German industry: The gas rationing plan would cripple the economy | Business | Economic and financial news from a German perspective | DW

Germany’s industrial sector has sounded the alarm over a new emergency alert system to manage the country’s energy security in case Russia cuts its natural gas supplies.

German Economy Minister Robert Habeck announced a three-step warning system on Wednesday that would ultimately give households and hospitals priority over industrial companies if gas use were to be rationed.

The Kremlin upped the ante in its showdown with Europe last week, saying “unfriendly” states should pay for their gas in rubles instead of euros or dollars.

The G7 countries rejected the request, but the uncertainty raised fears that Moscow could turn off the taps in retaliation for sanctions imposed by the West following the invasion of Ukraine.

Russia has since said ruble payments will be phased in.

Disruption would drive up unemployment

Business leaders and unions have warned that any gas supply disruption would be devastating for Europe’s biggest economy as it has yet to fully recover from the post supply chain crisis. -COVID.

One of the worst-case scenarios concerns the world’s largest chemical company, BASF, whose main chemical production site in the western city of Ludwigshafen is expected to be partially or completely closed.

The president of the German chemical workers’ union IG BCE, Michael Vassiliadis, who also sits on BASF’s supervisory board, said around 40,000 employees are expected to be furloughed or made redundant.

“The consequences would not only be reduced working hours and job losses, but also the rapid collapse of industrial production chains in Europe – with global consequences,” Vassiliadis added.

Christian Kullmann, director of the German Association of the Chemical Industry (VCI), also warned that chemical plants are so complex that they “cannot simply be switched off and on again like a microwave oven”.

“Once the chemical plants are closed, they remain silent for weeks and months,” he pointed out. Kullmann, who also heads specialty chemicals company Evonik, said the disruption would have a “huge domino effect across almost every industry”.

The chemical sector is an essential part of Germany’s export-oriented economy, as most industries cannot do without chemicals, including car manufacturers, pharmaceutical producers and construction companies.

Natural gas is also used both as an energy source and as a feedstock by chemical producers. No other sector uses Germany’s gas supply more than the chemical sector, at around 15%.

Two years needed to reduce dependence on Russia

Despite promises to reduce its dependence on Russian gas – which stood at more than 50% before the invasion and has since fallen to around 40% – Germany is unlikely to find enough alternative sources before mid- 2024.

Announcing the emergency alert system on Wednesday, Habeck said gas storage facilities in Germany are currently filled to around 25% capacity.

“The question of how long the gas will last basically depends on several factors (such as) consumption and the weather,” he said. “If there is a lot of heating, the storage facilities will be emptied”.

Habeck, who is also vice-chancellor, called on individuals and businesses to reduce their energy consumption, adding: “We are in a situation where every kilowatt-hour saved is useful.”

If Germany were to ration gas, households and critical infrastructure like hospitals would be prioritized over heavy industry

The gas warning system qualified as “responsible”

Despite the dramatic economic fallout from any supply cuts, several business groups have called the level of early warning “responsible”, including the Association of German Chambers of Industry and Commerce (DIHK).

Kerstin Andreae, president of BDEW, the energy and water industry association, said that “all parties involved must have a clear roadmap of their rights and obligations in the event of a breach of supply”.

“Now we need to take concrete steps to prepare for the emergency level, because in the event of a shutdown, things should go quickly,” added Andreae.

With new storm clouds appearing, the German Council of Economic Experts now forecasts that Germany’s GDP will only grow by around 1.5% in 2022, a marked correction from its previous forecast.

“We were already having a bad time thanks to the omicron wave and now things are even darker,” board member Monika Schnitzer told DW.

What is Germany’s emergency preparedness plan?

The first level, which the government triggered on Wednesday, is early warning – when there are signs that a supply emergency could be developing.

The second is the alarm — when an interruption in supply or extraordinarily high demand upsets the usual balance but can still be corrected without major intervention. At this point, energy companies will be responsible for seeking alternative sources of supply.

The third level is urgency — when market-based measures have failed to address shortages. At this point, the network regulator must decide how the remaining gas supplies will be rationed across the country.

According to the announced plans, supply to industry would first be reduced, while households and critical institutions such as hospitals would continue to receive the available gas.

Edited by Uwe Hessler

James R. Rhodes