Germany Has Three Months to Save Itself From a Win
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Posted On: 09/03/2022 1:33:34 AM
Germany Has Three Months to Save Itself From a Winter Gas Crisis
Olaf Scholz’s government was slow to react when Russia squeezed gas supplies. Now cities are cutting back on lighting and hot water in a bid to avert disaster.
Germany’s presidential palace in Berlin is no longer lit at night, the city of Hanover is turning off warm water in the showers of its pools and gyms, and municipalities across the country are preparing heating havens to keep people safe from the cold.
And that’s just the beginning of a crisis that will ripple across Europe.
It might still be the height of summer, but Germany has little time to lose to avert an energy shortage this winter that would be unprecedented for a developed nation.
Much of Europe is feeling the strain from Russia’s squeeze on natural gas deliveries, yet no other country is as exposed as the region’s biggest economy, where nearly half the homes rely on the fuel for heating.
Chancellor Olaf Scholz’s administration has been slow to address Germany’s vulnerability, only recently laying out targets to cut demand as efforts to secure alternative supplies fall short. With Moscow continuing to tighten deliveries and France struggling to export electricity to its neighbors, little respite is expected and the risks go beyond this winter.
“The challenges we’re facing are enormous and they affect significant areas of the economy and society, ” Robert Habeck, Germany’s vice chancellor and economy minister, said after unveiling a plan to pass on cost increases from energy companies to consumers. “But we are a strong country and a strong democracy. These are good prerequisites for overcoming this crisis.”
The Kremlin is likely to keep vital gas flows to Europe at minimal levels as long as the standoff over Ukraine continues, according to people familiar with the leadership’s thinking. That means shortages for the region will likely persist, with gas prices for every year through 2025 having already hit a record this year.
Russia’s latest move came when Gazprom PJSC blamed a turbine issue for reducing flows on the key Nord Stream pipeline to about 20% of capacity. In the fallout, gas prices jumped over 30% last week and electricity prices broke one record after another.
Germany is now working on restoring their mothballed coal-fired power plants.
Cold snaps across Europe and Asia would force energy companies to battle for already-tight supplies of liquefied natural gas. The price surge from such a scenario could prompt companies to halt facilities this winter and destroy some 17% of industrial demand for the fuel, according to Penny Leake, a research analyst at consultancy Wood Mackenzie Ltd. “If Nord Stream flows remain at 20%, we are getting close to the danger zone,” she said.
With storage facilities 68% full and top-up rates likely to drop after last week’s pipeline cut, Germany risks falling short of the government’s target of 95% by Nov. 1. The country’s network regulator says reaching that level is hardly possible without additional measures.
The corporate sector is already reacting. A survey of 3,500 companies by business lobby DIHK showed that 16% of industrial firms are considering reducing production or giving up certain operations because of the energy crisis.
BASF SE is one of those. The chemicals giant plans to cut gas-intensive production of ammonia — a key component for fertilizer — after surging costs rendered the business unprofitable. It’s also planning to partially switch power and steam production at its main site in Ludwigshafen to fuel oil, which would help free up gas to sell back to the grid.
It’s not just Germany. High energy prices have prompted fertilizer producer CF Industries Holdings Inc. to announce it would shut one of its UK plants permanently. Cargill Inc., the world’s top crop trader, also closed a British oilseeds processing plant, while in France, supermarkets including Carrefour and Monoprix agreed to reduce energy consumption.
The International Monetary Fund estimates that Germany is at risk of losing 4.8% of economic output if Russia halts gas supplies, and the Bundesbank has pegged the potential damage at 220 billion euros ($225 billion). While it’s sure to be a painful hit, the fear in Germany is that a structural loss in competitiveness will soon follow.
Energy-intensive industries will likely gravitate to regions with reliable renewable-power resources like Germany’s windy coast or solar-rich areas in the Mediterranean, potentially hollowing out industrial regions along the Rhine and in Germany’s south, according to a senior executive at a major German manufacturer. Some chemical-industry executives say production could move to Turkey where there’s access to Azerbaijani pipelines.
The Astora underground natural gas storage facility, a subsidiary of Gazprom Germania, in Rehden, Germany.
