The German government has started to prepare for this scenario, and is debating a package of bills, which will most likely be used to save a company known as Uniper, which supplies gas to hundreds of municipal utilities. The collapse of Uniper would lead to a cascade of bankruptcies, as it currently only receives 40% of the Russian gas it has contracted to purchase. Because of the price hike, it must cover the shortfall on the spot market, and it is already losing $35m a day.
The government plans to spread the risk by selling gas at auction. In late summer, the government is expected to launch a mechanism that will allow firms to bid on gas usage. If gas prices fall dramatically, the government is expected to make the announcement. In the meantime, however, it will be a short-term solution. But it could also trigger further instability. While the government is still working on its plan, it has already introduced several scenarios and it is unlikely to meet its target by July 2022.
The European Union’s Energy Security Act has recently been amended to help mitigate the risk of a gas price spike. The new law allows the government to issue regulation when a significant decrease in the amount of imported gas to Germany is imminent. However, it must be noted that any such regulation is subject to the Bundesnetzagentur assessing the impact of stabilisation measures. Furthermore, this statutory right only applies to contracts involving the physical supply of natural gas in the German market area.
The repercussions of a gas cut are potentially more severe than the 2008 financial crisis, a COVID-19 pandemic, or even a major disruption of the pipelines. The study estimated the loss of GDP at 8 percent, and the repercussions would hit the core of German industry. This would severely limit the production potential. The consequences of a gas cut are far-reaching, and could disrupt economic growth and supply chains.
The German government’s latest measures include a plan to build two new liquified natural gas terminals on Germany’s North Sea coast and restart coal-fired power plants. The latest news has also led Gazprom to cut Nord Stream 1 deliveries by 40 percent due to delayed repairs by Siemens. Meanwhile, German economic minister Robert Habeck held a rally of German industry representatives and warned large companies against the gas price spike.
In the meantime, Germany has been scrambling to fill its storage facilities with gas, and the government has begun to reduce its dependence on Russian gas. However, the country cannot afford to ration gas this year, since it already imports around 35% of its gas from Russia. If Russian gas supplies are cut off, Germany’s industry will be forced to adapt, and it will require significant investment in infrastructure.
While it is difficult to imagine rationing gas, Germany’s industrial sector must re-invent itself and embrace new technologies and renewable energy. Even though German industrial stalwarts don’t like the idea of gas rationing, they are already taking steps to prepare for it. The German glass industry has pledged to build hybrid melters, while steelmakers are looking for hydrogen as a feedstock.