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When will effects of Russian gas shut-off be felt in Denmark?

Gas prices on the European market shot up by around 25 percent on Monday after Russia last weekend indefinitely cut supplies to Europe via the Nordstream 1 gas pipeline.

When will effects of Russian gas shut-off be felt in Denmark?
Pipes at the landfall facilities of the 'Nord Stream 1' gas pipeline in Lubmin, Germany in July 2022. File photo: Annegret Hilse/Reuters/Ritzau Scanpix

Residents of Denmark must be prepared to receive extra-large bills in coming months, an analyst said in light of the development.

“Danish gas consumers will initially be hit hard by these increases, but so will electricity customers because gas is very important in electricity production,” senior economist with Sydbank, Søren Kristensen, said to news wire Ritzau.

The new, high price of raw gas will take one to two months to become apparent in prices paid by consumers, Kristensen said.

An increase in gas prices was registered on Monday, but this followed on from some earlier reductions to the price.

“So despite the increase on Monday we are not quite hitting the peak we had during August,” Kristensen said.

Climate, Energy and Critical Supplies Minister Dan Jørgensen minister on Saturday said Denmark is entering an uncertain autumn and winter after the Nord Stream 1 gas pipe, which supplies Russian natural gas to Denmark via Germany, was closed indefinitely on Friday.

READ ALSO: Denmark faces ‘uncertain winter’ after Russia halts gas supplies to Europe

Monday afternoon saw the price of gas reach 270 euros per kilowatt hour, notably lower than the peak of 340 euros during August.

The Russian decision to switch off the gas is nevertheless directly responsible for Monday’s increase, the Sydbank analyst told Ritzau.

“It’s supply that is affected when Russia again says no gas will be sent through Nord Stream 1,” he said.

“And it is also related to concerns about what we are looking at during the winter. Many people are scared about whether they’ll get any gas at all,” he said.

A price increase of the magnitude seen on Monday is rare, he also observed.

“These are some incredibly drastic price increases,” he said.

“A few years ago, an increase of more than 20 percent did not have a huge value. But because of the [high] prices today, this change is unheard of in kroner and øre,” he said.

The European gas price was around 20 euros per kilowatt hour at the beginning of 2021, meaning prices are well over 1000 percent higher than they were in January last year.

Jørgensen said on Saturday he was considering new energy saving measures after Russian gas giant Gazprom said the Nord Stream pipeline would remain shut until a turbine is repaired.

The Nord Stream 1 pipeline normally sends enough natural gas from Russia to Europe to heat around 26 million homes, but this supply has been significantly reduced since Moscow invaded Ukraine in late February. The line was shut down by Russia last week, ostensibly for maintenance work, but not reopened on Saturday as initially advised. 

A draft 2023 budget presented last week by the government sets aside funding for inflation relief but did not specify the recipients of such spending.

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ENERGY

How European countries are spending billions on easing energy crisis

European governments are announcing emergency measures on a near-weekly basis to protect households and businesses from the energy crisis stemming from Russia's war in Ukraine.

How European countries are spending billions on easing energy crisis

Hundreds of billions of euros and counting have been shelled out since Russia invaded its pro-EU neighbour in late February.

Governments have gone all out: from capping gas and electricity prices to rescuing struggling energy companies and providing direct aid to households to fill up their cars.

The public spending has continued, even though European Union countries had accumulated mountains of new debt to save their economies during the Covid pandemic in 2020.

But some leaders have taken pride at their use of the public purse to battle this new crisis, which has sent inflation soaring, raised the cost of living and sparked fears of recession.

After announcing €14billion in new measures last week, Italian Prime Minister Mario Draghi boasted the latest spending put Italy, “among the countries that have spent the most in Europe”.

The Bruegel institute, a Brussels-based think tank that is tracking energy crisis spending by EU governments, ranks Italy as the second-biggest spender in Europe, after Germany.

READ ALSO How EU countries aim to cut energy bills and avoid blackouts this winter

Rome has allocated €59.2billion since September 2021 to shield households and businesses from the rising energy prices, accounting for 3.3 percent of its gross domestic product.

Germany tops the list with €100.2billion, or 2.8 percent of its GDP, as the country was hit hard by its reliance on Russian gas supplies, which have dwindled in suspected retaliation over Western sanctions against Moscow for the war.

On Wednesday, Germany announced the nationalisation of troubled gas giant Uniper.

France, which shielded consumers from gas and electricity price rises early, ranks third with €53.6billion euros allocated so far, representing 2.2 percent of its GDP.

Spending to continue rising
EU countries have now put up €314billion so far since September 2021, according to Bruegel.

“This number is set to increase as energy prices remain elevated,” Simone Tagliapietra, a senior fellow at Bruegel, told AFP.

The energy bills of a typical European family could reach €500 per month early next year, compared to €160 in 2021, according to US investment bank Goldman Sachs.

The measures to help consumers have ranged from a special tax on excess profits in Italy, to the energy price freeze in France, and subsidies public transport in Germany.

But the spending follows a pandemic response that increased public debt, which in the first quarter accounted for 189 percent of Greece’s GDP, 153 percent in Italy, 127 percent in Portugal, 118 percent in Spain and 114 percent in France.

“Initially designed as a temporary response to what was supposed to be a temporary problem, these measures have ballooned and become structural,” Tagliapietra said.

“This is clearly not sustainable from a public finance perspective. It is important that governments make an effort to focus this action on the most vulnerable households and businesses as much as possible.”

Budget reform
The higher spending comes as borrowing costs are rising. The European Central Bank hiked its rate for the first time in more than a decade in July to combat runaway inflation, which has been fuelled by soaring energy prices.

The yield on 10-year French sovereign bonds reached an eight-year high of 2.5 percent on Tuesday, while Germany now pays 1.8 percent interest after boasting a negative rate at the start of the year.

The rate charged to Italy has quadrupled from one percent earlier this year to four percent now, reviving the spectre of the debt crisis that threatened the eurozone a decade ago.

“It is critical to avoid debt crises that could have large destabilising effects and put the EU itself at risk,” the International Monetary Fund warned in a recent blog calling for reforms to budget rules.

The EU has suspended until 2023 rules that limit the public deficit of countries to three percent of GDP and debt to 60 percent.

The European Commission plans to present next month proposals to reform the 27-nation bloc’s budget rules, which have been shattered by the crises.

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