Klaus Müller, president of Germany's Federal Network Agency, visits a gas storage facility in the state of Lower Saxony: "My mailbox is overflowing."

Klaus Müller, president of Germany's Federal Network Agency, visits a gas storage facility in the state of Lower Saxony: "My mailbox is overflowing."

Foto:

Mohssen Assanimoghaddam / dpa

The Energy Shock Germany Plans for a Winter Without Gas from Russia

Vladimir Putin is toying with Germans by further reducing gas flows from Russia. Companies are worrying about a potential financial abyss as politicians do what they can to prevent the worst this winter.

From his office on the 13th floor, Klaus Müller has a good view over the Rhine River and the Siebengebirge mountains. He can see landscapes, houses, offices and factories, the sources of Germany's prosperity.

He can see some of the very businesses for which his agency may have to turn off the gas tap in a worst-case scenario.

Müller, 51, is the president of Germany's Federal Network Agency. The day before the Russian invasion of Ukraine, the federal government cabinet of Chancellor Olaf Scholz gave the green light for his appointment. Since then, he has been preoccupied with one question more than any other: Will Germany have enough gas in the next few months, in the autumn and the winter? And what happens if it doesn't?

"In the event of a gas shortage," Müller says, "I won't be able to make good choices." His gaze wanders out the window. "I hope it's just going to be fewer bad choices."

DER SPIEGEL 31/2022

The article you are reading originally appeared in German in issue 31/2022 (July 30th, 2022) of DER SPIEGEL.

SPIEGEL International

Putin Knows Germans and Their Fears

Of course, much of this is out of his control, anyway. Müller can do whatever he wants in his office in Bonn, Germany, but at the end of the day, Vladimir Putin has the upper hand. If Russia's president were to decide to send even less gas to Germany, there would eventually be nothing left for Müller to distribute. In any case, there would be far too little to keep the country running.

As of this week, the outlook is even bleaker, with Russian state-owned Gazprom now allowing only 20 percent of potential gas volumes to flow through the Nord Stream 1 pipeline – purportedly due to technical problems. People inside the German government, however, assume the reason is political, that gas is being used as a weapon.

Putin is playing the West these days. And he appears to be taking particular pleasure in playing Germany, which in the past has made itself more dependent on cheap Russian gas  than any other major industrialized nation. Putin knows Germany intimately from his years of living in Dresden as a KGB agent, and he also knows German fears. Their worry that exorbitant energy prices will wipe out their prosperity. Of unemployment if industries collapse.

A gas supply volume from Russia of 40 percent had previously been taken into account, says Müller. Based on that figure, it would have been possible to just barely avert a gas shortage – if, that is, gas was being conserved at the same time. But now Germany is only receiving half that gas. "The Russian president's decision this week has significantly increased the stress on our gas supply," Müller says.

Given these developments, Müller may be forced to make decisions this autumn and winter that will affect the existence of industries and businesses that employ tens of thousands of people. A European Union regulation stipulates that private households and small to medium-sized businesses are to be supplied for as long as possible, as are facilities that are absolutely critical for public safety and the protection of health and life: police, fire departments, hospitals and nursing homes, for example.

Germany's Emergency Gas Plan

Germany's emergency gas plan is based on a 2017 EU regulation that defines measures to secure gas supplies in the event of a crisis. It provides for three escalation levels: the early warning level, the alert level and the emergency level.

The first industries to be hit with outages would likely be those that don't produce essential things. But which ones are they? For months, a brutal competition has been playing out in Germany, and Müller's Network Agency has been besieged with inquiries. "My mailbox is overflowing," he says. Business owners are writing him about how important their businesses are and arguing that they should not be the first to be cut off from gas supplies. Lobbying groups, meanwhile, are pushing for entire industries to be exempted from rationing. "Just take paper manufacturers or glass producers," says Müller. At first glance, they would not appear to be crucial to the functioning of society, but flour is packed in paper and vaccines in glass.

Indeed, good choices aren't even possible in a situation this dire.

Without Savings Measures, EU Could Run Out of Gas in March

Whether Müller will actually have to decide on the life and death of businesses will depend on Putin's temper and myriad other things. Just how hard things get will also be determined by other factors, like the weather. For example, in sunny April 2020, when the average temperature was 10.5 degrees Celsius (around 50.9 degrees Fahrenheit), Germany consumed about 5.8 billion cubic meters of natural gas. By contrast, in cool April 2021 (6.1 degrees Celsius), the country used more than 9.6 billion cubic meters.

