Germany has fallen into Angela Merkel's trap!
Germany to Bail Out Energy Suppliers Ahead of Winter Without Russian Gas; Government, companies and households are bracing for shortages amid expectations that Moscow will cut its already throttled supply
Tuesday, July 5, 2022, 10:40 AM ET
By Bojan Pancevski and Georgi Kantchev
Wall Street Journal
BERLIN—Germany paved the way Tuesday for injecting billions of taxpayer money into embattled energy suppliers, as the country braces for a stop to Russian natural-gas imports—a scenario many economists think would trigger a severe recession.
Berlin said it was rewriting legislation going back to the 1970s oil shock, enabling the government to inject capital into energy companies that are struggling with rocketing gas prices and dwindling Russian supplies to ensure they keep delivering power and heat to companies and households.
The move is the latest in a battery of emergency measures to help manage an energy crisis in Europe’s largest economy this winter as the economic war unleashed by Moscow’s invasion of Ukraine accelerates.
Berlin rushed to reduce its high reliance on Russian gas immediately after the invasion, but it wasn’t planning to be able to do entirely without these imports before 2024. With Moscow now throttling its supply to Germany, concern is growing that it could turn off the spigot entirely as early as this month.
“We must prepare for the situation to get worse…and do everything to maintain the basic supply and help the energy markets operate as long as possible in the coming winter, despite high prices and growing risks,” said Robert Habeck, Germany’s economy minister.
The new legislation comes after Germany’s Uniper SE, one of Europe’s largest utilities, asked for state support last week to stave off insolvency. Uniper is facing a liquidity crunch because dwindling Russian gas supplies are forcing it to buy from more expensive sources while not being able to pass on these costs under long-term contracts with its customers. Uniper, whose share price fell by nearly a quarter on Monday before recovering slightly Tuesday, was among the first in line for a state bailout, officials said.
Other possible measures in the cards include the rationing of gas to industry and hot water to households, the nationalization of Russian-owned energy assets in Germany such as pipelines and refineries, and fiscal support for consumers squeezed by gas prices that could soon rise about six times from their price a year ago, officials said.
While power companies are on the crisis’s front line, Germany’s vast manufacturing sector would also be severely hit by a sudden interruption in Russian gas supplies, executives said.
The fertilizer industry is particularly exposed to the current volatility because it uses gas as a raw material, said Christopher Profitlich, a spokesman for SKW Stickstoffwerke Piesteritz GmbH, one of Germany’s leading fertilizer manufacturers.
“A shortage of gas would mean we would not be able to produce fertilizer, meaning that farmers would not be able to produce enough food, and this would push global prices up and create a shortage of foodstuffs,” Mr. Profitlich said.
SKW also produces the fuel additive AdBlue which is used by over 90% of trucks that make up Germany’s complex road-based logistical chains, as well by vehicles critical for emergency services and construction.
“Without AdBlue, engines would stand still,” Mr. Profitlich said.
At Bavaria-based porcelain maker Rosenthal GmbH, a stop in supplies would bring production to a complete standstill. White porcelain is typically made by heating materials in gas-fired chambers known as kilns temperatures over 2,000 degrees fahrenheit. Gas is currently the only energy source that can ensure that process, said Mads Ryder, Rosenthal’s chief executive.
“A cutback or even a halt to gas deliveries would mean that we would have to stop our entire production immediately and that would have considerable economic consequences for the company,” he said.
While the industry is exploring alternative sources like hydrogen, it would take at least 10 years before these offer a viable alternative, he said.
“There is very little creative freedom here in ceramics,” said René Holler, general manager of the German Association of the Ceramic Industry.
At brewer Brauerei C. & A. Veltins GmbH & Co. KG, gas is also an essential part of the whole beer production process.
The kettles for the brewing process are heated with the help of gas, which is also needed to achieve the necessary kettle pressure. The company then needs glass bottles, and natural gas is also indispensable in glass manufacturing. In total, Veltins says it would need 50 million bottles this year, whose costs are already up some 80% since April.
“To put it plainly: no beer without gas,” said Veltins spokesman Ulrich Biene.
The company, which has been brewing beer since 1824, is preparing for possible gas rationing by stocking up on heating oil to be able to keep up the operation for some limited time. Veltins has also ordered extra bottles and stashed them in crates in the brewery’s courtyard in the city of Grevenstein in case the supply chains break down.
Large German multinationals are also in a bind.
At chemicals giant BASF SE, a significant fall in gas supplies could lead to the closure of the world’s largest integrated chemical complex spanning some 200 plants. Such a shutdown would reverberate beyond the company, which sits at the beginning of most industrial supply chains, from cars to toothpaste. A throttling of BASF’s ammonia output, a key ingredient in fertilizers.
Henkel AG, the maker of consumer products including Persil laundry detergents, said it was looking at ways to switch to alternative energy sources and is considering increasing working from home options for employees to save on energy and heating costs.
German steelmaker Thyssenkrupp AG is heavily reliant on gas for its blast furnaces. “A switch from natural gas to oil or coal is not possible in our production processes, or only to a negligible extent,” the company said in a statement.
The company said it would halt some production processes If the gas supply dwindles, but it couldn’t rule out shutdowns or technical damage in the future.
“In Germany, prosperity has been secured by a strong industry. If the engine sputters now, the consequences are going to be dramatic,” said Mr. Holler of the ceramic industry association.
The main source of Russian gas in Germany is the Nord Stream undersea pipeline. Russian gas giant Gazprom PJSC cut supplies through the pipeline to 40% of its capacity in June, blaming technical reasons related to western sanctions. The German government has called the move a hostile political act and officials fear Moscow won’t restart supplies after the pipeline is turned off July 11 for scheduled maintenance.
“We must brace ourselves for the fact that this situation won’t change in the foreseeable future…in other words: we stand before a historic challenge,” German Chancellor Olaf Scholz told reporters Monday.
Shortly after Russia’s attack, Germany cut its reliance on Russian gas imports from 55% to about a third. But the bulk of its diversification effort relies on contracts that will not kick in before months, even years, making its economy particularly vulnerable this winter.
The government said it wants private gas consumption to fall 20% to get through the winter. The city of Hamburg said this week it could ration hot water for households in the event of a gas emergency. About half of Germany’s 40 million households use gas for heating and hot water.
The federal government already announced 30 billion euro in spending, equivalent to around $31 billion, to help the economy cope with the fallout from the war. But officials said the total amount of funding could exceed the 100 billion euro mark in the coming months if Russia completely cut off energy supplies.
Some of the funding could go to support consumers. While German law gives priority to households over industry should gas need rationing, many people may no longer be able to afford energy in the future, said Jens Südekum, a professor of economics at Heinrich Heine University in Düsseldorf.
A typical family of four paid 86 euros a month for gas last year. This winter, that expenditure could go up sixfold, Prof. Südekum said.
“If we keep consuming at normal levels, parts of the industry will have to be shut down and we will slide into a very severe recession,” he said. “The choice is between a milder and a severe recession.”
Write to Bojan Pancevski at
bojan.pancevski@wsj.com and Georgi Kantchev at
georgi.kantchev@wsj.com
Germany to Bail Out Energy Suppliers Ahead of Winter Without Russian Gas - WSJ