Drained Rivers Squeeze Europe's Economy

"Scorching temperatures have drained some of Europe's main rivers, threatening to disrupt vital economic thoroughfares and exacerbate the continent's energy shortage.

In Germany, the Rhine is at critically low levels, hampering deliveries of coal and industrial goods, and is forecast to potentially become impassable for most barges at a key stretch by the end of the week.

In France, the Rhone and Garonne have been too warm to cool nuclear reactors, leading to lower output. In Eastern Europe, Danube levels are dwindling, impeding a key Ukrainian grain route.

While Europe's rivers have increasingly suffered dry spells this year's crisis comes as the continent struggles with reduced gas deliveries from Russia. The German government has decided to restart coal plants to alleviate the crunch, a task complicated by river disruptions.

Shipping costs, meanwhile, have skyrocketed, fueling already high inflation because rivers are key arteries for transporting everything from grains to chemicals to oil. And low water levels in reservoirs are curtailing hydropower generation, adding to the strain on power supplies.

"This is clearly making Europe's energy problems worse," said Fabian Skarboe Ronningen, senior analyst at consulting firm Rystad Energy. "Low river levels and warm water temperatures affect both German coal and French nuclear power, two of the largest sources of supply in Europe."

In Eastern Europe, shipping via parts of the Danube, which drains into the Black Sea, has become largely uneconomical because vessels can operate at only about a third of their capacity, said Bulgarian captain Alexander Kamenov, whose ship, the Adora, is stuck at port.

Desiccated rivers are an example of what analysts and industry players say is the growing role of extreme weather in fueling commodity price moves. Last year, a freeze in Texas caused chaos in U.S. energy markets, while heat waves in India have scorched wheat crops.

In Europe, rivers link factories and cities, providing efficient shipping routes. The volume of freight shipped via inland waterways in Germany accounted for 7.1% of total freight transport in 2020, according to consulting firm Capital Economics.

On Wednesday, the water levels of the Rhine, which runs 760 miles from the Swiss Alps via Germany's industrial heartland to the North Sea, fell to 45 centimeters in the key choke point of Kaub, near Frankfurt -- roughly 50 centimeters lower than usual levels at this time of year. Levels are expected to drop to 34 centimeters by the end of this week, making it virtually impossible for most diesel barges to pass and hovering close to the record low of 25 centimeters in 2018.

European companies in the energy, chemicals and other industries use it as a shipping lane as well as a water source for production and cooling.

With Germany relying more on coal, much of the needed supplies are transported from the Dutch ports of Amsterdam and Rotterdam, as well as Belgium's Antwerp, by barge. The coal reserves at most power plant sites are only sufficient for about one week of full-load operation, said Marc Schattenberg, senior economist at Deutsche Bank Research. Last year, the country imported nearly two-thirds of its coal via the river.

Freight rates from the mouth of the Rhine in the Netherlands to Basel in Switzerland reached 240.32 euros, equivalent to $248, a metric ton last week, more than doubling from 111.92 euros a month ago, said Lars van Wageningen, manager of operations at commodity market-research firm Insights Global. Quotes a year ago were just 11.28 euros a metric ton.

According to Capital Economics, the Rhine's troubles add to pressures on German industry and make a recession this year more likely.

Shallow Danube waters have disrupted Ukrainian grain transport. After the start of the sanctions on Russia, state-owned Ukrainian Danube Shipping Co. used most of its fleet to transport grains from the Ukrainian city of Izmail on the border with Romania via the Danube to the Romanian port of Constanta, a conduit for Ukrainian grain amid Russia's blockades.

Dmytro Moskalenko, the company's general director, said that dwindling water levels have complicated the task and the barges have to operate at lower capacity. "The situation is unprecedented, it's the hardest year on the river," he said." [1]

1. World News: Drained Rivers Squeeze Europe's Economy
Kantchev, Georgi; Khan, Yusuf. 
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 12 Aug 2022: A.8.