gas deliveries, but Moscow’s invasion of Ukraine in late February saw the EU and the UK impose a barrage of sanctions that included cutting down on Russian energy imports.

In early March, the EU pledged to cut Russian gas imports by two-thirds before the end of the year, while Britain has said it will phase out Russian oil imports by the end of 2022.

But those moves come with risks for a region already facing an energy crisis. Tight natural gas supplies saw wholesale prices surge to record highs in Europe last year, with households in Britain due to see their energy bills rise by more than 50% from April 1.

Natural gas rationing

Germany warned on Wednesday that it may soon be facing a natural gas emergency that could necessitate the rationing of gas supplies. German Economy Minister Robert Habeck said the “early warning” measure did not yet mean the country had to resort to rationing gas but called on consumers and companies to reduce their energy consumption.

Meanwhile, Austria’s government announced Wednesday that it had activated the first step of a three-stage emergency plan that would see it monitor the country’s gas market more closely. Officials cited Russia’s demand for payments in rubles as the reason for the triggering of the contingency plan, noting that if it reached the third stage in the plan, emergency control measures such as rationing may come into force.

According to Chi Kong Chyong, director of Cambridge University’s Energy Policy Forum, Germany and Austria may not be alone in having to implement extreme emergency measures if Western countries continue to lock horns with Russia.

Putin said last week that the Kremlin will seek payment in rubles for gas sales from “unfriendly” countries — a demand that has been rejected by the G-7 nations. On Thursday, the Russian leader said he had signed a decree saying foreign buyers must pay in rubles for Russian gas from April 1.

“If they can’t agree on payment terms and gas flow from Russia is stopped, then other European countries will also have to take emergency measures,” Chyong told CNBC. “Despite entering a warmer period when we consume less gas, we still need gas to flow into our storage facilities to use it in the upcoming winter months when temperatures drop and we need gas for heating again.”

“If Russian gas flow stops, all European governments — including the UK’s — need to start activating emergency plans including ‘front loading’ public campaigns to prepare our citizens to save energy in the winter months,” he added.

Diesel rationing

Demand reductions

A ‘true and effective weapon against Putin’

His proposed policies, which he said should remain in place throughout the crisis in Ukraine, included reducing the UK’s speed limits to 50 miles per hour, making all public transport free, and calling on companies like Uber to open technology that would allow free civilian ridesharing .

“This would reduce the demand and price of Russian oil, [and] have a catastrophic impact on Putin,” Stewart said.

Cambridge University’s Chyong told CNBC that the key to hurting Russia through energy sanctions was implementing policies that focused on slashing demand.

“This point is about trying to bring down demand for fossil fuels — this is our true and effective weapon against Vladimir Putin,” he said.

“An exponential negative relationship between demand and prices [exists] because right now we are facing a globally very, very tight energy system and every extra unit of demand will cause prices to rise disproportionately high. The flip side of this effect is that reducing our demand will have disproportionately high marginal benefit – drastically reducing prices.”

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