The difference corresponds to almost one-quarter of the volume currently stored in all of Germany's gas storage facilities. Much also depends on the willingness of Germans to save energy, especially gas.

According to a model calculation conducted by the Brussels-based think tank Bruegel for DER SPIEGEL, Europeans, and Germans in particular, risk running out of gas in the winter if supplies through Nord Stream, the pipeline that delivers gas directly from Russia to Germany, don't increase again. According to the calculations, storage facilities throughout the EU will run dry in March of next year – and in Germany as early as February. To prevent that from happening, EU countries would have to reduce their gas consumption by an average of 11 percent compared with previous years. Germany would even have to save twice as much: 22 percent.

In the worst-case scenario, the German federal government would have to declare the third level of a gas emergency in the country, after having already initiated the first two levels. At that stage, Klaus Müller's authority would be responsible for gas distribution and would have the power to disconnect large-scale consumers from the gas network, including steel mills, glassworks and the ceramics industry.

There are also likely to be regional differences given that, in addition to the pipelines from the east, the supply lines currently originate primarily from the west and the north. In the event of an emergency, the southern German states are likely to be hit particularly hard – Bavaria and, to a lesser extent, Baden-Württemberg.

Uniper's gas storage facilities in Bavaria: Importers will soon be allowed to pass on their higher gas purchasing costs to consumers.

Uniper's gas storage facilities in Bavaria: Importers will soon be allowed to pass on their higher gas purchasing costs to consumers.

Foto: Lennart Preiss / AFP

Without an expensive rescue operation by the German government, many places already would have run out of gas. The energy company Uniper supplies around 60 percent of natural gas consumed in Germany. As part of its operations, it has concluded long-term supply contracts with municipal utilities and major industrial customers. However, for several months now, Uniper has been purchasing less gas through its old, favorable contracts with Russia and has instead had to buy expensive gas on the markets.

The government stepped in to rescue the company only a few days before it would have gone bankrupt. The bailout came at a cost of 15 billion euros ($15 billion) to taxpayers. At the same time the government took shares in the company, Chancellor Scholz announced that Uniper would soon be allowed to pass its higher purchasing costs on to consumers, with the first details to that end released on Thursday. The surcharges are to be limited to six months and will apply from October 1 to April 1, 2023. Gas customers could have to pay up to 1,000 euros extra per year, a shock for many households.

"Basically, everyone has to think about this as soon as they turn on the shower tap."

Klaus Müller, president of Germany's Federal Network Agency

Network Agency Head Müller has already been warning normal Germans to put money aside for the day the supplementary heating bill arrives. There has been a deliberate decision by the government not to jump in and bail people out here, because little will do more to get people to change their behavior more decisively than higher prices.

"Basically, everyone has to think about this as soon as they turn on the shower tap," says Müller. "People should be saving. They can do this to protect the climate, their own pocket books or out of solidarity with industry and jobs."

Chemical Companies Prepare To Replace Gas with Expensive Oil or Coal

In fact, industry is depending on that kind of solidarity. Although the mood in large parts of the country is still far from panic and society as a whole is making a resilient impression, the German business community is looking ahead at the coming months with trepidation. Businesses are hectically trying to do whatever they can to prepare for whatever is coming.

German chemicals giant BASF, for example, supplies its factories using its own power plants. In the town of Schwarzheide in the eastern state of Brandenburg, the company has the capacity to generate electricity and steam entirely with oil instead of gas. "The tests have been completed, it worked," say officials at BASF.

But the company has some significant concern about its main plant in Ludwigshafen. Only about 15 percent of the three power plants the company has there can be converted from natural gas to oil. The company also requires considerable amounts of gas there as a raw material for basic chemicals such as ammonia or acetylene, which are used for fertilizers and in construction, as well as in the pharmaceutical and packaging industries or for cosmetics and cleaning products. BASF CEO Martin Brudermüller says he expects his company to be allocated enough gas by Network Agency head Müller "to maintain operations at the Ludwigshafen site without reduced load," even in an emergency.

Would that be enough to keep all the supply chains stable? Brudermüller doesn't want to wager any bets on that.

BASF's second largest production site in Germany: In Schwarzheide, the chemical company can produce electricity and steam using oil instead of gas.

BASF's second largest production site in Germany: In Schwarzheide, the chemical company can produce electricity and steam using oil instead of gas.

