Special Report-German Industry Prepares for Gas Supply Problems

German industry is preparing a plan to use an auction system to help ration natural gas in case Russia cuts off supplies. Discussions have gained traction after Russia cut supplies to Bulgaria and Poland last month.

Germany has been concerned that the same could happen to it. The country is heavily dependent on Russian gas and approaches a deadline this month to pay for the fuel under a rouble scheme demanded by Moscow.

Finland also braces for Russia to cut supplies this week, as announced by the country’s state-owned energy provider Gasum. Helsinki’s bid for NATO membership has rattled Moscow, which said Finland’s NATO membership would have consequences.

An action plan prepared by Germany’s Bundesnetzagentur (BNetzA), which would be in charge of rationing in a gas supply emergency, explores which companies should get priority. The regulator said depending on the seriousness of shortages, some users’s supply could be cut to zero.

BNetzA said several criteria would be taken into account to determine gas rationing for industry, including the size of the company, the relevance of the sector and potential economic losses.

Energy intensive industries have been particularly worried, including those in glass, steel, food and drug manufacturing and chemicals sectors.

It could be difficult for the regulator to establish a coherent rationing list because of the intertwined nature of the industry, which would cause knock on effects.

To try to gain control of the situation, proposals by the Federation of German Industries (BDI) support the idea of an auction-style system.

The state would reimburse companies if they cut gas consumption by stopping production temporarily or longer term, leaving more for critically relevant sectors. The model would seek to distribute gas on the basis of price.

The country’s small and medium sized firms on the other hand oppose the idea, arguing that auctioning gas rights is not fair. They think such a scheme could force SMEs to shut down. Their argument is based on the fact that big companies have a much higher pain tolerance for such auctions.

Germany already has such a system to try to phase out coal.

Utilities place bids for compensation payments they will get in exchange for idling coal-fired power stations.

Companies willing to accept the lowest price in return for shutting down qualify for the state handout, leaving larger power stations, with more at stake, up and running.

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