Germany, the world’s fourth largest economy, is preparing for all possible scenarios in the energy market, including the complete cessation of Russian gas supply once the 10-day regular maintenance period of the giant Nord Stream 1 gas pipeline ends. The pipeline, which carries Russian gas directly to Germany, began on July 11, but Berlin is considering the possibility of the Kremlin using the gas to exert political pressure on the West, something Moscow denies.
These are some of the risks in case the interruption period is prolonged or the pipeline reopens with reduced flows.
It is the largest entry route for Russian gas to Germany, with 55,000 million cubic meters (bcm) per year. Germany consumed 100 bcm last year.
Russian gas flows through Poland have been interrupted this year and those to Ukraine have been curtailed by Russia’s war in Ukraine.
Half of German households rely on gas heating, especially between October and March, and the extended outage of Nord Stream 1 would scuttle plans to fill Germany’s underground gas reservoirs before winter.
In theory, the deposits could meet Germany’s demand for two and a half months, but they are only 64.6% full, against the 80% target set for October 1. Meanwhile, the market for alternative source gas is tight around the world and prices have soared since last year as demand recovered after the COVID-19 pandemic.
If Germany activates the emergency phase of a three-stage escalation plan, the German grid regulator, the Bundesnetzagentur, would be tasked with ensuring a fair distribution of gas. This phase would be triggered by exceptionally high gas demand or a significant supply disruption, for example if Nord Stream 1 remained closed.
Germany has been in the second stage since June 23, after Nord Stream 1 volumes fell to 40% of capacity.
Chemical, steel, glass and paper makers are the main industrial gas consumers in Germany, but the effects would spill over to other sectors, including food and porcelain.
The aluminum industry, with sales of €22 billion and 60,000 employees, relies on gas for its smelting and recycling activities.
From the paper industry, with a turnover of 15,500 million euros and 40,000 employees, the operators affirm that paper and cardboard are vital for food, medicine and hygiene items.
Germany’s biggest gas importer, Uniper, has asked the German government for a bailout that, according to a political source, amounts to 9 billion euros, and other companies in the energy sector could face similar problems.
Steel giant Thyssenkrupp is drawing up plans for a possible disruption, according to a spokesman, as it is not possible to use oil or coal instead of gas. If some minimum allocations are denied, Thyssenkrupp plants may have to close and technical damage to aggregates is possible.
Reducing gas supplies to aluminum plants by even 30% would mean half of them would go out of business, according to industry group Aluminum Deutschland. The main players are Hydro Aluminium, Speira and Trimet. Chemical giant BASF needs to maintain a gas supply of around 50% of its peak demand. A disruption of Russian flows would trigger a company-wide emergency plan. The main paper companies are Stora Enso, UPM and Mitsubishi Hitec Paper Europe.
In the grimmest prediction to date, Bavarian industry group vbw said the country could lose 12.7% of its economic output in the second half of 2022, should Russian gas supplies be completely cut off.
Social struggles over gas could give populists on the far right and far left of the political spectrum a boost, potentially eroding rational discourse on how to proceed.
Berlin has passed a law that keeps open the options of passing on exorbitant prices directly, or trying to distribute the increases more widely among users.
