The shutdown of Russia’s Nord Stream 1 pipeline is propelling Europe towards a near-certain gas shortfall this winter. This makes the introduction of measures to cut energy usage unavoidable. Acting quickly could help the bloc avoid messy emergency rationing, but some countries look better prepared than others.

Since Russia’s invasion of Ukraine, Europe has scrambled to partly replace annual Russian pipeline supplies of 140 billion cubic metres (bcm). But it’s done little to reduce gas demand even as state operator Gazprom slashed exports. Government subsidies for consumers worth nearly 300 billion euros may even have worked in the opposite direction. The Nord Stream 1 closure may lead to a shortfall of up to 20% in EU gas needs this year, according to RBC estimates. A full Russian gas stoppage could trigger chaotic rationing, and even a 2% contraction in the region’s GDP next year, say Amundi analysts.

Europe has ways to cushion the blow. The European Commission reckons that the bloc, which has bulked up its emergency gas reserves, could lower consumption by 15%, or 45 bcm, through targeted energy saving measures. Lowering thermostats by one degree Celsius in public buildings and households could save the bloc 10 bcm of gas each year, or 7% of Russian gas imports. It would also reduce customers’ energy bills.

Companies will also have to cut demand. The European Commission reckons some 15 bcm could be saved by switching to other energy sources or using gas more efficiently. However, governments could encourage more savings by offering financial compensation to firms that voluntarily curtail gas usage. That would save another 20 bcm.

History shows that savings measures can be implemented quickly in case of shocks. Japan, whose power capacity was hit by the Fukushima nuclear disaster in 2011, cut its electricity consumption by 12% for industry and 10% among households through a mix of society mobilisation and compulsory measures.

Some EU countries will however struggle more than others. This may be the case for Italy, which uses gas for more than 40%  of its power generation against 26% and 16% in Germany and France respectively. And at 9%, energy’s share of production costs is also higher in Italy than its EU industrial rivals. Yet Rome only cut gas consumption by 2% in the first half of the year, against 15% in Germany. Quick action is required for Europe to learn to live with less gas.

The Nord Stream 1 pipeline, a major gas supply route to Germany, will be kept shut indefinitely after Russian operator Gazprom said on Sept. 2 it could not safely restart deliveries into Europe until it had fixed a leak to a vital turbine.

European gas prices, as measured by the benchmark Dutch TTF October gas contract, rose by as much as 30% on Sept. 5, amid growing fears of a total shutdown of Russian pipeline imports ahead of the European winter.
Source: Reuters (Editing by Neil Unmack and Streisand Neto)