Germany takes step towards gas rationing over payment stand-off with Russia

The German government has taken the first formal step towards gas rationing as it braces itself for a potential halt in deliveries from Russia due to a dispute over payments.

Robert Habeck, Minister of Economics, on Wednesday morning activated the “early warning phase” of an existing gas emergency law put in place to deal with acute energy shortages.

The move was triggered by German concern that Russia might cut supplies to the country and its neighbors because they are rebuffing Moscow’s efforts to force payment for gas imports in rubles.

Russian officials said on Tuesday that Moscow would not “supply gas for free” to Europe, a day after G7 countries unanimously rejected President Vladimir Putin’s directive requiring ruble payments.

During the early warning phase – the first of three stages in Germany’s emergency response – a crisis team from the economics ministry, the regulator and the private sector will monitor imports and storage.

If supplies fall short, and less draconian attempts to lower consumption do not work, the government would cut off certain parts of German industry from the grid and give preferential treatment to households.

Volker Wieland, a professor of economics at Frankfurt University and a member of the German council of economic advisers, on Wednesday warned that a halt in Russian energy supplies would create a “substantial” risk of a recession and bring Europe’s largest economy “close to double -digit rates of inflation ”.

Even without any disruptions in Russian gas supplies, Germany’s inflation rate could reach 6.1 per cent this year, said the economists who advise the German government. Should energy imports from Russia be cut off, it would rise to between 7.5 and 9 per cent, the council said.

Habeck, who is also vice-chancellor, told journalists in Berlin that the step was taken in anticipation of Russian law, which conflicts with the denomination of long-term supply contracts in euros or dollars.

“We will not accept a [unilateral] breach of contracts ”, Habeck reiterated on Wednesday morning.

The EU has set a goal of filling up gas storage sites to 80 per cent of capacity by the end of September to secure supplies to see its members through winter. Germany’s gas storage facilities are currently about 26.5 per cent full, after hitting a four-year low of 24.6 per cent earlier this month, according to Gas Infrastructure Europe.

Habeck stressed that for now the gas supplies from Russia were flowing normally.

However, as Germany is trying to wean itself off Russian gas and now imports more LNG, Russia’s market share of German imports has fallen from an average of 55 per cent in recent years to 40 per cent in the past few weeks.

Last week, Germany unveiled targets to cut its dependence on Russian energy rapidly, vowing to all but wean itself off the country’s gas by mid-2024 and become “virtually independent” of its oil by the end of this year.

Europe’s wholesale gas price rose 8 per cent to € 114.45 per megawatt hour in early trading on Wednesday.

Russia’s state-owned gas supplier Gazprom and the country’s central bank are due on Thursday to report to Putin on a mechanism to implement the change of payment currency for gas to roubles.

Some Russian politicians have intimated that the deadline to switch payment currency could come as early as the end of this month, although the Kremlin has not officially stated when the change will take effect.

Also on Wednesday, Polish Prime Minister Mateusz Morawiecki said his country planned to stop importing Russian oil by the end of this year and end coal imports by the end of May as part of a drive to wean itself off Russian energy sources.

Poland currently derives about 70 per cent of its energy from coal, most of which is mined domestically, but it also imports large volumes of gas from Russia. In recent years it has been building infrastructure – including an LNG terminal on its Baltic coast and a gas pipeline from Norwegian gasfields – that will allow it to manage without Russian gas when a long-term gas contract with Gazprom expires at the end of this year .

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