Russian natural gas is still reaching us through Nord Stream 1. In the next few days, the gas pipeline will be taken out of service as scheduled for maintenance work. But does the gas continue to flow afterwards? If not, Germany will have to rethink. Preparations are in full swing.
It’s July, it’s warm. Word is slowly getting around that there is an emergency situation in the supply of natural gas, that the heating, hot water and gas stove could fail in autumn – but it is not really noticeable yet. Currently, the gas storage level in Germany is given as 62 percent – and the trend is (still) slightly increasing. And the struggling utility Uniper was the first company to receive approval to build a liquid gas terminal in northern Germany. Good news. So no reason to worry? Unfortunately yes. An inventory in questions and answers.
Russia is still the single most important supplier of natural gas to Germany and large parts of Western Europe. After numerous threatening and turning manoeuvres, the Russian exporter Gazprom has reduced the delivery through the Baltic Sea pipeline Nord Stream 1 to 40 percent of the usual and agreed quantity. This is happening at a time when Germany has to fill up the gas storage facilities to the statutory target of around 90 percent for the coming winter. The missing amounts of gas can be replaced, because the raw material is available on the world market – Germany, for example, obtains gas via the Netherlands and Norway, for example. However, prices have recently increased to seven times what they were last summer. Coping with this is now the major challenge for the industry and later, inevitably, for private gas customers as well.
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On July 11, the Nord Stream 1 pipeline will be closed for 10 to 14 days as scheduled. This is for the maintenance and overhaul of the system. In view of the behavior of the Russian ruler Putin, whose will the state-owned company Gazprom has to follow, it is not possible to predict with certainty whether gas will flow again from the last week of July. Experts from the Federal Network Agency are preparing for a scenario in which Russia could possibly turn off the tap completely. However, Putin would also radically reduce his own foreign exchange earnings, because there are no other direct buyers available for the large quantities of gas, and certainly not at any price. Not to mention the infrastructure isn’t where it’s needed — like increased pipeline and shipping capacity to India and China.
The federal government must also assume that the situation will deteriorate further in order not to slide unprepared into a winter of chaos. Before the parliamentary summer break, current legislative proposals are to be passed that will ensure the state’s ability to act in a possible emergency situation. The focus is on the question: How do you ensure the survival of gas importers who currently have to pay around 130 euros for gas with an energy value of one megawatt hour, but have long-term supply contracts with revenues of perhaps 20 euros – that cannot last for long.
The Energy Security Act is already in force. As a result, the federal government can decide in favor of the importers that they can pass on the higher purchase prices to intermediaries and ultimately to private customers. So far, this has not happened, especially since there is likely to be a large number of legal disputes if the somewhat vague regulation were to be implemented. A surcharge similar to the EEG surcharge for electricity that has just expired is therefore under discussion: This means that consumers would generally share in the higher costs. However, this could become prohibitive for low-income households and require further government support. Other possibilities are the participation of the federal government, i.e. the taxpayer, in struggling companies in the industry.
If the laws of the market economy were to be used alone, numerous importers would probably collapse shortly – the discrepancy in purchase and sales prices alone would ensure this, plus there are long-term obligations and loans that have to be paid. The federal government reacted quickly in the case of the German Gazprom subsidiary a long time ago: the Russian parent company wanted to send it into bankruptcy, Germany took it over without further ado and secured its continued existence under the name “Securing Energy for Europe”.
The listed company Uniper is currently in the spotlight. If something doesn’t happen soon, Uniper faces bankruptcy. In talks with the federal government, a way out is now to be found – be it in a direct participation for a limited period of time, as was the case with Commerzbank and Lufthansa in the event of a crisis, be it in the form of a loan, which can then be used with the income from a future gas – Contribution could be repaid.
Great hope rests on the planned floating terminals for liquefied natural gas (LNG), which will be delivered by ship. Permission to build the first in Wilhelmshaven has just been granted – operator: Uniper. However, this supply, which will later be secured via terminals on land, will no longer be decisive for the winter. Further LNG terminals will not be commissioned until next year. If it really gets tight, the government would have to declare the “emergency level” after the current “alert level”, which is provided for in the gas emergency plan.