Foto: REUTERS

Other companies are currently postponing the planned phase-out of coal power to get by with less gas. The Henkel company, which makes detergents, shampoos and other popular household items, is allowed to continue operating a coal-fired boiler at its headquarters in Düsseldorf that had been scheduled to go offline this autumn. In Marl, in the Ruhr region, the chemicals company Evonik will continue to use a coal-fired plant that had also been scheduled to be taken off the grid this fall.

Still, Germany's transition away from gas-fired power plants has been sluggish at best. Germany's largest electricity producer, RWE, reported that its lignite-fired power plants were running at an exceptionally high 96 percent of capacity in June. But RWE generated almost as much electricity from gas during the period from April to June as it did during the same time one year earlier.

"For Us, It's All or Nothing"

According to the Energy Charts database operated by the Fraunhofer Institute for Solar Energy Systems (ISE), 13.6 percent of Germany's net electricity generation this week still came from gas-fired power plants – despite supply cutbacks, exorbitant fuel prices and the German government's announcement that it would reactivate coal-fired plants to burn as little precious natural gas as possible to generate electricity.

But why?

The energy company Statkraft, operator of the Hürth Knapsack gas-fired power plant, explains that it is simply trying to meet the current demand for electricity, and that this has to be covered in part with natural gas "because other technologies currently aren't available to the extent required." The company RheinEnergie, which owns a combined heat and power plant in Cologne, provides more specific details. Just last week, the company says, there were "bottlenecks in the French electricity industry." More than half of France's nuclear reactors are offline right now, which has forced the country to import large quantities of electricity from other countries, including Germany.

On top of this, gas simply can't be replaced everywhere. In the state of Thuringia, for example, there is great concern about the future of the glass industry. About 90 percent of all recyclable glass deposit bottles come from the state. The glass furnaces, which operate 365 days a year, are gas-fired. Even a short interruption of the gas supply would destroy the furnaces.

Martin Kopf, a managing partner at Zinkpower Group, says that even if he wanted to, he also couldn't work without gas. His company galvanizes metals to protect them from corrosion. If he were to shut down his boilers in an uncontrolled manner, the zinc would harden and ruin the equipment.

He says it is possible to save up to 20 percent of the gas the company consumes. But if the Federal Network Agency demands more cuts, Kopf warns, the industry, with its roughly 5,000 employees, will have to shut down operations. "For us, it's all or nothing."

The industry may be small, but if it failed, the impact would be big. Hot-dip galvanized steel is used as a material in high-voltage masts and solar and wind power plants. Without it, Kopf says, Germany's plan to abandon nuclear and coal and transition to clean energy wouldn't be possible. Galvanized steel is particularly important in the automotive industry.

The latter industry isn't particularly gas-intensive itself. Nevertheless, crisis teams at German carmakers are feverishly looking for ways to prevent their production from collapsing. "We can save around 20 percent overall in gas consumption," says Audi board member for production and logistics Gerd Walker. However, he says, 10 percent of the gas is needed in production as process heat. "That gas cannot be replaced." He says, for example, that if Audi didn't receive gas, the paint shop in Neckarsulm would have to suspend operations.

It may not be gas-intensive, but it is still dependent: The German automotive industry relies on many energy-intensive supplier industries.

It may not be gas-intensive, but it is still dependent: The German automotive industry relies on many energy-intensive supplier industries.

Foto: © Michaela Rehle / Reuters/ REUTERS

Dozens of supply chains could also be broken. Without ammonia and acetylene, plastics for fittings and cables would be lacking, as would adhesives or AdBlue for exhaust gas purification. If zinc plants had to stop production, Audi and other manufacturers would no longer be able to assemble underbodies. If glass manufacturers also had to switch off furnaces that permanently require gas, then cars could only still be built without headlights or windshields.

"Some key national and international suppliers are part of the energy-intensive industries," says Hildegard Müller, president of the German Association of the Automotive Industry (VDA). "However, if they were only able to produce at a reduced rate or were to cease production altogether, this would have a significant impact on the entire automotive industry in the short term."

The gas crisis could also hit Deutsche Bahn, the German national railway, hard. Two gas-fired power plants belong to the nationally owned rail company's power grid. One, operated by Uniper, is located in the Kirchmöser district of Brandenburg an der Havel. The other is in Bremen. If Kirchmöser were to be taken offline, experts say, the railway would have few reserves left regionally. In the worst-case scenario, electricity for the rail networks would have to be rationed.

