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(Bloomberg) — Germany’s presidential palace in Berlin has no light at night, the city of Hanover is cutting off hot water in the showers of its pools and gyms, and municipalities across the country are preparing to protect others from the cold. . And this is just the beginning of a crisis that will spread across Europe.
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Summer may still be at its peak, but Germany has little time to lose in the face of an energy shortage this winter that would be unprecedented for an evolved country. as exposed as the region’s largest economy, where nearly a portion of the houses rely on heating oil.
Chancellor Olaf Scholz’s tenure has been slow to deal with Germany’s vulnerability, and only recently established a request for aid passes when efforts to secure the materials of choice fail. As Moscow continues to restrict deliveries and France struggles to export electric power to its neighbors, little respite is expected and the dangers pass beyond this winter.
“The demanding situations we face are huge and vital spaces of the economy and society,” said Robert Habeck, Germany’s vice chancellor and economy minister, after unveiling a plan to pass on tariff increases from power companies to consumers. “But we are a strong country and a strong democracy. These are smart preconditions for overcoming this crisis.
The Kremlin is likely to keep significant fuel flows to Europe at a minimum as long as the stalemate over Ukraine continues, according to others familiar with the leaders’ thinking. This means that shortages are likely to persist in the region, with fuel costs per year until 2025 having already reached a record high this year.
Read more: Kremlin to boost compression in Europe, experts say
Rationing and recession threaten Germany, and the government has expressed fear of social unrest if energy shortages spiral out of control. The country even depends on France, where faulty nuclear reactors exacerbate fuel shortages. Electricity costs in Europe’s two largest economies hit record levels last week.
Russia, traditionally the European Union’s largest fuel supplier, covering around 40% of demand, has gradually reduced deliveries in transparent retaliation for sanctions. The EU’s challenge is to maintain power across borders in a check on the bloc’s unity and its determination to resist President Vladimir Putin’s aggression.
“Russia’s policy has been to divide because then they are stronger,” said Martins Kazaks, governor of the central bank of Latvia, the former Soviet republic that is now part of the eurozone. “If we allow them to divide us, we will become weaker,” he said in an interview.
Russia’s most recent move came last week, when Gazprom PJSC blamed a turbine for reducing throughput on the key Nord Stream pipeline to about 20% of its capacity. In the aftermath, fuel costs rose more than 30 percent last week and electric power costs broke one. registration after registration.
Habeck, who oversees the policy of force, called Gazprom’s justification “far-fetched” but said it was serious and renewed his call for businesses and consumers to step up their savings efforts. To close the gap, his ministry legalized the revival of coal. He fired power plants that have been embroiled in a setback by climate efforts and recommends Germans install effective showerheads and wash clothes at colder temperatures.
If measures to rebalance the source and call for failure, the government has the strength to claim an “emergency” for gas, which would mean that the state takes over the distribution and makes a decision on who gets the fuel and who doesn’t.
While families and critical infrastructure, such as hospitals, are suffering outages, there is no guarantee that ambient temperatures will be as comfortable. Germany’s largest homeowner has already announced plans to cut off heating overnight, and public buildings, including the Reichstag in Berlin, are lowering thermostats. .
The rate hikes, which will begin to be felt in earnest this fall, add to the pressure on the poor. About one in four Germans has already fallen into energy poverty, meaning heating and lighting cost the ability to cover other expenses, according to the Cologne Institute for Economic Research. Lately, the government is running systems to help low-income households.
Cold snaps in Europe and Asia would force electric corporations to scramble for already limited liquefied herbal gas materials. High costs in such a situation could cause corporations to shut down services this winter and destroy about 17 percent of commercial fuel demand, according to Penny Leake, a research analyst at consulting firm Wood Mackenzie Ltd. “If Nord Stream flows remain at 20%, we are approaching the danger zone,” he said.
With garage services completed by 68% and recharging rates likely to be low after last week’s pipeline shutdown, Germany will most likely not reach the government’s 95% target until November 1. The country’s network regulator says it’s hard to succeed at this point. without further measures. .
The business sector is already reacting. A survey of 3,500 companies through Dihk Business Lobthrough showed that 16% of commercial companies are cutting production or abandoning certain activities due to the energy crisis.
BASF SE is one of them. The chemical giant plans to cut production of ammonia, a key component of fertilizers, which consumes a lot of fuels, after sky-high prices made the company unprofitable. lose fuel to resell it to the network.
High energy costs led fertilizer maker CF Industries Holdings Inc. to announce that it would permanently close one of its British factories. Cargill Inc. , the world’s largest trader in agricultural products, also closed a British oilseed processing plant, while in France, supermarkets such as Carrefour and Monoprix agreed to their electricity consumption.
The International Monetary Fund estimates that Germany risks wasting 4. 8 percent of its economic output if Russia cuts off fuel supplies, and the Bundesbank has estimated the potential damage at 220 billion euros ($225 billion). Although he is sure that it will be a hard blow, the concern in Germany is that there will soon be a structural loss of competitiveness.
Energy-intensive industries are very likely to gravitate toward regions with reliable renewable energy resources, such as Germany’s windy coast or the solar-rich spaces of the Mediterranean, which could create commercial regions along the Rhine and in southern Germany, according to a senior executive at a giant German company manufacturer. Some leaders of the chemical industry say production can be transferred to Turkey, where there are pipelines from Azerbaijan.
