Germany Faces ‘Lehman Effect’ In Gas Standoff With Putin

Germany’s energy crisis heated up on Thursday, when Economy Minister Robert Habeck raised the country’s alert level to “alarm,” the second-highest phase in a tiered system that could eventually see the state commandeer the distribution process.

“The whole market is in danger of collapsing,” Habeck said, at a hastily convened press conference in Berlin, where he described “a Lehman effect in the energy system.”

Earlier this month, the Kremlin curtailed gas flows to Germany and Italy, citing technical problems. Moscow insisted the curbs weren’t deliberate, blaming turbine repairs and a related logistical hangup tied to sanctions. Germany and Italy dispute the veracity of Russia’s explanation, if not some of the details. “Both Germany and us… believe these are lies,” Mario Draghi said last week, after meeting with Volodymyr Zelenskiy in Kyiv alongside Olaf Scholz and Emmanuel Macron. “There’s a political use of gas, as there’s a political use of wheat,” Draghi added.

On Thursday, Habeck told reporters he’s worried about the resumption of Nord Stream flows following scheduled maintenance next month. Germany’s storage facilities were 58.38% full as of June 22, according to The Bundesnetzagentur. Berlin targets 90% by November. Flows from the Nord Stream 1 pipeline are running at just 40% of maximum capacity, and that’s having knock-on effects for transfers to France, Austria and the Czech Republic.

Vladimir Putin is slowly strangling Germany, commensurate with the West’s efforts to suffocate the Russian economy. “We are in a gas crisis even if we don’t yet feel it,” Habeck told reporters. Habeck is leading efforts to diversify Germany’s supplies after the peril inherent in the country’s dependency on Russian energy was thrown into stark relief following Putin’s invasion of Ukraine.

As a reminder, Germany activated the first phase of its gas emergency plan in March, after Putin began demanding payments in rubles. Eventually, Gazprom set up a dual account system that allowed European buyers to satisfy the Kremlin’s decree without running afoul of sanctions. It was (and still is) an absurd charade.

If Habeck moved the country into the third phase, the regulator could ration gas in order to protect consumers, including hospitals and households. German industry could see cuts in that scenario. Already, the severity of the crunch is forcing coal-fired power plants back online. It’s “simply poison,” Habeck lamented. “But we have to do it.”

“Currently the companies affected by the missing deliveries can procure these volumes elsewhere on the market,” Bundesnetzagentur said, adding that it “expressly supports the call to save as much gas as possible.”

Habeck described a cascade effect wherein suppliers facing losses are compelled to pay up to secure volumes, driving up costs for local providers and, ultimately, German consumers. European power prices rose to the highest this year.

Germany is locked in “an economic confrontation with Russia,” Habeck declared. Putin, he said, is “obviously” trying to divide the nation by driving up gas prices.

Full statement from Habeck

Even if gas quantities can still be procured on the market and stored, the situation is serious and winter will come. We mustn’t delude ourselves: cutting gas supplies is an economic attack on us by Putin. It is clearly Putin’s strategy to create insecurity, drive up prices and divide us as a society. We defend ourselves against this. But it will be a rocky road that we as a country now have to walk. Even if you don’t really feel it yet: we are in a gas crisis. Gas is now a scarce commodity. Prices are already high and we must brace ourselves for further increases. This will affect industrial production and become a major burden for many consumers. It’s an external shock.

As the federal government, we are doing everything we can to mitigate the consequences and maintain security of supply. Filling the gas holders is now the top priority. We take care of alternative gas supplies and are working hard to build the necessary infrastructure. We are accelerating the expansion of renewable energies in an unprecedented way. It will be a national effort. But we can overcome them in solidarity with each other – federal, state and local governments, citizens, companies, civil society. Saving energy is the order of the day for the next few months. All consumers – in industry, in public institutions and in private households – should reduce their gas consumption as much as possible so that we can get through the winter.

As announced on June 19, the federal government will call additional coal-fired power plants out of standby to reduce gas consumption in power generation. The BMWK has already written to the power plant operators and asked them to take the necessary steps. The corresponding replacement power plant availability law, which enables the gas replacement reserve to be called up, is currently in the parliamentary process. The BMWK prepares all relevant ordinances; in order to use them quickly and precisely after they come into force. We are bringing coal-fired power plants onto the market and reducing the amount of gas. That’s painful, coal-fired power plants are simply poison for the climate. But we have to do it for a transitional period to save gas and get through the winter.

We fill the storage tanks, they have to be full by winter. In addition, a gas auction model is to be launched in the summer, which will incentivize industrial gas consumers to save gas. The Federal Network Agency spelled out this model in more detail on June 21, 2022. Further specifications will be made in the coming weeks so that things can get started quickly. If further measures are necessary, we will take them.

In this crisis, it is important to be aware of the different ways people are affected, to combine knowledge and skills, and in this way to keep finding better solutions. We will learn in this crisis, we will always adapt.

As the federal government, we will do our part to relieve the burden on people who earn little. We won’t be able to absorb everything, but where every cent already has to be counted twice and the fear of the next heating bill is avoided, we have to help. Therefore, we in the federal government will discuss further relief measures.