European consumers could suffer energy rationing the winter if Russia turns off the taps, warned Shell boss Ben van Beurden.
He told the Aurora spring conference in Oxford that the continent faces a “really tough” winter in the face of soaring energy costs,
The chief executive said: “We will all face very significant escalation in energy prices. In the worst case, Europe will need to ration its energy consumption.”
Shell has announced plans to fully exit Russia following the country’s invasion of Ukraine in February, revealing a $5bn write-down from the withdrawal.
van Beurden was disappointed by the outcome, and was “surprised” by the Russian President Vladimir Putin’s decision to initiate conflict in the region – meaning his threats had to be taken seriously.
He said: “For a long time we thought it was not in Russia’s interest to cut off Russia’s largest market. He is able and willing to weaponise supplies.”
UBS: Energy rationing could be inevitable
The energy boss’ warnings follow gloomy research from French asset manager UBS, which revealed Germany could have no choice but to ration its energy supplies both domestically and to neighbouring countries if Russia halts supplies into the country.
UBS said: “If flows from Nordstream 1 fall to zero, or indeed if all Russian flows fall to zero, the challenge for Germany gets even more difficult. In this event, Germany may have to introduce rationing, and – the question of how to balance domestic and international rationing will be key.”
This makes the prospect of supply shortages potentially imminent, with Nord Stream 1 currently undergoing maintenance until 21 July,.
Flows from the pipeline, which transports gas from Russia to Germany via the Baltic sea floor, were sixty per cent down last month in the weeks prior to maintenance.
The shortfall was widely seen as retaliation from the Kremlin to Western sanctions following its invasion of Ukraine.
Whether the pipeline will return to its previous reduced operations following the maintenance work, or even come back online at all, remains to be seen.
In a sign of potential political posturing, Kremlin-backed gas giant Gazprom earlier this week revealed it could not guarantee the safe operation of a critical part of the Nord Stream 1 gas pipeline because of doubts over the return of a turbine from Canada.
Putin has few levers left to pull to put pressure on Europe ahead of winter, but the loss of its natural gas supplies could be devastating, with the bloc spending nearly €30bn on Kremlin-backed gas supplies since Russia’s invasion of Ukraine.
Continent vulnerable to cut-off in gas supplies
Germany is dependent on Russia for around half its gas imports, and has already triggered the second phase of three-step emergency plans in response to Gazprom cutting off gas flows into 12 European Union member states – which refused to comply with Kremlin demands for rouble payments.
While it has joined forces with EU allies to phase out coal and seaborne oil shipments, only Lithuania has imposed restrictions on natural gas – with the continent highly dependent on Russian supplies.
Alongside its own imports, Denmark, France, Austria and Switzerland are recipients of gas from Germany, which would make any shortfalls it suffers have a serious knock-on effect for its allies.
UBS’ base case for Europe assumes Russian flows continue at the reduced rates from the end of July, with Nord Stream 1 providing 40 per cent of the expected energy levels.
This would be just enough to avoid rationing, but it would put a lot of pressure on the government to secure supplies internationally such as from the US and Middle East.
Nevertheless, the EU is scrambling to shore up supplies, targeting 80 per cent of capacity at gas storage tanks across the continent.
The latest data from iGas reveals current levels bloc-wide are 62.58 per cent, and are slightly above-average at 64.53 per cent in Germany – although well short of the target rate.
Germany has also pledged to ramp up coal supplies and offer heavy subsidies to gas giants to ensure the country can meet its energy needs this winter.