Analysis: Why Putin’s gas games could soon send hundreds of thousands of Germans on short-time work
Less and less gas flows to Germany. This has dramatic consequences for the industry. Individual plants will be shut down. Chemical, metal construction and glass processors are fighting for their existence. The Federal Employment Agency expects short-time work and a significant increase in unemployment.
the energy supply in Germany worsened again over the weekend because the Russian state-owned company Gazprom is pumping less gas through the pipelines to Western Europe than agreed. Only 40 percent of the possible amount flows through the Nord Stream 1 pipeline. The Federal Network Agency, which is responsible for the energy supply, speaks of a “tense situation” in its statement, which is now updated daily.
Security of supply is still guaranteed and companies in Germany can procure the quantities of gas they need – albeit at extremely high prices. A partial blackout of the industry due to the shutting down of entire plants is getting closer. The immediate consequences would be short-time work for hundreds of thousands of people in Germany and thus falling incomes, combined with an uncertain perspective as to when the situation will ease up again.
Employment agency boss warns: If Putin turns off the gas, unemployment in Germany will rise massively
The head of the Federal Employment Agency, Detlef Scheele, has already prepared people for this critical phase: If no more gas flows from Russia to Germany, unemployment would rise sharply. Scheele is particularly worried about a collapse in the chemical industry. If, as is happening now, the gas supply falls below a certain level, chemical companies would have to shut down their plants to protect them from damage.
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In some sectors, such as the glass industry, this is not possible. In the worst case, systems worth millions could be destroyed here. In addition, as Scheele warned in April, many other sectors would feel the consequences. If, for example, a chemical company like BASF cannot produce, there will be a lack of raw materials for the pharmaceutical industry and also, for example, for paints and varnishes. “It’s different than when a restaurant closes in the hospitality industry. That can trigger a chain reaction that cannot be stopped with short-time work alone,” warned Scheele.
The corporations are preparing for it. BASF CEO Martin Brudermüller publicly warns: The failure of Russian energy supplies “could bring the German economy into its worst crisis since the end of the Second World War.” The chemical industry alone consumes more than 136 terawatt hours of energy in the form of gas every year. Three quarters of this is used to fire the systems, so it cannot be replaced anytime soon. The rest is used as raw material for the products themselves. Gesamtmetall boss Stefan Wolf is demanding further rules on short-time work from the federal government.
Gas shortage in Germany: This is what the horror scenario of the corporate bosses looks like
The horror scenario that the company bosses are currently playing out in crisis teams with major customers and government representatives looks like this: If the German chemical and metal industries are at a standstill due to a lack of gas, customers will look for other suppliers outside Germany who are still able to deliver. They may not come back even if the factories in this country start up again.
The retail trade experienced exactly this situation during the corona lockdown and permanently lost customers to Amazon and Co. In the crisis talks, “criteria are currently being established according to which industrial companies can be turned off in an emergency,” reports Leonhard Birnbaum, head of the energy supplier Eon from Essen.
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Some companies, such as the steel processor Arcelor Mittal, have already shut down plants with high gas consumption for economic reasons: In the case of the steel cooker, according to a report in the Handelsblatt, the sponge iron that is normally extracted from iron ore at the Hamburg site with the addition of natural gas , now imported from abroad. In this way, production is basically maintained – even if a part disappears from Germany.
BASF is already examining alternatives abroad – small companies are threatened with the gas stop
In the huge BASF Verbund site in Ludwigshafen, ammonia production is the single plant with the largest natural gas requirement. Ammonia is mainly used for fertilizer, but also as a preliminary product for further processing. BASF is examining whether the required quantities of ammonia can be supplied from other locations. The raw material is important in order to produce AdBlue, for example, which is required to clean diesel exhaust gases in vehicles.
Smaller companies don’t have the option of switching to foreign locations: they are firmly integrated with the surrounding regions and are often the largest local employer. For them, a gas supply stop means the end of the entire operation.
Markus Schramek is head of BEW Umformtechnik. In the small town of Rosengarten in Baden-Württemberg, 200 employees build axles for agricultural machinery, among other things. His concern: Germany could no longer be competitive on the world market because China and India continue to purchase cheap gas and cheap electricity. “Then there could be one of the greatest crises that the German economy has perhaps ever experienced.” Then it would mean a production stop not only for BEW-Umformtechnik with the result of high short-time work or unemployment throughout Germany.
If the gas doesn’t flow every day and every hour, employees can go home
Henrik Follmann heads the chemical manufacturer of the same name in East Westphalia. Printing inks and adhesives come from Follmann. He told the Handelsblatt: “If the gas doesn’t come, our systems will stand still.” Of course, one could come up with the idea of pre-producing and filling the warehouse. But after two years of the pandemic, the supply chains are extremely tense. “As far as preliminary products are concerned, we practically live from hand to mouth,” says Follmann. The transport costs would have increased tenfold. “We’re not going into the next crisis rested and fit, we’re at the limit.”
The particularly energy-intensive German glass industry also sees little opportunity to dispense with Russian gas quickly. Medium-sized companies like Heinz-Glas from Upper Franconia have to keep their glass melting plants constantly hot, because otherwise the material threatens to clump together and destroy the plants. The company wants to switch to other forms of energy, but the new plants will not be installed before the end of 2023. Until then, the gas has to flow every day and every hour. Otherwise, the employees can go home – and probably do not have to come back.
Only a third of Russia’s gas deliveries to Germany can be replaced in the short term with liquid gas from other parts of the world. “We will be dependent on Russian gas for at least another two years,” estimates Michael Hüther, Director of the German Economic Institute. It is, he says, an illusion that the state can support entire industries for so long with bailout billions and short-time work.
A dispute has broken out among economists about the consequences of a gas supply failure – and Habeck is in alarm mode
A dispute has broken out among economists about the consequences of a gas supply failure. The problem: The scientists’ models do not adequately depict the complicated flow of goods in the economy. For example, complex plastics production would be unthinkable without the chemical industry, which, for example, supplies important parts for the wind power industry, which in turn is the most important building block in Germany’s green transformation.
Federal Minister of Economics Robert Habeck is therefore in alarm mode and announced further measures at the weekend. The aim is to reduce the use of gas for power generation and industry and to promote the filling of storage facilities. In addition, more coal-fired power plants are to be used – a bitter decision for a green economics minister. “Gas consumption must continue to fall, so more gas must be stored,” says a strategy paper from the Ministry of Economic Affairs.
Specifically, the plans are as follows: In order to secure the storage of gas, the federal government will soon be providing an additional credit line of 15 billion euros via the state bank KfW. This should give Trading Hub Europe the liquidity it needs to buy gas and fill the storage facilities. The loan is secured by a federal guarantee.
Trading Hub Europe was created through cooperation between network companies. Habeck also wants to introduce a gas auction model. This is intended to give industrial gas consumers incentives to save gas. In essence, it is about industrial customers who can do without gas being financially rewarded for doing so.
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The article “Why Putin’s gas games could soon send hundreds of thousands of Germans on short-time work” comes from economic courier.