EU signals shift to coal, accuses Russia of 'rogue moves' on gas



By Noah Browning and Nora Buli

BRUSSELS/OSLO June 22 (Reuters) - The European Union will temporarily shift back to coal to cope with dwindling Russian gas flows without derailing longer term climate goals, an EU official said on Wednesday as a tight gas market and soaring prices set off a race for alternative fuels.

European leaders have rounded on Russia as flows through its Nord Stream 1 pipeline were cut to just 40% of capacity, deepening an energy standoff after the invasion of Ukraine prompted Europe to impose tough sanctions on Moscow.

To cope with gas shortfalls, the International Energy Agency (IEA) said Europe must replace Russian energy supplies while boosting efficiency and renewables, including nuclear power.

In a statement to Reuters, IEA chief Fatih Birol warned Russia might continue to find excuses to cut supplies or halt them altogether as winter approached. Russia has denied that its supply cuts are premeditated.

Germany, Italy, and the Netherlands have signalled that coal-fired power plants could plug supply gaps, even as Germany gears up to host a Group of Seven summit having reaffirmed a commitment to ambitious climate change goals.

Europe will temporarily pursue fossil fuel alternatives to Russian gas in light of President Vladimir Putin's actions, a senior European Commission official said.

"The unlawful invasion by Russia of Ukraine has resulted in an emergency situation in the EU," Elina Bardram, acting director for International Affairs and Climate Finance at the European Commission, told the Africa Energy Forum in Brussels.

"With the very rogue moves we are observing from the Putin administration in terms of Gazprom lowering the flow very suddenly, we are doing some very important measures, but all of those measures are temporary," she added.

The measures would be phased out as soon as possible as the EU is determined to stick to its climate goals, she said.

"The EU's 2030 and 2050 targets remain fully intact ... while we may temporarily increase our use of coal, the long term direction is clear," added Bardram, who headed the European Commission's delegation to the 2015 Paris Climate talks.

EXPLORING ALTERNATIVES

Countries have outlined a series of measures to withstand a supply crisis to tackle worries about winter energy shortages and an inflation spike that could test Europe's resolve to maintain sanctions on Russia.

German Finance Minister Christian Lindner on Tuesday evening said there was a danger of serious economic crisis and underlined the need for alternatives to overcome three or more years of energy scarcity.

A note by the Royal Bank of Canada expected the rate of filling up gas storages to slow down and for governments to take action to ease demand.

"Many countries appear to be re-thinking coal shutdowns", it said, adding "we do not believe the situation can be rectified with supply-side measures only, and we do expect a significant demand side response."

Another flashpoint in the energy crisis could come in the Baltics. President Gitanas Nauseda said Lithuania was ready for Russia shutting it out of a common power grid in retaliation for blocking rail shipments of some Russian goods to Moscow's Kaliningrad exclave.

Flows of Russian gas to Europe via the Nord Stream 1 pipeline and deliveries through Ukraine were steady on Wednesday, but remained significantly lower than last week. Gazprom said it was cutting flows via Nord Stream 1 last week, citing technical issues.

Europe's benchmark gas price TRNLTTFMc1 was trading at around 127 euros ($133) per megawatt hour (MWh), below this year's peak of 335 euros but still up more than 300% on its level a year ago.

Europe is scrambling to fill winter gas storage - now at 55% - as it fears further disruptions in supply from Russia, which has already cut off some customers.

Lindner's warning came after Germany's BDI industry association said recession in Europe's largest economy would be inevitable if Russia halts gas deliveries.

The EU and other developed economies have sanctioned Russian oil and coal but held off banning gas imports.

Shoring up ageing nuclear infrastructure might provide a respite to high power prices and tight supplies, the IEA said.

"In light of renewed interest in nuclear power's role in clean energy transitions, the war has underscored the need to explore options for ... investment in new facilities as well as the reopening of existing (uranium) conversion plants."

More broadly, the $2.4 trillion set to be invested in energy this year included record spending on renewables but fell short of plugging a supply gap and tackling climate change, the IEA said.



EXPLAINER-Could Germany keep its nuclear plants running?

FACTBOX-European measures in case Russian gas supply stops

EXPLAINER-Why Russia drives European and British gas prices

EU gas storage levels Link



Additional reporting by Nina Chestney; writing by Matthias Williams; editing by Jason Neely and Elaine Hardcastle

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