EU says bloc GDP could fall by 1.5% over 'likely scenario' of Russia cutting gas supplies

A full cut-off of Russian gas supplies to Europe, combined with a cold winter, could reduce average European Union gross domestic product by up to 1.5 per cent if countries do not prepare in advance, the European Commission said on Wednesday.

The EU executive proposed a voluntary target for member states to cut gas use by 15 per cent until Marchto prepare for potential further gas cuts from Russia. It said a full Russian cut-off in an average winter could reduce average EU GDP by up to oneper cent if countries fail to prepare.

Europe is racing to fill its gas storage ahead of winter and build a buffer in case Moscow further restricts supplies in retaliation for European support for Ukraine following Russia's invasion.

Since Russia invaded Ukraine, the EU has approved bans on Russian coal and most oil to take effect later this year, but it did not include natural gas because the 27-nation bloc depends on gas to power factories, generate electricity and heat homes. Now, it fears that Russian President Vladimir Putin will cut off gas anyway to try to wreak economic and political havoc in Europe this winter.

"EU level savings so far have been equal for fiveper cent and this is clearly not enough. So we have to start, co-ordinate, savings programs right now, if we don't want to face the worst case scenario in the middle of the winter," EU energy policy chief Kadri Simson told a news conference in Brussels.

The International Monetary Fund has recently warned a Russian gas cut could plunge European economies into recession, heightening a gas crisis that has sent consumer bills soaring. The IMF has said that gross domestic product in member nations like Hungary, Slovakia and the Czech Republic could shrink by up to sixper cent, while Italy "would also face significant impacts."

'Russia is blackmailing us'

The European Commission on Wednesday proposed a voluntary target for all EU countries to cut gas use by 15 per cent from August to March, compared with their average consumption in the same period during 2016-2021.

The proposal would also enable Brussels to make the target mandatory in a supply emergency if the EU declares a substantial risk of severe gas shortages. While the EU has gained centralized authority over monetary, trade, antitrust and farm policies, national governments have jealously guarded their powers over energy matters.

"Russia is blackmailing us. Russia is using energy as a weapon," said EU Commission President Ursula von der Leyen.

"And therefore, in any event, whether it's a partial major cutoff of Russian gas or total cutoff of Russian gas, Europe needs to be ready."

The regulation needs approval from a reinforced majority of EU countries. EU country diplomats are set to discuss it on Friday, with the aim of approving it at an emergency meeting of countries' energy ministers on July 26.

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The plan has already hit resistance from some countries, which feel their contingency plans do not need a boost from the EU. Countries would be required to update their emergency gas plans by end-September to show how they will meet the EU target.

Among those opposed to mandatory EU targets is Poland, which has filled its gas storage to 98 per cent of capacity after Russia cut its gas supply in April.

Households exempt from curbs

EU officials say it is crucial to ensure all countries act now, rather than wait to react if Russia cuts supply.

"We have to be proactive. We have to prepare for a potential full disruption of Russian gas. And this is a likely scenario. That's what we've seen in the past," von der Leyen said.

Moscow supplied 40 per cent of the EU's gas before its invasion of Ukraine, but flows to Europe from Russia have since fallen below 30 per cent of the 2016-2021 average.

Brussels suggested measures governments can take to curb gas use, including auctions for compensation to industries that cut gas use and limits on heating and cooling temperatures in public buildings. Governments should also decide the order in which they would force industries to close in a supply emergency.

Households are classed as "protected consumers" under EU rules and would be shielded from such curbs.

Putin cryptic as turbines return from Canada

Meanwhile, gas deliveries are due to restart through Russia's Nord Stream 1 pipeline to Germany on Thursday, after annual maintenance that has thrust Canada in the middle a controversy.

Turbines for the pipeline have been in Montreal at Siemens Energy for repairs but the Canadian government has announced a temporary and revocable suspension of sanctions on Russia so that they can be sent back to Europe.

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"We needed to take away the excuses that President Putin has as to why the Nord Stream pipeline could be shut down," said Natural Resources Minister Jonathan Wilkinson of Canada's decision to return sanctioned Russian turbines, insisting the decision is not a gamble.

Federal government ministers have defended the decision, saying it was necessary to meet Germany's energy needs. Ukrainian President Volodymyr Zelenskyy has slammed Ottawa over the move, warning Putin would see it as a sign of weakness.

The arrival of turbines cannot be used as an excuse not to restart deliveries when maintenance on the pipeline ends, von der Leyen said.

"It's already in transit back so there is no pretext not to deliver gas. By the way, there are potentially also alternative turbines that fit. It's not the one and single turbine in the world that fits. There are identical turbines," she said.

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"The decision the Canadian government took...we believe is a decision that helps Europe, that helps Germany, to wean itself off the dependence on Russian energy," says German Amb. Sabine Sparwasser, insisting Canada's return of Russian turbines will help preserve Western unity.

Putin said Wednesday there might be a further reduction in supplies or even a complete halt to flows via the pipeline that runs under the Baltic Sea to Germany, which relies heavily on Russian fuel.

He said equipment was being returned from Canada but said the quality of the returned gear and other parameters meant the pipeline might still be shut down in the future.

"Maybe they will turn it off at some point, and that's it, and Nord Stream 1 will stop, because they came from there, from Canada," he said in televised comments, without elaborating.