Germany relaxes gas supply alert as market stabilises

By Riham Alkousaa and Marwa Rashad

BERLIN (Reuters) -Germany has lowered its target for gas storage levels set by the government to avoid an energy crisis as supply bottlenecks eased, although some analysts warned that a colder than expected winter still posed a risk.

Germany implemented a three-stage emergency plan in June 2022 to reduce its dependence on Russian gas due to Russia's invasion of Ukraine and a subsequent sudden drop in gas imports from Moscow.

Since then the country has built several LNG terminals, signed deals with Qatar, Oman, Norway and others to diversify supply.

Economy Minister Katherina Reiche said Germany's gas supply was secure and no longer met the conditions for the alert level under its emergency plan.

Germany has ceased importing pipeline-based gas from Russia, and no Russian liquefied natural gas (LNG) is arriving at its terminals, Reiche said. She added that it was unnecessary for the government to refill the country's gas storage facilities via its trading hub, given the stable supply situation.

In March, Germany's coalition parties agreed to abolish a gas storage levy introduced in 2022 to cover the high costs of replacing Russian supplies. The measure is expected to save consumers around 3.4 billion euros ($4.01 billion), reflected in their energy bills.

The early warning level, the first of three crisis stages, will remain in place for the government to keep a close eye on the supply situation.

"The market is still able to cope with this disruption or demand without the need for non-market-based measures," Reiche told journalists in Berlin.

Alex Froley, senior LNG analyst at ICIS, said the gas market had stabilised, with oil and gas prices easing after the Iran-Israel ceasefire and new supplies from Canada and the United States beginning to flow.

He warned that Europe will need to keep its gas prices high enough during the summer to secure adequate storage levels amid competition with Asia.

WINTER RISK

Germany's gas storage levels are around 50% but storage activity has increased significantly, Reiche said.

In April, the government changed the required filling levels for the coming winter, reducing the target to 80% by November 1 from 90% previously.

Analysts warn that this could pose a risk if the winter is colder than expected or political events and conflict between nations disrupt supply.

"As it stands, it looks like the (storage) fill level will be between 75-80% by winter if nothing changes, which meets the target, but is risky for winter," an industry source told Reuters, adding that such low storage levels for winter were "very unusual".

Gas prices have steadied at around 34 euros per megawatt hour, still double the level before the energy crisis.

"There could still be some high prices in the winter ahead if it was unusually cold, and global politics and conflicts remain as unpredictable as ever. But the fundamentals look easier for the moment," ICIS' Froley said.

($1 = 0.8480 euros)

(Reporting by Riham Alkousaa in Berlin, Marwa Rashad in London; editing by Matthias Williams, Mark Heinrich and Louise Heavens)