Special Report-Germany Discusses Emergency Measures on Energy
- May 10, 2022
- Posted by: Quatro Strategies
- Category: Energy
Germany prepares for a sudden stop in Russian gas flows with an emergency measures package which may include taking over critical energy companies. The preparations show Germany’s high level of alertness to maintain energy security to keep its industrial production going.
Russian gas accounted for 55% of total German gas imports last year and Europe’s biggest economy has been under pressure from its Western allies as well as Ukraine to cut its economic relationship with Moscow that critics say helps fund Kremlin’s war effort.
Germany announced willingness to phase out Russian supplies but expects to be reliant on Russian gas until the middle of 2024.
Berlin wants to avoid an escalation as it remains unclear if Russia could halt gas flows. Germany still opposes an EU gas import ban on Russia despite having already supported sanctions on coal and oil.
The government is concerned that Russia could cut off gas flows and aims to be prepared if it does. It would support granting further loans and guarantees to back energy firms and help them deal with soaring energy prices. It could also take critical companies such as refineries under its control.
Germany’s Ministry of Economy stated that it has been making intense efforts to reduce the use of Russian energy.
Last month, Berlin approved a legal change to authorize the government take control of energy companies as a last resort.
The government has been discussing how it could put that measure into practice. One target is the PCK refinery in Schwedt operated by Russia’s state owned oil giant Rosneft. It accounts for most of the remaining German gas imports from Russia and could be hit by the EU oil import ban.
Nationalization of the energy companies is considered as an option and could be justified on the grounds of energy security.
Germany could also take stakes in other companies. In 2018, it made a similar move when state development bank KfW bought 20% of energy network operator 50Hertz to fend off an offer from China’s State Grid.
The final decision on the emergency package has not yet been finalized. Taking minority stakes in companies and intervention at the Schwedt refinery remain under discussion.
The government also looks into how KfW can alleviate pressure on critical companies by supporting them with further loans, or emergency credit lines they could use if energy prices continue to soar.
Earlier this year, KfW helped German energy firm Uniper, EnBW’s gas division VNG and coal-fired power plant operator Leag cope with volatility in energy markets.
Berlin also tries to decide how to ration gas if necessary. While the current policy gives households priority over industry, that could change with the new law.
Germany’s emergency package discussions take place amid an increasingly tense standoff between Russia and the European Union, which has imposed sweeping sanctions to isolate Moscow.
Russia halted gas flows to Poland and Bulgaria last month after the two countries refused to make payments in roubles.
Germany is also uncertain whether a ban on gas imports would hurt Russia. Berlin is concerned that such a measure could send gas prices skyrocketing and allow Russia to cash in on sales outside the EU and therefore still failing to drain its war chest.
Berlin is reaching its sanctions limit without triggering an economic downturn. Even those in the governing coalition that strongly support penalizing Moscow wary of imposing sanctions on gas.
Germany’s industrial giants have also been lobbying the government not to ban gas. Company executives have told Berlin they are preparing to pare back Russian energy ties in any event, but appealed to the government not to force them to do so immediately.
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