That could be achieved, for example, by forcing trains to travel at reduced speeds. It makes a huge difference in consumption if one of Germany's high-speed Intercity Express (ICE) trains runs at 160 or 250 kilometers per hour. The train schedule could also be reduced and freight traffic restricted. Deutsche Bahn could also shorten trains so that they consume less electricity. And the company could rely more heavily on its 1,600 or so diesel locomotives as an alternative to electric ones.

Respected German economist Veronika Grimm: "at least stagflation, possibly recession."

Respected German economist Veronika Grimm: "at least stagflation, possibly recession."

Foto: TOBIAS SCHWARZ / AFP

The overall picture is gloomy, especially given that the German economy has already been struggling anyway. "The indicators point to at least stagflation, possibly recession," says economist Veronika Grimm. How severe could an economic downturn be? "It's hard to predict," Grimm says. She says it could be a range of between half a percentage point and 6 percentage points.

Economic output in Germany stagnated during in the second quarter, the country's central bank, the Bundesbank, reported in July. At the same time, high gas prices aren't likely to make themselves felt until in the coming months. A recent survey by the Association of German Chambers of Industry and Commerce (DIHK) found that one-third of energy-intensive companies in the country are already cutting back production.

There are also other reasons that go beyond the energy crisis. Companies are still suffering from disrupted supply chains as a result of the COVID lockdowns. And inflation is weighing on economic development. When everything starts getting more expensive, people tend to hold back on purchases. And the interest rate hike by the European Central Bank could also result in what is referred to as an adjustment recession.

Germany Discusses Possible LNG Deliveries from France

Nevertheless, the business community's main fear right now is that there will be a gas shortage. And, ultimately, the German government only has two levers at its disposal to counteract it. It can try to reduce gas consumption in Germany. And it can open up access to other, alternative sources. Trading Hub Europe in Ratingen plays a key role in this. The company works as a sort of general contractor for the German gas network.

Trading Hub Europe is buying up liquified natural gas on a large scale, from the Arabian Peninsula to the United States and Canada. Norway and the Netherlands are also delivering more natural gas than previously. The gas storage facilities have thus been filled to 67 percent by this week, after they had been emptier than seldom before in the spring.

The German government recently rented four special liquified natural gas ships that can pump LNG from tankers, convert it to normal natural gas and then feed it into the gas network. The floating terminals could begin delivering gas as early as the end of this year. Economics Minister Robert Habeck and the state governments have organized the required approvals in – by German standards – record times.

In the coming weeks, France, which already has four of its own LNG terminals, could also step up to provide help. In the summer, in particular, France has the capacity to deliver natural gas. "We're currently in talks with the French," says Network Agency head Müller. The pipelines would then carry the gas eastwards, to Germany. In the past, that has been inhibited by technical obstacles, but those could be overcome quickly.

An LNG tanker in the port of Rotterdam: Europe is buying significant quantities of liquefied gas on the world market to make itself independent of pipeline gas from Russia.

An LNG tanker in the port of Rotterdam: Europe is buying significant quantities of liquefied gas on the world market to make itself independent of pipeline gas from Russia.

Foto: Lex Van Lieshout / AFP

But will the supplies continue in the winter? According to research from the energy multinational Shell, global LNG production will increase by a maximum of 30 billion cubic meters this year. That's not all that much – the Europeans increased their imports by exactly that amount during the first half of this year. "There isn't enough global supply to serve the global demand," says Andreas Schroeder, a gas-market expert at ICIS, a London-based market analyst. "Already in July, we are expecting a deficit of about 2.5 billion cubic meters of natural gas, and in the winter months, things will get even tighter."

Supply is currently limited, above all else, by the U.S., which is Europe's biggest LNG supplier. In early June, Freeport, the country's second-largest export terminal, caught fire. It accounts for about one-sixth of overall U.S. export capacities. It will likely take until the end of the year for it to resume normal operations.

There is also a growing demand for LNG from Asian countries. According to the investment bank Goldman Sachs, this will lead to growing competition for LNG tankers and leave less supply for Europe.

Given those circumstances, it's not even clear if Germany's two first floating LNG terminals will be able to reach capacity. The two facilities, which are scheduled to go online around the end of the year, should be able to deliver just over 1 billion cubic meters per month, assuming all goes well. That's approximately one-tenth of Germany's consumption in a winter month.

