In Germany, they call it “Day X”. Companies across the country are making contingency plans for what is seen as a growing likelihood that Russian gas will stop flowing to Europe’s biggest economy.
“It would be a disaster – a disaster that would have seemed almost unthinkable just two months ago, but currently seems like a very realistic prospect,” said the owner of a high-tech mechanical engineering firm in the west. of Germany. The company produces everything from battery boxes for electric cars to clutch systems for trains.
The speaker did not want to be named, or have his company identified, partly out of fear, he said, of appearing to support Russia’s war by arguing that if the gas is cut off, his century-old business “probably won’t survive”. But he says he is in a deep dilemma and feels very vulnerable, not only being heavily dependent on gas – the cost of which has already skyrocketed – but also metals like nickel and aluminum, much of which comes from Russia.
Germany receives around 50 billion cubic meters a year or 55% of its gas from Russia, the largest volume of any EU country and, by extension, the largest share of any major European economy.
Two possible scenarios, not improbable, are evoked: one envisages Moscow deciding to cut or reduce supplies in retaliation for the sanctions; the other sees Germany bowing to mounting pressure to support an EU energy embargo under which the beneficiaries would effectively call Putin’s bluff by cutting off Russian supplies.
At the Brandenburg Gate on Friday, protesters in favor of an oil and gas embargo made their moral case, with 410 red lights commemorating the victims of the Russian army killings in the town of Bucha, accompanied by slogans asking German Chancellor Olaf Scholz: “If not now when?” Their message is clear. As long as German industry continues to take the energy – for which it pays Moscow 200m euros (£167m) every day – it is helping to fund the atrocities.
But industry bosses and political leaders have warned that the damage to Germany from turning off the taps will far outweigh any benefit it will bring to Ukraine.
“What good is a weakened Germany to anyone?” a source close to the government told the Guardian this week.
Millions of private homes without heating are only part of the picture. The other and arguably biggest concern is with gas-dependent manufacturing giants such as Thyssenkrupp, BASF and Bayer. And the hundreds of thousands of small and medium enterprises with which they are linked.
Industry representatives have warned that the effects will be felt in everything from building materials, synthetics, pesticides, disinfectants, packaging and semiconductors to the production of antibiotics, vaccines against coronaviruses and cancer drugs. The chain reaction is difficult to predict, but probably considerable.
Robert Habeck, the economy minister, has urged Germans to ‘turn the thermostat down’ – saying ‘every kilowatt-hour Germany saves hurts Putin’ – what some have cynically dubbed ‘the freeze for Ukraine’ . Industry is also urged to reduce its use.
Some have already done so, constrained by high energy costs. Others, like porcelain manufacturer KPM, founded in 1763, are working overtime to produce as many wares as possible before the taps are turned off. “Who knows how long we’ll have gas?” its CEO, Martina Hacker, told Der Spiegel. “We cannot produce porcelain without it.”
Other companies have reduced production to a minimum. But industries such as glass makers say shutting down production facilities completely is not an option as it would lead to liquids forming and machinery being destroyed.
The country’s 45 gas storage facilities are only about 26% full. The plan is to increase levels to 80% by fall, largely by saving energy now, to secure supply for next winter.
Habeck triggered the first part of a three-point contingency plan last week that anticipates a gas slowdown or shutdown and decides where supplies would go. Hospitals, emergency services and manufacturers of medical products would be given priority, followed by private households. Industries, which use a quarter of the gas delivered to Germany, would be the first to close, according to the plan. This is why companies are invited to put forward their arguments as to their “systemic relevance”.
Law firms have been inundated with inquiries from companies wanting to know their legal status, while industry associations say they are inundated with inquiries from members asking where they rank in the pecking order and how they should respond to uncertainty .
A rep said: ‘We have glass makers saying they are relevant to the system as they supply the medical industry with glass vials, paper makers saying their corrugated board is vital for transport sure of the vials. How do you argue against them?
The Federal Network Agency, which guarantees fair access to gas, electricity and other vital services, has sent a questionnaire to all German companies, asking them to effectively present their individual arguments for a right to gas. “The question of prioritization is a very difficult decision, requiring the consideration of a wide range of consequences,” said a spokesman for the Ministry of Economy.
Some predict a nasty battle over who deserves the most energy.
There are apocalyptic visions of supply chains – already strained due to the pandemic – collapsing completely, of companies forced into bankruptcy, of mass unemployment.
Jörg Hoffmann, the head of IG Metall, a union which represents 1.2 million workers in chemicals, metals and food production, warned of “a recession deeper than any recession we have known so far. ‘now”.
BASF, the chemicals giant and one of Germany’s biggest energy buyers and consumers, said the effect of lower production would soon be felt.
“We would have very high unemployment, many companies would go bankrupt,” said BASF Chairman Martin Brudermüller. “It would lead to irreversible damage. To put it bluntly: it could drag Germany into its most serious crisis since the end of the Second World War and destroy our prosperity.
A race against time is on to find alternative sources of gas supply from the Netherlands and Norway and to increase supplies of liquefied natural gas (LNG) from Belgian terminals and the United States. Habeck traveled to Qatar to secure new shipments and ordered the construction of LNG carriers to float in German ports rather than wait for the construction of proposed new LNG terminals, which will take too long. The removal of coal-fired power plants – seen as a central part of the climate emergency plan – could be further delayed.
The pressure is strong to intensify and accelerate renewable energy projects in wind and solar. Companies such as pharmaceutical giant Merck are considering building wind turbines and solar panels to increase their independence, if only to heat their offices. But it’s a gargantuan effort that will likely take years, and in the meantime Germany looks extremely vulnerable.
Some companies are even considering moving their production facilities overseas, predicting that operating in Germany would become prohibitively expensive and raising fears that Europe’s economic engine could lose its competitive edge.
While Habeck thinks Germany is on track to wean itself off Russian gas in about two years, Brudermüller thinks four to five years is more realistic. Some experts say that by the end of the decade is more likely.