Olaf Scholz has a friendly chat with Vladimir Putin in Moscow.
Olaf Scholz’s government was slow to react when Russia squeezed gas supplies. Now cities are cutting back on lighting and hot water in a bid to avert disaster.
Germany’s presidential palace in Berlin is no longer lit at night, the city of Hanover is turning off warm water in the showers of its pools and gyms, and municipalities across the country are preparing heating havens to keep people safe from the cold.
And that’s just the beginning of a crisis that will ripple across Europe.
It might still be the height of summer, but Germany has little time to lose to avert an energy shortage this winter that would be unprecedented for a developed nation.
Much of Europe is feeling the strain from Russia’s squeeze on natural gas deliveries, yet no other country is as exposed as the region’s biggest economy, where nearly half the homes rely on the fuel for heating.
Chancellor Olaf Scholz’s administration has been slow to address Germany’s vulnerability, only recently laying out targets to cut demand as efforts to secure alternative supplies fall short. With Moscow continuing to tighten deliveries and France struggling to export electricity to its neighbors, little respite is expected and the risks go beyond this winter.
“The challenges we’re facing are enormous and they affect significant areas of the economy and society, ” Robert Habeck, Germany’s vice chancellor and economy minister, said after unveiling a plan to pass on cost increases from energy companies to consumers. “But we are a strong country and a strong democracy. These are good prerequisites for overcoming this crisis.”
The Kremlin is likely to keep vital gas flows to Europe at minimal levels as long as the standoff over Ukraine continues, according to people familiar with the leadership’s thinking. That means shortages for the region will likely persist, with gas prices for every year through 2025 having already hit a record this year.
Russia’s latest move came when Gazprom PJSC blamed a turbine issue for reducing flows on the key Nord Stream pipeline to about 20% of capacity. In the fallout, gas prices jumped over 30% last week and electricity prices broke one record after another.
Germany is now working on restoring their mothballed coal-fired power plants.
Cold snaps across Europe and Asia would force energy companies to battle for already-tight supplies of liquefied natural gas. The price surge from such a scenario could prompt companies to halt facilities this winter and destroy some 17% of industrial demand for the fuel, according to Penny Leake, a research analyst at consultancy Wood Mackenzie Ltd. “If Nord Stream flows remain at 20%, we are getting close to the danger zone,” she said.
With storage facilities 68% full and top-up rates likely to drop after last week’s pipeline cut, Germany risks falling short of the government’s target of 95% by Nov. 1. The country’s network regulator says reaching that level is hardly possible without additional measures.
The corporate sector is already reacting. A survey of 3,500 companies by business lobby DIHK showed that 16% of industrial firms are considering reducing production or giving up certain operations because of the energy crisis.
BASF SE is one of those. The chemicals giant plans to cut gas-intensive production of ammonia — a key component for fertilizer — after surging costs rendered the business unprofitable. It’s also planning to partially switch power and steam production at its main site in Ludwigshafen to fuel oil, which would help free up gas to sell back to the grid.
It’s not just Germany. High energy prices have prompted fertilizer producer CF Industries Holdings Inc. to announce it would shut one of its UK plants permanently. Cargill Inc., the world’s top crop trader, also closed a British oilseeds processing plant, while in France, supermarkets including Carrefour and Monoprix agreed to reduce energy consumption.
The International Monetary Fund estimates that Germany is at risk of losing 4.8% of economic output if Russia halts gas supplies, and the Bundesbank has pegged the potential damage at 220 billion euros ($225 billion). While it’s sure to be a painful hit, the fear in Germany is that a structural loss in competitiveness will soon follow.
Energy-intensive industries will likely gravitate to regions with reliable renewable-power resources like Germany’s windy coast or solar-rich areas in the Mediterranean, potentially hollowing out industrial regions along the Rhine and in Germany’s south, according to a senior executive at a major German manufacturer. Some chemical-industry executives say production could move to Turkey where there’s access to Azerbaijani pipelines.
The Astora underground natural gas storage facility, a subsidiary of Gazprom Germania, in Rehden, Germany.
Olaf Scholz has a friendly chat with Vladimir Putin in Moscow.
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