Government Pleas With Normal People To Save Gas

And what about the efforts to save gas? The German government has accomplished little on that front. Habeck likes to point to decreased demand during the spring among consumers as well as in industry. But if you consider the high usage during the cold winter months of 2021, the real decrease is rather modest.

That's why Habeck is once again raising the pressure on industry, which is to be forced to exploit savings potentials that will have an effect within two years. He is also facing pressure as a result of the EU's emergency plan, which urges each country to meet a savings target of 15 percent. "Only if Germany and the neighboring countries can reduce their demand by 15 percent will Germany be able to partially meet its earlier storage targets," says energy strategist Schroeder.

The biggest problem here is private consumers, who are to a large degree protected by an EU directive. The government has few means available to it to force citizens to use their energy sparingly. As such, the government is relying on appeals rather than regulations.

It’s certainly difficult to imagine sending the police into companies to check on their gas consumption. And certainly not into private homes. The solution that the Chancellery is seeking to promote is the idea the country is going to be faced with an enormous challenge, but one that can be met with joint effort. It is to be Olaf Scholz's equivalent to Merkel's "we can do it" quote during the influx of hundreds of thousands of refugees in 2015, mostly from Syria.

But the appeals aren’t meant to mark the full extent of the measures. On Thursday, Economics Minister Habeck announced a series of savings targets that are to be legally binding. According to these, chimney sweeps are to check whether apartment buildings are still using old heating pumps. If so, they must be replaced. Experts are also to carry out steps to fine-tune gas heating systems to maximize energy efficiency using measures like hydraulic balancing.

In Germany, there is no regulation limiting how high thermostats can be turned up in the winter. Habeck has also said he doesn't want to impose any steps that would encourage people to snitch on each other. But there is one thing he couldn't resist: He wants to ban the owners of swimming pools from heating with gas. And even on that front, the Network Agency is uncertain whether it would actually deliver any results.

Germany's state governments are also considering how they can save energy. In Baden-Württemberg, Governor Winfried Kretschmann organized a "gas summit." The first measure: the government authorities themselves want to spur energy savings of 20 percent – room temperature in state facilities is to be lowered to the legal minimum, the use of warm water is also to be reduced. In Bavaria, the Construction Ministry has been tasked with creating a package of measures with which the state can save energy.

Large cities like Munich, Nuremberg and Augsburg long ago announced that the standard temperatures in public buildings are to be reduced, that they will partly turn off traffic lights and stop lighting up the facades of historic buildings.

Governor Markus Söder, however, doesn’t think much of the public appeals and of the savings quotas. Söder argues that small-scale proposals are "inadequate to the seriousness of the situation."

Meanwhile, calls are being heard within the center-left Social Democratic Party (SPD) for a third relief package. Olaf Scholz is also supposedly in favor of a 5-billion-euro package, but is still holding back, because he still needs the approval of his coalition partners, especially the pro-business Free Democratic Party (FDP).

The FDP’s leader, Christian Lindner, remains standoffish. He has committed himself to the German government's balanced budget law, and another deviation from it would offend a significant part of the electorate. According to one member of the coalition government, however, the finance minister has maneuvered himself into a dead end.

A Backup Plan Nobody Thought They Needed

As far as relief is concerned, Torsten Schmidt, an economic expert at the economic think tank RWI Essen, believes that policymakers have only a limited number of options. He says that what's first important for stabilizing the overall economic situation is to contain inflation. "I don't think broad-based stimulation of aggregate demand is appropriate at the moment," he says. Such a measure, he argues, would exacerbate the upward pressure on prices. "However, purchasing power in lower income groups should be stabilized through transfers."

Grimm, the economist, suggests that the government should step in to help companies that have either reduced or stopped their production due to the high energy prices. "As long as these interruptions are temporary, the companies could receive interim aid – as they did during the COVID crisis." Grimm is opposed to immediately suspending Germany's balanced budget act. "If you did that now, it would end up giving the impression that everything can be cushioned by the state, and that won't be possible," he says.

Klaus Müller of the Federal Network Agency has the same fear. Some days, he wonders how Germany actually got into this predicament. How could it be that German energy security is now dependent on so many contingencies.

When he started his job in February, no plans had been prepared. "We previously had not been ready for this scenario," he says. The world's fourth-largest economy was extremely dependent on Russian gas. Nobody seemed to think that a contingency strategy was necessary. So, there wasn't one.

But Müller says it would be pointless to complain about that at this point. "We need to rise to the challenge," he says. "After all, we aren't defenseless against what is happening."

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