This would then entail rationing measures, the precise form of which has not yet been decided. The extent to which industrial and private consumers would have to limit themselves is still being discussed. The Federal Network Agency is currently developing plans, of course with the aim of keeping the damage that will inevitably occur as low as possible. In this case, however, negative effects on the economy and the labor market would certainly be unavoidable. Therefore, the least harmful way should be found, for example by industrial customers determining how much gas they could possibly do without – if the price is right. The quantities released could then be bought by other companies, so to speak, by bidding.
Not receiving any more gas at all would be the certain end for many industrial companies. The largest customer in Germany is the chemical company BASF based in Ludwigshafen. Gas is a resource, a source of energy and a raw material. The chemical industry needs about two-fifths of the amount of gas that ends up with commercial consumers in Germany. Other major buyers are the pharmaceutical industry, textile, metal and automotive industries, as well as the printing business and beverage manufacturers. In an emergency, if market-economy processes do not lead to the goal, state intervention would also be necessary – a kind of shortage management would arise, which those born after 1950 can hardly imagine up to now. The overall economic damage would be considerable, and social upheavals could hardly be ruled out. For this reason alone, the Federal Minister of Economics and the Network Agency are trying to avoid such emergencies as best they can.
The obvious thing to do, of course, is to try to replace gas with other energy sources, albeit in a hurry. It has already been decided to continue operating coal-fired power plants to relieve gas-fired power plants, but this is not an ideal solution from an environmental point of view. As a result, there are increasing calls to allow the nuclear power plants scheduled to be shut down at the end of the year to continue operating – the operators have already made positive comments. The federal government has so far ruled this out. If this were to be decided, however, three more nuclear power plants would be available for reactivation in the longer term – the economist Hans-Werner Sinn (formerly the Ifo Institute) is currently advocating this.
There are plans to replace gas with electricity as an energy source where possible. However, this is not a sustainable solution either in terms of costs or in terms of free availability. In any case, electricity would have to be imported in large quantities from neighboring countries, where it is generated from coal power (e.g. in Poland) or predominantly from nuclear power (e.g. in France). Not effective in the short term, but ironically a panacea for the future: Own gas deposits in Lower Saxony. That would be long enough for the entire country – if the extraction method, fracking, weren’t absolutely taboo in Germany.
In the current debate there are numerous voices calling for saving gas in private consumption. That this could keep the gas bill in check seems logical. The extent to which it is actually noticeable in view of the galloping prices if you take a cooler-shorter shower, take a mild bath or only heat one room from autumn (if you have several to choose from) is a calculation example. It is doubtful that private renunciation will also be noticeable in the overall German gas consumption. On the other hand, it would really be effective to reduce consumption in industry, where people have been working on saving opportunities for much longer – if only in their own interest in profits. Technological solutions are therefore more likely to have an effect than small-scale self-experiments. In the end, one important participant in the event has the last word anyway: namely the seasonal weather.
The obvious question is how savers or investors can get on the winning side. However, it is tricky to answer. The major importer Uniper, already mentioned, has gotten itself into a tight spot as a result of the price boom, and the stock price reflects this. The Uniper share recently slipped below ten euros after being worth 42 euros at the turn of the year. And the current rate of around ten euros also includes speculation that the company is too important for the state to let it slide into bankruptcy. Large consumer BASF is also under pressure on the stock market – here one would then speculate boldly that things won’t get that bad.
Funds or exchange-traded funds (ETFs) that have chosen a commodity index as a benchmark are a little less risky. This includes, for example, the American “Bloomberg Commodities Index”, which documents the performance of numerous goods from the areas of energy sources, metals or precious metals. There are numerous funds based on this index – however, there is also the currency risk, since these papers are quoted in dollars. Of course, you also have to decide for yourself whether an investment isn’t already too late – the risk can be spread a little with a share savings plan and regular regular payments. Depending on the investment amount, you can ideally pay the next gas bill entirely from the exchange rate gains. Or – you end up paying a lot more for both, freezing.
The article “Putin’s gas noose: What the Germans have to prepare for now” comes from WirtschaftsKurier.
