If there were any doubts as to the seriousness of the situation Europe faces with gas supplies, as a result of Vladimir Putin’s war on Ukraine, they will have been dispelled on Thursday morning by Germany’s economy minister.
Robert Habeck put both German businesses and households on notice that they could be facing a tough winter – and that the rationing of gas could be around the corner.
His warning comes just nine days after Russia throttled back the amount of gas it pipes to Germanyvia the Nord Stream 1 pipeline that runs underneath the Baltic Sea, to just 40% of regular levels.
Battle for twin cites entering ‘fearsome climax’ – live Ukraine updates
Mr Habeck’s response was to announce that Germany is moving to phase two of its three-stage national gas emergency plan.
Germany moved at the end of March to the first stage of the plan – which includes stricter monitoring of gas flows and a focus on filling gas storage facilities. But under the second stage “alarm” measures announced, the country will now seek to encourage industrial users to save gas as winter approaches, while the government will also spend €15bn (£12.9bn) on supporting a step-up in gas storage.
A third “emergency” stage would see gas rationed – in the first case for industrial users but potentially, in time, for households. Under such circumstances, households would be designated as “protected customers”, along with hospitals, inpatient care facilities and facilities for the care and support of disabled people, along with the armed forces, the police service and the fire brigade.
Mr Habeck said that Germany’s gas storage facilities were currently 58% full, higher than at this point last year, but warned that, if Russian supplies through Nord Stream 1 remained at current depressed levels, it would be difficult to achieve the 90% target that the country’s government was seeking by 1 November as it heads into winter.
They were only 30% full when, at the end of February, Russia first attacked Ukraine.
Mr Habeck said: “It’s summer, but winter will come. It will be a rocky road that we have to travel as a country.
“Even if we don’t feel it yet, we are in a gas crisis. From now on, gas is a commodity in short supply. The prices are already high, and we have to reckon with further hikes.”
Read more: Russia made £79.4bn in oil and gas sales in first 100 days of war
Significantly, though, Mr Habeck did not proceed with another aspect of phase two – under which utilities can pass on higher energy prices to their customers with the aim of depressing demand in order to shore up supply.
This requires the approval of the Bundesnetzagenture, the German state regular for gas and electricity, which was not sought today.
Mr Habeck also tried to play down concerns about a possible rationing of gas for industrial users. Asked when this might happen, he replied: “Hopefully never [but] of course I can’t rule it out.”
Today’s measures are not the only ones Germany is implementing as it seeks to stave off an energy crunch this winter.
The country is also pushing through legislation that would enable it to temporarily reopen mothballed coal-fired power stationssomething that would recently have been anathema to Mr Habeck, a member of Germany’s Green Party.
He said: “This is painful – coal-fired power plants are simply poison for the climate. But for a transitional period, we have to do it to save gas and get through the winter.”
Things may yet become even more painful for him and his party. Germany may also have to row back on plans to close its remaining nuclear power plants, a measure introduced after the 2011 Fukushima disaster by Angela Merkel, the former German chancellor. That would indeed be agonizing for the green movement, which was born in the anti-nuclear protests of the 1970s.
Mr Habeck also made clear who he thought who was to blame: “We must not fool ourselves. The cut in gas supplies is an economic attack on us by Putin.”
Read more from Ian King:
Kellogg investors hoping for Gr-r-reat rewards as Frosties maker splits itself up
Threat of ‘summer of discontent’ not unique to UK as unions flex muscles Europe wide
That Germany, Europe’s largest economy, is already suffering as a result of elevated energy prices is beyond doubt.
Its economy contracted by 0.2% during the first three months of the year and remains slightly below where it was going into the pandemic. More recent data has also been far from encouraging. The rate of inflation – in this most inflation-conscious of countries – hit 7.9% in May and is expected to come in higher in coming months.
This is already having an impact on consumer spending: retail sales were down by 5.4% month on month in April, although that may change when the figures for this month come in, as Berlin has recently introduced petroleum and diesel duty cuts along the lines of those introduced in the UK by Chancellor Rishi Sunak.
But Germany’s mighty industrial sector, the powerhouse of the Eurozone economy, is also misfiring.
Key industries, notably car making, were already buckling under a shortage of key components, particularly microchips, due to global supply chain constraints that were worsened by a wave of COVID restrictions this spring in China. But economists believe the pressure on energy-intensive industrial users to reduce their gas consumption is likely to have an impact on industrial output – and, by extension, German GDP – during the second half of the year.
Eric Heymann, senior economist at Deutsche Bank, told clients on Thursday: “In case of significant gas shortages (not the case yet), a recession in the German manufacturing industry could not be prevented. What is more, recession risk for the German economy as a whole would rise significantly.”
That may already be happening. The chief executive of BASF, the world’s biggest chemicals company and a bellwether for the German industry, warned on Wednesday that it is facing a “considerable downturn” in the second half of the year. It is already, reportedly, drawing up plans as to which factories it would have to close first in the event of gas being rationed.
Its smaller rival, Lanxess, is also said to be working on similar proposals. Other industrial users, meanwhile, are scrambling to shore up supplies of renewable energy to make good any shortfalls created by gas rationing.
Meanwhile, “flash” purchasing managers index (PMI) survey data published on Thursday suggested German manufacturing output is already contracting, with German business confidence back to levels last seen at the outset of the pandemic.
The PMI data is usually a good indicator of what the eventual out turn will be for GDP. It does not bode well.