Germany is one step closer to having to ration its gas usage as supply from Russia starts to dry up, and the country’s top economic affairs official is warning that it could lead to an even larger economic spillover effect.
As of Thursday, Germany has entered the second alert level of its emergency gas plan, according to Robert Habeck, Germany’s minister for economic affairs and climate action.
At this level, “security of supply is currently ensured, but the situation is tense,” Habeck’s ministry announced, after gas supplies along the Nord Stream 1 pipeline connecting Russia to Germany began drying up on June 14.
“Even if we don’t feel it yet, we are in the midst of a gas crisis. From now on, gas is a scarce asset,” Habeck said in a statement accompanying the ministry’s announcement.
Habeck added that if supply continues to fall, and prices continue to rise, it could create ripples that would do irreparable and wide-reaching damage to the energy market, in what he likened to a “Lehman Brothers effect,” referring to when the Lehman Brothers investment bank declared bankruptcy in 2008, sending economic shock waves through the global financial system.
“The whole market is in danger of collapsing at some point,” Habeck said.
German markets have been among the hardest hit by the war in Ukraine and Russia’s willingness to use energy exports as a weapon owing to the country’s heavy reliance on Russian gas imports. Russia accounted for 55% of Germany’s gas imports in 2021, and 40% in the first quarter of 2022.
Between the beginning of the year and the end of May, Germany has been able to lower Russian gas imports to 35%, but the country’s energy markets are still highly vulnerable to even the slightest changes in supply from Russia.
When Russia began tightening gas flows to Germany last week, Russian gas company Gazprom said it was because of technical issues involving a missing gas compressor unit at a power plant on the Russian side of the Nord Stream pipeline. The shutoff had an immediate effect, sending gas prices surging 24% across Europe, and Habeck responded to the act at the time by calling it “politically motivated.”
In his most recent statements, Habeck expressed uncertainty that Russian President Vladimir Putin would not resort to the same measures again in future, and he urged Germans to prepare.
“Prices are already high, and we need to brace ourselves for further increases. This will impact our industrial output and impose a great burden on many consumers. It is an external shock,” Habeck said.
Habeck added that it is the country’s “top priority” to fill up gas storage ahead of next winter, but acknowledged that the threat from Russia makes Germany’s energy security outlook less predictable, and that more stringent energy rationing measures may be inevitable.
“All consumers—in industry, in public institutions, and in households—should continue to cut their gas consumption as far as they can so that we can get through the winter,” he said.
While encouraging rationing measures, moving to its second alert level means that German gas companies and suppliers are now under more pressure to find alternative sources of gas to help keep storage levels stable within the next few months, according to the ministry’s statement. The German government is providing gas companies $15.8 billion in loans and credit to purchase more gas from abroad and help shore up supplies.
At the second alert level, companies could theoretically begin passing on the higher costs to consumers, but the government is not allowing that to happen yet, Reuters reported.
Should Germany enter its third alert level, the government would be able to begin unilaterally deciding when and where to ration gas supplies, according to the ministry’s statement.
