Because of reduced gas supplies from Russia and drastically rising prices, the federal government is calling for the alarm level on the gas market. Economics Minister Robert Habeck (Greens) announced on Thursday morning in Berlin that the second of the three stages on the gas market’s crisis scale had been activated. The early warning level has been in effect since the end of March. However, direct market interventions, including rationing of gas supplies, are only possible in the third, the emergency stage.
Habeck warned on Thursday of a “shock” on the gas market. “Even if gas quantities can still be procured on the market and stored: The situation is serious and winter is coming,” warned Habeck. “We mustn’t delude ourselves: the cutback in gas supplies is an economic attack by Putin on us.” It is his strategy to “stoke up uncertainty, drive up prices and divide us as a society. We fight back against that.”
“Gas is a scarce commodity from now on,” says Habeck
Habeck made it clear that the country is heading for a difficult situation. “It’s going to be a rocky road that we as a country have to take now. Even if you don’t feel it yet: We are in a gas crisis. Gas is a scarce commodity from now on. Prices are already high and we have to get ready for more climbs.” This will affect industrial production and become a major burden for many consumers.
The step was triggered by the reduction in gas supplies from Russia through the Baltic Sea pipeline Nord Stream 1. Since the throttling last week, the gas market has been even more tense than before. Another burden is foreseeable: an upcoming maintenance of the pipeline is planned from July 11th, it could take about ten days. In recent years, gas storage facilities have been used to compensate for the lower gas imports. The gas storage tanks are almost 60 percent better filled than in the previous year. However, should Russian gas deliveries via the Nord Stream 1 pipeline remain at the low level of 40 percent, the required storage level of 90 percent by December can hardly be achieved without additional measures.
The declaration of the alarm level is now a prerequisite for the federal government’s plans to bring more coal-fired power plants back on line in order to save natural gas in electricity production in the coming months. The corresponding law is to pass the Federal Council on July 8th. This means that the suppliers can also take precautions to start up the power plants.
For customers, the alert level can have consequences for the gas price, which the government wants to prevent for the time being. Because suppliers can pass on their higher purchase prices directly to their customers. A new price adjustment clause was created for this in the Energy Security Act in May. They should also be able to do this if significantly lower tariffs have been agreed for many months in an existing gas contract. Because gas suppliers are also coming under increasing pressure because they have to procure the missing supply quantities at very high prices in other ways.
For the time being, however, the Federal Network Agency does not want to activate the corresponding price adjustment clause. Consumer advice centers hope that gas suppliers will exercise their right to adjust with a sense of proportion. “My impression is that suppliers are not keen on immediately raising prices for a large number of private customers,” says Udo Sieverding, energy expert at the North Rhine-Westphalia consumer advice center. “That would cause a lot of chaos because many private customers assume that they will be safe for months.” Rather, Sieverding expects gas suppliers to approach corporate customers first. “There are fixed contacts, they are professionals.”
Nevertheless, Sieverding warns: “If the crisis situation worsens and becomes established, sooner or later there will be a wave of price increases.” In some places, consumer advice centers are already seeing gas price increases of 100 percent, while the wave has not even arrived in other cities. “We assume that gas prices could triple compared to the pre-crisis level,” says Sieverding.
Before the energy price crisis, a kilowatt hour of natural gas cost around six or seven cents, but now the average is around 13 cents, the consumer advocate calculates. In tariffs for new customers, one can already see 20 to 25 cents per kilowatt hour of gas, with upward swings. Tenant households with gas heating will only be able to see the effects in black and white on the next heating bills, i.e. with a significant delay.
Only when the government goes one step further and declares the highest level, the emergency level, on the gas market, authorities could also ration the gas allocation and determine who gets gas at all. Private households are particularly protected and should be cared for for as long as possible. The industry would then have to adjust to cuts.
On Tuesday afternoon, at the BDI Industry Day, Habeck had already prepared the tightening to a certain extent – at least rhetorically. “We are talking about the attack being carried out against us with energy as a weapon,” he said there on the state of affairs. The government’s plan includes, among other things, replacing gas-fired power plants “that operate in the electricity sector” with coal-fired power plants. But there is “of course no guarantee” that this plan will work, warned Habeck.
If it rises, the storage facilities will be full in winter, the planned capacities will be connected via liquid gas terminals and there will be even more LNG capacities in the spring. But the storage facilities are still only just under 60 percent full, “and if we go into the winter with only half full storage facilities and the gas tap is turned off, then we are talking about a serious economic crisis that will hit Germany” – and about political measures that will be difficult cut and where you “can’t do anything right anymore”. According to Habeck, it’s about a scenario that could last for months and is therefore no longer about a drop in shareholder value, but about “that the companies are simply gone”.