German regulator prepares for potential energy rationing next winter

German authorities and power companies are preparing for a potential rationing of energy next winter in the event Vladimir Putin shuts off the pipelines that provide more than half of the natural gas consumed by Europe’s largest economy.

Large industrial groups have received letters from network operators asking them to outline their energy needs in anticipation of possible shortages, according to three people who have seen the requests. Two industrial companies with plants in the east and south-east of Germany told the Financial Times they had been warned by their local suppliers that gas deliveries could be curtailed by the end of the year.

Meanwhile, the Federal Network Agency, the regulator that oversees Germany’s energy infrastructure, confirmed it was holding talks with businesses to prepare for “unavoidable shutdowns” if energy supply shortages occur.

The discussions were “about being prepared for a case that we hope will never happen”, said Klaus Müller, the agency’s president.

Under German law, companies deemed essential to the provision of the country’s basic goods and services would be prioritised in an emergency, alongside households. As a result, many of Germany’s largest corporations would be forced to cut their consumption, most likely by idling production.

“Although we have a law in place, we have not set out real criteria to decide which non-protected, ie industrial or commercial, customer will get cut off first . . . that makes the industry quite nervous,” said Christian Hampel, a BDO Legal partner advising some of the companies contacted by network operators.

The latter were also enquiring over “what would happen to the broader gas supply system if you shut off one particular company”, Hampel added.

Business groups including the body representing Germany’s chemical and pharmaceutical industry met with the Federal Network Agency on Friday to discuss such procedures, according to people briefed on the talks.

The chemical and pharmaceutical trade body warned policymakers attending the meeting that “almost all sectors — agriculture, food, automotive, cosmetics and hygiene, construction, pharmaceuticals or electronics” would be hit by forced cuts to production in the sector. The chemical and pharmaceutical sector, which includes companies such as BASF and Bayer, uses 27 per cent of Germany’s natural gas supply.

The preparations come as Germany’s ruling coalition strives to find alternative gas supplies to those coming from Russia.

Speaking after sealing an agreement with Qatar for the supplies of liquefied natural gas, economy minister Robert Habeck said that deal would not solve bottlenecks for next winter. He added the order of priority for the consumption of energy would be decided “politically” in the event of shortages.

Some German industrial groups have had to pause production due to soaring energy and raw material costs. The Lech steelworks in Bavaria, which uses the same amount of electricity as a city of 300,000 inhabitants, said this month that it had been forced to axe working shifts. Steelmaker Thyssenkrupp has warned of “economic turmoil” that could disrupt its manufacturing operations.

Businesses not seen as a priority for gas supplies have been petitioning the Federal Network Agency in recent days to underline their relevance to the wider German economy, according to three people involved.

In a survey of 175 companies released last week, 70 per cent of respondents called for a review of regulations, to take into account the “systemic” relevance of industrial groups that risk suffering shutdowns.

Source: Financial Times