untitled design

Bloomberg: Germany prepares for crisis day in gas confrontation with Russia

If the worst-case scenario for Germany happens, BMW AG, Mercedes-Benz AG and Volkswagen AG will find it difficult to paint their cars and the air across the country will become dirtier, notes Bloomberg.

Europe’s largest economy is preparing for the prospect of a sudden shutdown of Russian gas. Such a shock would trigger a form of martial law on energy and affect 80 million people and businesses, from bakers to chemical producers.

Car factories may be forced to switch to more expensive propane or butane to generate steam and heat for dyehouses. Utilities are likely to generate more electricity than lignite – an even dirtier form of coal excavated by giant excavators in open-air mines from Düsseldorf to the Polish border. Economists have predicted that the damage will amount to 220 billion euros ($ 230 billion), more than enough to lead the country into recession.

That possibility came a step closer this week as Moscow curtailed gas supplies to Germany. Although the move was a mere warning – hurting about 3% of the country’s Russian gas imports, or about 1% of total supplies – the Kremlin has indicated it is ready to squeeze its biggest customer into financial retaliation for the war in Ukraine.

The government of Chancellor Olaf Solz accused Moscow of arming the energy, while insisting that Germany could face the reduction. However, the country’s vulnerability is clear and every little tap turns upset politicians, boards and markets – European gas prices jumped 22% on Thursday amid supply concerns.

Robert Habek, Germany’s economy minister and vice chancellor, acknowledged the country’s report in a speech to lawmakers, hours after Moscow imposed sanctions on 31 European entities, including a Gazprom PJSC unit that Berlin seized to secure .

“Energy can be used dynamically in an economic conflict,” he said in Berlin on Thursday. “This shows that the energy debate is a weapon.”

The German plan, which includes three stages, is currently at the first level. Habek avoided upgrading to the next stage, saying there was no need for an escalation based on the impact of Russia’s moves so far, which include banning Gazprom’s shipments to Europe via a key section of the Yamal pipeline, cutting off supplies to Poland and Bulgaria and an underlying dispute over payment terms with European customers.

Transportation through Ukraine has also been curtailed after a key cross-border entry point was shut down due to troop activity on the ground, according to Kyiv.

German officials are considering a combination of factors that could trigger higher levels of alarm, including a sharp drop in gas flows and indications that Russian President Vladimir Putin is ready to cut off supplies altogether, according to people close to the talks.

The expectation is that the highest stage, which will include state control of gas distribution in Germany, will follow shortly after escalating to the second “alarm” stage, said people, who asked not to be named because the talks are private.

On Monday, Germany’s network regulator, known as BNetzA, will gather the results of a survey in which more than 2,500 companies detailed consumption patterns and energy choices. This is part of the building block for the Bonn-based agency’s possible distribution if the government declares a national gas emergency.

The regulator has appointed 65 employees who will work around the clock 24 hours a day to deal with problems in the event of a major outage. Operating from a branch office on the Rhine, the teams will be tasked with making decisions that could determine the fate of some of Europe’s largest industrial companies and hundreds of thousands of jobs.

Fuel is a critical part of Germany’s energy mix and is more difficult to replace with Russian coal and oil, which are phasing out by the end of the year. About 15% of Germany ‘s electricity is generated from natural gas – compared with less than 9% in 2000, as the country reduces its use of coal and nuclear energy.

On Monday, Germany’s network regulator, known as BNetzA, will gather the results of a survey in which more than 2,500 companies detailed consumption patterns and energy choices. This is part of the building block for the Bonn-based agency’s possible distribution if the government declares a national gas emergency.

The regulator has appointed 65 employees who will work around the clock 24 hours a day to deal with problems in the event of a major outage. Operating from a branch office on the Rhine, the teams will be tasked with making decisions that could determine the fate of some of Europe’s largest industrial companies and hundreds of thousands of jobs.

Fuel is a critical part of Germany’s energy mix and is more difficult to replace with Russian coal and oil, which are phasing out by the end of the year. About 15% of Germany ‘s electricity is generated from natural gas – compared with less than 9% in 2000, as the country reduces its use of coal and nuclear energy.

But most importantly, natural gas is vital for home heating and industrial processes in the chemicals, pharmaceuticals and metals sectors. It is also widely used in German bakeries and for the production of glass.

“It will be very difficult,” Roland Busch, a board member of German engineering giant Siemens AG, said in an interview with Bloomberg television this week. “A gas embargo would hit German industry hard and have a really huge impact, in terms of factory closures, on employment. And of course an impact on our economy.”

The details of a “bulletin” plan are developed behind closed doors as the regulator collects usage information and evaluates replacement options, but the general guidelines are clear: consumer protection, critical services such as hospitals and systemically important business.

With the threat to its energy security looming, Germany has used the hot spring weather to fill its storage facilities. They have now reached about 40% of their capacity – and are still far behind what it would take to get through winter without abrupt cuts in use.

BNetzA spent much of April and May creating a digital platform for what would essentially serve as its “war room.” Powered by company and market data, the system will allow employees to decide who will get gas and who will not.

The regulator aims to have a model ready by June, which will provide a static snapshot of gas usage. From there, it will create a dynamic system, which will allow it to monitor the impact of distribution in specific areas, industries and companies.

“If a decision needs to be made in the autumn, then we are confident that we will be able to make the least damaging decision,” BNetzA President Klaus Mueller said in a podcast titled Lage der Nation – in German “state of the nation”.

Preparations go beyond gathering information. The agency has a stockpile of food for the crisis team and 5,000 liters of diesel to power the generators if the distribution leads to the cutting of commercial buildings, including its own headquarters.

The agency has already decided that the food and pharmaceutical industries will be high on the priority list. This means that supplies to some paper and glass packaging companies that consume a lot of gas will also be among the protected. For example, Mainz-based Schott AG last year produced about 90% of the glass vials used to transport Covid-19 vaccines. But other companies are in the dark and frustration is growing.

The German energy industry association VIK has complained that BNetzA does not provide information on what companies should do in the event of an emergency, giving them little time to plan. Christian Seyfert, CEO of VIK, said an uncoordinated shutdown could lead to “failures and value chain destruction”.

Companies all over Germany are trying to prepare. Chemical giant BASF SE has decided that its main plant in Ludwigshafen will not be able to operate if gas supplies fall below 50% of normal levels. This could disrupt the flow of basic chemicals and send shock waves that could spread across Europe.

Mercedes is considering the impact that a shortage of gas would have on production. Next to its headquarters in Stuttgart is a gas-fired foundry that melts steel and magnesium for gears, crankshafts and rollers for the luxury S-Class sedan and vehicles. While the automaker is considering alternatives to its dyehouses, it has no substitute for foundry.

The magnitude of the challenge is evident in BMW’s plans to set up the world’s first gas-free car plant in Hungary, a project that CEO Oliver Zipse called a “revolution” in car production. But it will not be ready until 2025, long after Germany’s goal of becoming independent of Russian gas.

Source: Capital

You may also like

Get the latest

Stay Informed: Get the Latest Updates and Insights

 

Most popular