Germany: Union of Chambers fears financial collapse if Russian gas supplies cut

The Association of German Chambers of Industry and Commerce fears a deep recession in Germany if Russian gas supplies are completely cut off. Chairman Peter Adrian told Deutsche Presse-Agentur that the DIHK does not rule out that in such a case economic output could even fall by double digits during the winter months.

Adrian called on the federal government to provide facilities so that companies can use alternatives to natural gas faster. The annual maintenance work on the Nord Stream 1 pipeline in the Baltic Sea is expected to start on Monday (July 11) and usually lasts ten days. The big concern is that Russia will not turn the gas tap back on after the maintenance.

“We are facing a big problem at the moment, that we may have a collapse of the natural gas supply in a few months,” said Adrian. “Time is running out. As business people, we always have to think about the worst case. Unfortunately, we have to face the scenario that there will be no more gas from Nord Stream 1 for some time after the maintenance from July 21. That would be the super disaster”. Germany’s planned liquefied natural gas (LNG) terminals will not be operational before winter, he said. “Simply put, this means we have a big energy problem,” Adrian said.

“A lot of businesses would have to stop production without gas supplies. If that happens, then I’m clearly afraid of a recession. Then we’re going to have an economic downturn very different from the one we had during the financial crisis.” During the 2009 financial crisis, Germany’s gross domestic product had fallen by 5.7%, and in 2020 by 4.6% due to the corona.

Russia has already sharply cut gas deliveries through the Nord Stream 1 pipeline in the Baltic Sea. In order to save gas in electricity generation and storage, more coal-fired power plants will be used temporarily. The aim of the German government is to prevent gas shortages at the start of the heating season.

Turning off the gas tap can cause chain reactions

If the emergency stage is declared in the natural gas emergency plan, the natural gas tap could be turned off for business.

Private households will be protected. Adrian warned of congestion. He said there are companies that need gas, for example, to make tubes for dialysis machines. “From the information we have so far, these companies don’t know what’s going to happen to them. But if the gas tap is turned off at these companies in the winter, then we’re also going to have health care disruptions very quickly. There are thousands of examples like this where interactions or potential chain reactions cannot be properly considered in advance.”

Natural gas is also an important source of energy in the food industry. “Basically, it’s almost impossible to create a proper contingency ranking on the green table.” Also, in the face of high inflation, the DIHK chairman said: “This is a very dangerous situation we are in. All levers must be put in motion to alleviate this situation. This includes the supply side, that is the issue of how and from where can we get additional natural gas. And that includes taking advantage of all possible savings opportunities. Who can possibly do without gas under what conditions, which we can then store extra?”

The best way to clear this up for the economy is through a government auction – that’s what the federal government is planning. “Because then companies will decide on their own basis what quantities of natural gas they can make available to others with appropriate compensation.”

He said that in a whole range of companies it is possible to operate plants not on natural gas, but on other forms of energy, such as coal or oil. “But when switching from natural gas to other energy sources, companies face legal hurdles: This is because authorities often require a new permit under the federal Emissions Control Act if, for example, production or the heating is going to be done temporarily again with oil or coal instead of natural gas.”

Granted, there have been legal improvements, Adrian said. “But great uncertainties remain. The federal government must now put these companies in a position to be able to resort to such alternatives without question in the current state of emergency. Because this not only helps the affected businesses themselves to maintain production their”. It will also ease gas purchases.

“We make life difficult in Germany with this bureaucracy, and in times of emergency this falls particularly hard at our feet,” said Adrian. We must now, with a brave all-round strike, throw into the sea all the bureaucratic ballast that hinders us in this acute situation, but also in the ongoing transformation of our economy”.