“Our economic formula is in danger of collapsing,” said Michael Kretschmer, the prime minister of Saxony’s conservative opposition. “If we are not careful, Germany could simply deindustrialize,” he told the daily die Zeit, reiterating his call to “freeze” the war in Ukraine and settle for the advances of Putin’s army.
Most Germans in Ukraine, in part, say the government deserves to continue in Kyiv despite rising energy costs, according to a Policy Matters poll for Die Zeit, but critics like Kretschmer may gain ground as temperatures drop. This would put even more pressure on Scholz.
Read more: Germany warns of contagion of Lehman-style Russian cuts
Despite the months of crisis, its management has just begun to make public its intention to reduce demand by up to 20%. And, in a sign of growing urgency, it recently raised its minimum target for fuel storage, now 15 percentage points above the ECU. Levels
Shortly after scholz’s government in December forced dozens of newly elected politicians in its coalition of pro-business Social Democrats, Greens and free democrats to talk about the dangers of fuel in Germany, a conspiracy theory, but then they saw the facts: the reserves in time would last about 10 days if a bloodless snap occurred.
It was the beginning of a confrontation with reality. For decades, Germany’s leadership under Gerhard Schroeder and Angela Merkel has argued that comfortable power relations with Russia are an advantage and not a disadvantage. During last year’s campaign, Scholz called the U. S. complaint of German policy “false” because it did not take into account the full mix of powers. The thinking across much of the country’s political spectrum was that if Russia did not remove Cold War materials, it would not do so in a confrontation with Ukraine.
But as Europe turns to renewable energy and moves away from fossil fuels provided through Russia, officials have underestimated Putin’s willingness to take credit for influence while he still had it. They also overlooked a key red flag.
Before the war, a Gazprom unit controlled about 20% of Germany’s fuel storage capacity, had a significant stake in an Austrian one, and had the right to buy gigantic amounts of fuel in the Netherlands. Actions until last winter, a sign that agreements to militarize power had positioned themselves under Europe’s nose.
“If we look back, we see that months before the war broke out, Russia deliberately kept its fuel level as low as possible,” said Ursula von der Leyen, president of the European Commission and a former German defense minister. “Russia is blackmailing us. “
Read more: War Europe ignored warnings about Russian gas
Scholz learned that Germany faced a real challenge in the frantic days leading up to the Russian invasion on Feb. 24, according to others familiar with his thinking. During a visit to Moscow on Feb. 15, the foreign minister sat at Putin’s famous long white table, beating him about 6 meters (20 feet) away from the Russian leader for talks aimed at defusing the dead end.
But the symptoms of tension were clear. Despite Putin’s claim that the Nord Stream 2 fuel pipeline, which was finished and awaiting approval to begin operations, was “strictly an advertising project,” Scholz said he was in a position to back down in the event of an attack.
Just days later, Scholz canceled the task after Putin dashed hopes for a nonviolent solution by identifying Russian-backed Luhansk and Donetsk in eastern Ukraine as independent states. afterwards, the tanks began to roll towards Kyiv.
But even after the outbreak of hostilities, Germany struggled to react, hampered by a long-standing policy of engagement with Russia and the industry’s reluctance to give up reasonable gas, according to officials involved in talks with the EU. Those days are over.
“Gazprom, with power outages and outages, has destroyed Russia as a reliable supplier of energy to Europe,” said Mario Mehren, chief executive of German oil company Wintershall Dea AG, urging consumers to wear sweaters instead of starting. heat. ” This is very unfortunate news. “
Germany now wants, as it has not followed EU directives, to diversify energy sources, threatening to reopen old flaws in the bloc. Memories of the currency crisis, when Berlin lectured southern member states about its debt, are still very vivid, officials said. who asked not to be known because the conversations are private.
Like Germany, Italy depended on Russia for more than a portion of its fuel supplies, but acted faster to secure the resources of choice from countries like Algeria and Qatar, and its LNG import terminals gave it flexibility. Ecological Transition Minister Roberto Cingolani said Italy can spend the winter with only small discounts on consumption, even if Russia stops flows altogether.
Germany, by contrast, is in a much more tense scenario due to the importance of heating demand and industry, and its lower garage levels. According to German electric giant Uniper SE, it is investing in the facility and getting a €17 billion bailout to prevent its Russian-induced struggles from spreading to the wider economy.
Read more: Germany takes steps to save its power collapses with $17 billion bailout
Still, there are encouraging signs. Mercedes-Benz Group AG said the sprawling Sindelfingen plant, where the company makes the S-Class luxury sedan, can now run without herbal gas, a fuel used in the paint shop.
European solidarity is also maintained. A political agreement has been reached across EU countries to increase fuel intake by up to 15% this winter if Russia turns off the tap. While there are some exceptions, the plan makes relief mandatory in an emergency.
Read more: Europe simulates solidarity, and Putin does it: Andreas Kluth
In Lubdwigshafen, a shopping mall on the Rhine, the government is examining what critical infrastructure can be kept open in the worst-case scenario. They also plan to turn a municipal stadium, which hosts events ranging from concerts to dog shows, into an “oasis. “of heat”, with space for many other people to escape from the blood for hours at a time.
“We are aware that many other people are concerned right now and we take those considerations very seriously,” said Jutta Steinruck, mayor of Ludwigshafen. “Everyone can already do anything of their own free will and save energy as much as possible. Every kilowatt hour we save now we will do it in autumn and winter.
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