Sunday, October 2, 2022

‘Firms will go bust’: Germany prepares for a future without Russian gas | Germany

In Germany, they call it “Day X”. Businesses up and down the land are making contingency plans for what is seen as a growing likelihood that Russian gas will stop flowing into Europe’s biggest economy.

“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,” the owner of a hi-tech mechanical engineering company in western Germany said. The firm produces everything from battery cases for electric cars to train clutch systems.

The speaker did not want to be named, or for his company to be identified, in part for fear, he said, of appearing to support Russia’s war by making the case that if the gas is turned off, his century-old business “will likely not survive”. But he says he is in a deep quandary and feeling very vulnerable, as he is not only heavily relying on gas – the cost of which has already soared – but also on metals such as nickel and aluminium, much of which comes from Russia.

Germany gets around 50bn cubic meters a year or 55% of its gas from Russia, the largest by volume of any EU country, and by extension, the biggest share of any large European economy.

Two possible, not unlikely scenarios are being mooted: one envisages Moscow deciding to cut off or reduce supplies in retaliation for sanctions; the other sees Germany giving in to mounting pressure to support an EU energy embargo according to which the recipients would effectively call Putin’s bluff by cutting themselves off from Russian supplies.

On Friday at the Brandenburg Gate, protesters in favor of an oil and gas embargo made their point for the moral argument, with 410 red lights commemorating the victims of Russian army killings in the town of Bucha, alongside slogans asking German chancellor Olaf Scholz: “ If not now, when?” Their message is stark. As long as German industry keeps taking the energy – for which it pays Moscow €200m (£167m) every day – it is helping fund the atrocities.

But industry bosses and political leaders have warned that the damage to Germany by turning off the taps would be far greater than any benefit it brings to Ukraine.

“What use to anybody is a weakened Germany?” a source close to the government told the Guardian this week.

Millions of private homes without heat is just one part of the picture. The other, arguably bigger concern, are the manufacturing giants, dependent on gas to operate, such as Thyssenkrupp, BASF and Bayer. And the millions of thousands of small and medium sized businesses with which they are interlinked.

Industry representatives have warned that the effects would be felt in every product from construction material, synthetics, pesticides, disinfectant, packaging and semiconductors to the production of antibiotics, coronavirus vaccines and cancer drugs. The chain reaction is difficult to predict but likely to be considerable.

Robert Habeck, the economics minister, has urged Germans to “turn down the thermostat” – saying that “every kilowatt hour that Germany saves harms Putin” – what some have cynically dubbed “freezing for Ukraine”. Industry too is being urged to scale back its use.

Some have done so already, forced by the high energy costs. Others, such as the porcelain manufacturer KPM, founded in 1763, are working overtime to produce as many goods as possible before the taps are turned off. “Who knows for how long we will have gas?” its CEO, Martina Hacker, told Der Spiegel. “We can’t produce porcelain without it.”

Other companies have reduced production to a minimum. But industries such as glass manufacturers say shutting down production altogether facilities is not an option as it would cause liquids to set and destroy the machines.

The country’s 45 gas storage facilities are only about 26% full. The plan is to increase levels to 80% by the autumn, largely by saving energy now, in order to safeguard supplies for next winter.

Habeck triggered the first part of a three-point emergency plan last week that anticipates a slow-down or halt of gas and decides where supplies would go. Hospitals, emergency services and medical manufacturers would be prioritized, followed by private households. Industries, which use a quarter of the gas delivered to Germany would be the first expected to shut down, according to the plan. Which is why businesses are being asked to put forward their arguments as to how “system relevant” they are.

Law firms have been flooded with queries from companies wanting to know their legal standing, while industrial associations report being inundated with queries by members asking where they rank in the pecking order and how they should react to the uncertainty.

One representative said: “We have glass manufacturers saying they are system relevant because they provide the medical industry with glass vials, paper manufacturers, arguing that their corrugated cardboard is vital for the safe transport of the vials. How do you possibly argue against them?”

The Federal Network Agency, which ensures fair access to gas, electricity and other vital services, has sent a questionnaire to all German businesses, asking them to effectively set out their individual arguments for a right to gas. “The question of prioritization is a very difficult decision, requiring consideration of a wide range of consequences,” said a spokesperson for the economics ministry.

Some predict an ugly battle over who deserves the energy most.

There are doomsday visions of supply chains – already under pressure due to the pandemic – collapsing altogether, businesses forced into bankruptcy, mass unemployment.

Jörg Hoffmann, the head of IG Metall, a union that represents 1.2 million workers in the chemical, metal processing and food production, has warned of “a recession deeper than any of the recessions we have known until now.”

BASF, the chemical giant, and one of Germany’s biggest single purchasers and consumers of energy, said the effect of its production downturn would soon be felt.

“We would get very high unemployment, many firms would go bust,” the BASF chairman, Martin Brudermüller, has said. “It would lead to irreversible damage. To put it bluntly: it could lead Germany into its most serious crisis since the end of the second world war, and destroy our prosperity.”

A race against time is on to find alternative gas source supplies from the Netherlands and Norway and increase liquid natural gas (LNG) supplies from Belgian terminals and the US. Habeck has been to Qatar to secure further shipments and has ordered the construction of LNG carriers to float in German ports rather than wait for the construction of proposed new LNG terminals, which will take too long. The abolition of coal-fired plants – seen as a central part of the climate emergency plan – may yet be delayed.

The pressure is on to scale up and speed up renewable projects in wind and solar. Companies such as the pharmacy giant Merck are making their own plans to build wind turbines and solar energy panels to increase their independence – if only to be able to heat their offices. But it is a gargantuan effort that will probably take years and in the meantime Germany is left looking extremely vulnerable.

Some companies are even contemplating moving their production facilities abroad, predicting that operating in Germany will become prohibitively expensive and triggering fears Europe’s economic motor is in danger of losing its competitive edge.

While Habeck believes Germany is in a position to wean itself off Russian gas in around two years’ time, Brudermüller believes four to five years is more realistic. Some experts say by the end of the decade is more likely.

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