Russia limits gas supplies to Germany in warning for Europe

Germany has said Russia is using the energy as a “weapon” after Moscow cut its natural gas supplies in retaliation for European sanctions over the war in Ukraine.

A Gazprom PJSC unit that was seized by Germany has seen its deliveries reduced by around 10 million cubic meters a day, according to German Economy Minister Robert Habeck.

Although the move appears to be largely symbolic – accounting for around 3% of Russian gas imports from Germany, according to Habeck, the Kremlin is showing it won’t hesitate to squeeze its biggest customer. Benchmark gas prices in Europe jumped more than 20%.

“The situation is getting worse to the point where the use of energy as a weapon is becoming a reality,” Habeck told reporters on Thursday in response to Russia’s move.

In addition to the German stalemate, shipments to Europe via Ukraine were curtailed on Thursday after a key cross-border entry point was shut down due to troop activity on the ground, according to Kyiv . Moscow’s counter-sanctions also targeted a gas pipeline that crosses Poland, removing a potential back-up route for European customers to receive Russian gas.

The tension comes just as a solution appears to be emerging for what has been the main headache for weeks – Moscow’s demand for ruble payments for its gas. Companies, including German giant Uniper SE, were increasingly convinced that they could continue to buy Russian supplies without breaching sanctions.

On Wednesday, Italian Prime Minister Mario Draghi appeared to back such a move, and more European buyers are opening ruble accounts.

Germany has sought to wean itself off Russian gas, but it still accounts for around 35% of the country’s supplies, up from more than half before the invasion of Ukraine in late February. It will take another step later this year when its first floating liquefied natural gas (LNG) terminal comes online.

Habeck said Germany could cope with the latest disruptions in part by securing alternative supplies, adding there was no need to raise Germany’s alert level in response to Moscow’s sanctions on Gazprom Germania GmbH. The country’s three-stage contingency plan, which is currently in its first stage, could see its network regulator possibly ration gas in the event of a supply shortage.

Fuel is a crucial part of the energy mix of Europe’s largest economy. About 15% of German electricity is produced from gas, compared to less than 9% in 2000, when the country abandoned nuclear and coal. Fuel is also essential for heating homes and industrial processes in the chemical and pharmaceutical sectors.

Moscow has banned relations with Gazprom Germania and its various subsidiaries now under the control of the German energy regulator. This includes energy supplier Wingas GmbH, a European gas storage company, the London-based commercial arm of Gazprom and EuRoPol Gaz, owner of the Polish section of the Yamal-Europe gas pipeline linking Russia to Germany.

Last month, Germany temporarily took control of Gazprom Germania. Most of the group’s companies had come under pressure after customers and business partners refused to do business with them after Russia invaded Ukraine. This raised the prospect that owners of key European energy infrastructure would not survive.

“We are monitoring the situation closely,” he told lawmakers earlier Thursday. “Energy can be used powerfully in economic conflict.”

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