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Status: 06/23/2022 11:10 a.m
“From now on, gas is in short supply,” said Minister of Economics Habeck when the gas emergency plan went on alert. What will change for consumers now? And what about the prices?
What happens when gas runs out? This question is of particular concern to many companies, but also to consumers, after Federal Minister of Economics Robert Habeck has now declared the gas emergency plan to be on alert – combined with the statement: “From now on gas is a scarce commodity in Germany.” If some politicians have their way, the third stage should be declared now: the emergency stage. Bavaria’s Economics Minister Hubert Aiwanger called on the federal government at the beginning of the week to impose the highest of the three escalation levels.
Three levels of escalation
The “Gas Emergency Plan for the Federal Republic of Germany”, which was published in September 2019, regulates the procedure if the supply situation in Germany threatens to deteriorate significantly – or if this is already the case. There are three levels: the early warning level, the alert level and the emergency level. At the end of March, the Federal Ministry of Economics announced the first stage, the early warning stage. This served primarily to prepare for a worsening of the situation.
The second level is the alarm level now declared by Economics Minister Habeck. It comes into effect when there is a disruption in the gas supply or an exceptionally high demand for gas that leads to a “significant deterioration in the gas supply situation”. In the situation of this second stage, however, the market is still able to cope with the disruption or high demand without the state having to intervene. The declaration of the alert level is therefore not yet associated with state intervention in the gas market.
The effects would be dramatic if the third and last stage of the gas emergency plan were called: the emergency stage. It is to be called out when there is an exceptionally high demand for gas or a significant disruption in the gas supply. Then the state steps in and enacts non-market-based measures to ensure gas supplies to protected customers. They are enforced by the Federal Network Agency. The authority then regulates the gas distribution in coordination with the network operators.
Decline in Russian gas imports
According to Habeck, the current declaration of the alarm level as the second level of the gas emergency plan is required by law. The Green politician referred in particular to the consequences of the 60 percent reduction in deliveries of Russian gas through the Nord Stream 1 Baltic Sea pipeline since last week and the high prices on the gas market. The situation is currently “tense”, but security of supply is guaranteed, the minister emphasized.
A further strain on the situation on the gas market is foreseeable: Routine maintenance of the Nord Stream 1 pipeline is planned from July 11. It could last about ten days. In recent years, gas storage facilities have been used to compensate for the lower gas imports. However, the Federal Network Agency still sees no need for action. According to Habeck, the reservoirs are currently 58.7 percent full. “But what has to alarm us is the perspective,” said the minister. You have to prepare for the winter.
Higher gas prices as a result?
In the past few days, the gas suppliers had warned against a hasty declaration of the alarm level. Because it “will lead to major upheavals in the market and must therefore be carefully prepared,” explained the board of directors of the industry association Zukunft Gas, Timm Kehler.
In fact, there is a risk of significant price increases as a result of the alert being declared. The most important reason is a change in the law that was passed in mid-May. A price adjustment clause was added to the Energy Security Act. It allows suppliers to pass on high purchase prices for natural gas directly, immediately and also in the form of sharp increases to their customers, even with long-term contracts. According to the law, “all energy supply companies affected by this along the supply chain have the right to adjust their gas prices to their customers at an appropriate level”.
The activation of this price adjustment clause requires further steps. Habeck pointed out that the declaration of the second gas alert level does not automatically lead to the full price being passed on to all customers. “There is no automatism,” he said. With the declaration of the alert level, a prerequisite for the use of the price adjustment clause is created. However, this option has not yet been taken.
Because this form of price adjustment is linked to another condition: the Federal Network Agency must – in addition to the alarm level – formally determine “a significant reduction in the total gas import volumes”. This determination must be published in the Federal Gazette. Only then are companies allowed to raise prices to a “reasonable level”. Since the Federal Network Agency will not make such a determination for the time being, the declaration of the alert level will initially only have limited consequences for existing contracts with regard to general prices.
But Habeck emphasized at the same time: “Prices will be increased – regularly and inevitably.” In many cases, this is already done by adjusting advance payments. The price is already passed on depending on the city area and household. “The prices reach the consumers.”
Even more dramatic consequences in the third stage
After the declaration of the second of three stages of the gas emergency plan, the question of the consequences of a possible declaration of the third stage, the emergency stage, has increased. It provides for rationing of natural gas. Accordingly, private households are given preferential treatment. In other words, in the event of a gas crisis like this, industry has to shut down plants first, with private households coming last. Gas suppliers must guarantee the supply of protected private customers for at least 30 days and take appropriate precautionary measures. Social facilities such as hospitals are also under special protection.
However, in the past few weeks, various options have been discussed as to which measures could be taken if the emergency level were declared. These included moves such as a gas savings auction model or lowering the minimum temperature in residential properties. The Federal Network Agency is currently working with industry on short-term emergency measures for a gas shortage.
The gas industry currently sees no reason to declare the highest level of escalation. At the “E-world energy & water” trade fair in Essen, Timm Kehler, head of the Future Gas Association, emphasized that this does not currently make sense. “We see that all customers are currently still being supplied with gas.”