By Cristian Bustos. Originally published at ValueWalk.
Germany might face natural gas rationing and has already started a plan to preserve its supplies while Russia threatens with halting gas exports to the largest economy in Europe. Should Germany not pay for gas in rubles, as Moscow warned last week, supply might be cut off.
“Early Warning”
As reported by CNN Business, Germany rejected Russia’s payment demands and has urged consumers to reduce use as soon as possible in order to preserve its current gas supplies, in order to avoid rationing.
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Economy Minister Robert Habeck said in a statement, “There are currently no supply shortages. Nevertheless, we must take further precautionary measures to be prepared for any escalation by Russia.”
Habeck’s statement means Germany is issuing an “early warning,” the first of three alerts the country has set up to manage any possible energy crunch, before declaring an “alarm” and a subsequent “emergency.”
Under an emergency situation, rationing would first affect industrial users in order to provide gas to protected customers.
Leonhard Birnbaum, chief executive of German energy group E.ON SE (ETR:EOAN), told local broadcaster ARD: “This means that industrial production gets lost, that supply chains get lost… We are certainly talking about very heavy damages.”
Looking Elsewhere
Klaus Mueller, head of Germany’s energy market regulator, said in a tweet that the alert was issued to prevent the worsening of gas supply and that people should be ready for any scenario amid a Russian economic retaliation.
Habeck also revealed that experts, regulators, and operators from all 16 federal estates had been summoned to follow the situation attentively and take steps to guarantee supply.
At present, Germany is the largest customer of Russian natural gas in Europe with the war-waging nation supplying 40% of the demand. EU sanctions on new energy projects have triggered a response by Moscow as Vladimir Putin demands payment in rubles and not in U.S. dollars or euros.
Any supply cut-off would push Europe into recession and the EU is fast scouring for alternative partners and sources and planning to reduce Russian gas consumption by 66% in 2021. However, logistical challenges are in the way.
The war in Ukraine alone could slit Germany’s GDP growth estimates from 4.6% in December to 1.8% via the ensuing inflationary pressures and supply constraints, according to the country’s top economic advisers.
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