EU faces solidarity test on forced cuts in Russian gas fight

European Union countries are set to tussle over emergency regulation that could force 15% cuts in gas consumption through the winter if Russia escalates its showdown with the bloc by halting deliveries.

Energy ministers from the bloc’s 27 member states meet on Tuesday to wrangle over backing a proposal from the European Commission. While a political agreement could be reached, there are fears the deal could lack teeth. Many member states are skeptical about making the voluntary target binding, highlighting concerns over the potential impact on local companies and consumers.

The urgency to act increased after Gazprom PJSC announced it will further curb flows through the key Nord Stream pipeline to around 20% of normal capacity from Wednesday. The Russian gas giant said one more turbine is due for maintenance and will be taken out of service.

Germany has a good chance of avoiding a dramatic industry crisis if it can cut gas consumption by between 15% and 20%, Economy Minister Robert Habeck said late Monday in an interview with state broadcaster ARD Tagesthemen.

Flexible Targets

“We’re in a serious situation — it’s about time everyone understands this,” Habeck said. “We need to bring down gas consumption, that’s what we’re working on.” He rejected Gazprom’s claim that turbine maintenance is the reason for the latest curbs.

The Czech Republic, which holds the EU’s rotating presidency, has proposed three changes to the Commission’s proposal from last week in a bid to win support. Countries mainly from southern and eastern Europe want flexibility on implementing any reduction target, and a qualified majority of member states is needed to pass the legislation.

The revisions include a provision that would increase the number of countries that have to request that a 15% demand-reduction target be made mandatory to five from three, according to a draft seen by Bloomberg. The Commission can also propose the emergency measure if it deems there’s high risk of a shortage. Both scenarios would also need majority backing from member states to take effect.

It’s not acceptable to “compel member states to accept mandatory reductions without the knowledge of what the upcoming winter is going to bring and without having their interests secured,” said Anna Moskwa, the climate minister from Poland, which has its gas-storage facilities almost full. “Poland is ready for another winter” and doesn’t need to introduce any reductions in usage for households and industry.

Other tweaks include taking into account the level of gas storage in a country as well as the possibility to exclude certain key industries. The rules will also only be set for one year, rather than two as originally outlined. Member states can ask for a lower mandatory reduction under certain criteria based on their interconnections with other nations.

The emergency rules set the stage for continued wrangling by member states as they seek to balance out the solidarity needed to prevent blackouts from disrupting the EU’s economy with ensuring that countries are able to look after their own populations and industries. Several countries, including Italy, Hungary, Poland, Portugal and Spain, had raised concerns over the reduction goals.

Highlighting the complexity of the talks, Greece, which opposes the Commission’s plan, is expected to propose the creation of a pan-European mechanism to offer compensation for reducing gas consumption in industry, said a person familiar with the proposal, who asked not to be identified because the plan isn’t public.

Gas prices jumped more than 10% following Gazprom’s decision to reduce Nord Stream flows even further. Moscow has been curbing shipments to the EU for months over apparent retaliation for the bloc’s support for Ukraine and sanctions over Russia’s invasion. The Kremlin has rejected allegations that it’s using energy as a weapon.

The Commission said last week that Russian gas cutoff in July would mean that EU stockpiles would be 65% to 71% full at the start of November, below the 80% target. Replenishing reserves next summer may also be challenging, with stockpiles in October 2023 potentially only reaching around half full, according to simulations run by the bloc’s executive branch.

Similarly, a halt of Russian gas supplies to the EU could potentially reduce its gross domestic product by as much as 1.5% if the winter is cold and the region fails to take preventive measures to save energy, the Commission estimated. In the event of an average winter, a cutoff may lower GDP by between 0.6% and 1%. — Bloomberg