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A TIGHTER GAS BELT

Europe isn't ready for mandatory gas rationing—yet

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This story has been updated with details of the EU’s gas conservation deal.

Europe’s shortage of natural gas looks unlikely to ease anytime soon, driving energy bills for businesses and households into the stratosphere. But officials stopped short of mandatory gas rationing—for now.

Energy officials from across the European Union met on July 26 to vote on an emergency response plan to the bloc’s gas crisis, a day after Russia’s Gazprom said it would further slash gas deliveries—which have already plummeted since the invasion of Ukraine. Nord Stream 1, the main pipeline for Russian gas into Europe, is now running at just 20% capacity, which is not enough gas for Germany and other Russia-reliant countries to refill their storage tanks ahead of peak demand in the winter.

Under the newly adopted plan, all EU countries will curb their gas consumption by at least 15% for the next nine months. The cuts are voluntary, but could become mandatory—with fees for non-compliance—if the situation escalates and a majority of countries agree. Exemptions to mandatory rationing would be possible for countries like Spain whose infrastructure to share gas with other EU countries is limited, and for economically critical factories.

Most leaders agree in principle that their countries should strive to use less gas, in order to buffer the ability of Russian president Vladimir Putin to use it as an economic weapon. Europe’s gas consumption is already about 11% lower this year than last, simply because of how expensive it has become, according to energy intelligence firm Wood Mackenzie. But mandatory rationing is still opposed by many countries, including Spain, Portugal, and Greece, which either use relatively little gas or source most of their supply from somewhere other than Russia (North Africa, for example).

Putin’s decision to tighten the Nord Stream spigot put those countries in a stronger negotiating position to demand flexibility around rationing, because now Germany’s situation is now dire enough that it was willing to settle for voluntary cuts, said Paddy Ryan, assistant director of the Global Energy Center at the Atlantic Council, a Washington think-tank.

Rationing will affect factories before households

Rationing, if it happens, will primarily affect large, nonessential industrial users—cement factories, for example. Germany has already set up a system in which factories are paid to shut off their gas, which is then auctioned to other users. Government buildings will also control their thermostats more tightly. Household heating, although likely to be exempt from rationing, is Europe’s biggest source of demand for gas, so winter temperatures will be a decisive factor in how tight the overall market becomes. It’s likely that more utility companies will, like Germany’s Uniper, need to be bailed out or face bankruptcy.

Europe is scrambling to find alternatives to Russian gas, to avoid a repeat of this crisis in years to come. EU leaders signed a gas deal with Azerbaijan last week, and Germany broke ground on its first liquefied natural gas (LNG) terminal in order to take deliveries from the US. The EU is also pouring €113 billion ($115 billion) into renewable energy projects. But all this infrastructure will take several years to build, so Europeans should get used to dicey supply and high prices. Whether all of this leads to more draconian rationing later in the year depends on the weather—and on Putin’s whims.

“The next few winters will be incredibly volatile,” Ryan said. “This won’t go away anytime soon.”

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