Germany: the gas tap is closing

30. August 2022
-IAM, News

Hugues Chevalier, Economist

With 60% reduction in Russian gas deliveries to Europe last week, Germany has activated the second level of its energy emergency plan, known as the “alert level”, which is triggered in the event of a “deterioration” in supplies. The volume of gas received from Russia via the Nord Stream 1 pipeline fell by 40%, but gas suppliers compensated for this with additional imports from the Netherlands and Norway in particular. This decline caused a further price increase on the wholesale market of 30%. To avoid any shortage, the objective of the operators and the government is to continue to store gas in all the country’s facilities at 80% by October and 90% by December. If these stock levels are not reached, the country could face a gas supply shortage this winter, while the majority of German households (40 million) heat with this energy. To avoid this situation (level 3 “emergency level”), the authorities are going to auction gas with the aim of reducing consumption and allocating the available flows to the companies that need it most. If this plan is not effective, the German regulator would have to set up criteria for prioritising gas cuts over the winter. The situation is therefore particularly worrying and could lead to production stoppages in the steel, medicines and food industries, with obvious cascading effects on other sectors. To counter any shortage, the government has already decided to restart coal-fired power stations.  The risk is that industrial activity will be further disrupted, and economic growth will be further reduced to less than 1% next year.