Germany’s plan to cut Russian energy triggers panic 

April 10, 2022 - 18:31

Speaking to journalists in the British capital London alongside UK PM Boris Johnson, the German Chancellor Olaf Scholz says "[Germany] is actively working to get independent from the import of (Russian) oil and we think that we will be able to make it during this year.”

The statement may have been aimed at pleasing the Anglo-sphere which have taken much tougher and quicker measures on banning Russian energy imports over Moscow’s military operation in Ukraine. 

But saying something is easier done than implementing it as Germany is heavily reliant on Russian energy, in particular gas. Back at home, there has been alarm among industry chiefs and politicians saying it would lead to huge rises in energy prices as well as shortages of energy to serve the country as well as ordinary households. 

Any quick measures to completely shut the tap on Russian energy may cripple Europe’s strongest economy. As one German government source told British media “what use to anybody is a weakened Germany?” 

Berlin has already established a crisis team to deal with the contingency plans, something that Germany's industrial sector has sounded the alarm over saying they would be forced to shut production. 

The country announced its withdrawal from nuclear power after the 2011 Fukushima disaster in Japan, and in 2019 said it would pull the plug on coal-fired plants. 

Businesses across the country are bracing themselves for supplies to be cut either from Russian retaliation over Western sanctions or Berlin joining the Western energy embargo on Russian oil and gas supplies. 

The owner of a hi-tech mechanical engineering company in the country’s West spoke to media on condition of anonymity and refused to name his company because he says, in part” for fear of appearing to support Russia’s military operation.”

He says if Russian gas is cut off, his business which has been operating for a century now “will likely not survive”. 

He also added that “It would be a disaster, one which would have seemed almost unthinkable just two months ago, but which right now feels like a very realistic prospect.”

Industry managers and political leaders have warned that the damage which will be imposed on Germany by abandoning Russian energy supplies would be far stronger than any benefit it would bring to Ukraine.

Millions of german households without heat this winter is one of the most concerning matter. The other major concern is the hundreds of thousands of small and medium-sized businesses which are interlinked with manufacturing giants, all dependent on gas to operate. 

Both small and giant business companies are likely to suffer with huge rises in energy prices as well as mass shortages.

The German Institute for Economic Research (DIW) has come up with a model for how Germany can free itself from Russian supplies by this year’s winter.  

The popular think tank has suggested alternative suppliers and lower consumption which means households will have to turn down thermostats and use less warm water during what are usually long and very chilly winter conditions in Europe. 

The DIW report itself acknowledges that "added supply alone will not be enough to make up the current volume of Russian gas imports" but says it possible “if there is a clampdown on consumer demand.”

That has been echoed by the German economics minister, Robert Habeck, who has urged German households and industries to “turn down the thermostat.” But the question is who will carry that burden? 

German households are already suffering from high inflation rates and energy prices had already soared before the crisis in Ukraine even began. 

A spokesperson for the economics ministry noted “The question of prioritization is a very difficult decision, requiring consideration of a wide range of consequences.”

The Federal Network Agency, which claims to ensure fair access to gas, electricity and other vital services, has sent a questionnaire to all German businesses, essentially asking them to state their individual arguments for the right to access gas.

Forced by the high energy costs some businesses, such as the porcelain manufacturer KPM, founded in 1763, are working overtime to produce as many goods as possible before the Russian taps are turned off. “Who knows for how long we will have gas?” its CEO, Martina Hacker, told German media. “We can’t produce porcelain without it.”

Some analysts are envisaging an unpleasant battle between different sectors over who deserves the energy most. There have been discussions of dark scenarios over supply chains, which are already under pressure amid the covid pandemic, collapsing altogether with businesses forced into bankruptcy along with mass unemployment.

The chemical giant, BASF, the largest in the world and one of Germany’s biggest purchasers and consumers of energy says around 40,000 
employees would have to be put on short-time working hours or laid off.

BASF says "the consequences would not only be reduced work hours and job losses, but also the rapid collapse of the industrial production chains in Europe, with worldwide consequences.”

The German Chemical Industry Association (VCI), has also warned that chemical plants are too complex, they "can't just be switched off and on again like a microwave oven. Once chemical plants are shut down, they remain silent for weeks and months," it says the disruption would have a "huge domino effect through almost all industries." 

Other businesses are considering moving abroad to save their business and workforce, something that will cause further harm to the German economy. 

the EU's foreign affairs commissioner, Josep Borrell has also warned that “this isn't just a German problem because the German economy is very closely tied to the European economy." 

Fitch Ratings has warned that replacing Russian natural gas in Europe could be challenging in the short term and it will keep gas prices high.

According to the credit rating agency, Europe as a whole import around 60 percent of its total natural gas demand, as Russia is supplying about a third of the continent’s consumption, which amounts to 152 billion cubic meters (bcm) by pipeline and 17 bcm as liquefied natural gas (LNG). 

The Nord Stream 2 pipeline, which Berlin has now scrapped, was meant to deliver from Russia as much as 70 percent of Germany’s gas requirements. Russia accounted for 55 percent of Germany's gas imports in 2021 and 40 percent in the first quarter of 2022.

Analysts say America would love to fill the void but there are too many logistics problems down the road for Washington.

Alternatives supplies have been suggested but it looks very difficult for Germany to shield its economy until it completely end its dependency on Russian energy.  

Habeck has previously said that it would take around two years. But he also admitted “we face turbulent days ahead” amid the expected rise in gas prices.

BASF says a realistic timeframe, for Berlin to wean itself off Russian gas would be four to five years. Some experts have said it is more likely to take until the end of the decade. That is unless Moscow itself does not halt supplies very soon unless it receives payments in its own currency the Ruble. 

Germany finds itself between a rock and a hard place by trying to join the Western sanctions alliance against Russia at the expense of German households and businesses along with the country’s economy.  

Those advocating the advance of peace talks between Kyiv and Moscow amid the West’s pumping of weapons to Ukraine, which some experts argue is prolonging the conflict; may help shape the direction Germany takes and what is currently the largest economy in Europe.

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