Germany is Russia’s largest importer of natural gas. Probably now it is facing a possible disruption or interruption in the supply of natural gas from Russia. Germany’s biggest customer of natural gas, Russia, could face further problems in supplies. But to deal with this, an emergency plan is being put in place to manage the gas supply in Europe’s largest economy. The first phase of which has been activated. Russia’s share of Germany’s gas imports stood at 55% in 2021 and 40% in the first quarter of 2022.
In the wake of this, Economy Minister Robert Habeck said that Germany will not achieve full independence from Russian supplies until the middle of 2024. The Finance Minister has also appealed to the consumers to reduce their usage. He urged the Germans to save energy in the wake of the ongoing war in Ukraine. It is believed that Poland will stop importing oil from Russia by the end of this year in compliance with sanctions imposed due to the Ukraine war.
What’s the problem?
Moscow said last week it would work out a mechanism by March 31 under which so-called “unfriendly” countries – those behind sanctions imposed on Russia’s invasion of Ukraine – would pay for gas in rubles. That is, Russia says that due to sanctions, it can accept this payment only in rubles. Converting payments made in any other currency to its own currency can be a big problem for Russia.
Therefore, it includes Germany, Europe’s industrial superpower, and other European allies. Most of which are now paid in euros or dollars. Germany’s minister for energy security, Habek, rejected Russia’s demand, saying the contracts would be considered under existing terms.
Russia’s biggest German customers are Unipar, RWE, and NBW’s VNG, which have long-term gas supply contracts. He has not commented on individual preparedness for any disruption.
What is Germany’s gas plan?
Berlin’s “emergency plan gas” has three levels of crisis. The first level, which the government has triggered, is an early warning when there are signs that a supply emergency may develop. The second is an alarm when a supply disruption or exceptionally high demand upsets the normal balance but can still be corrected without intervention. The third level is an emergency when market-based measures have failed to address the shortfall. At this stage, Germany’s network regulator, the Bundesnetzentur, must decide how to distribute any remaining gas supplies across the country.
Who will be affected first?
If Germany does not secure enough gas, the industry, which accounts for a quarter of German gas demand, will be the first to be affected. “This means industrial production will end, the supply chain could end,” Leonhard Birnbaum, chief executive of German energy group EON, told public broadcaster ARD. “We’re definitely talking about a very heavy loss.”
Private households will be given priority over the industry, while hospitals, care facilities, and other public sector institutions with special needs will be hit by the disruption. Electric utilities, which accounted for 13% of gas consumption last year, could theoretically switch to coal-burning plants within their portfolios. However, the ongoing coal evacuation program under emergency laws may have to be changed to ensure adequate capacity is ready.
In addition to energy providers, the industries most concerned with gas damage include chemicals, where the gas is used to make everything from plastics and fertilizers to fibers and solvents. In turn, car manufacturers rely on chemical products for products such as batteries and lacquer.
Union IG BCE has said that BASF’s Ludwigshafen site may come under review for reducing operations if gas supplies are cut by more than half. Refineries require the gas for firecrackers to make products including naphtha, gasoline, jet fuel, diesel, and heating oil.
