Germany has 3 months to save itself from a winter gas crisis

Published : 01 Aug 2022 09:14 PM

Germany's presidential palace in Berlin is no longer lit at night, the city of Hanover is turning off warm water in the showers of its pools and gyms, and municipalities across the country are preparing heating havens to keep people safe from the cold. And that's just the beginning of a crisis that will ripple across Europe.

It might still be the height of summer, but Germany has little time to lose to avert an energy shortage this winter that would be unprecedented for a developed nation.

Much of Europe is feeling the strain from Russia's squeeze on natural gas deliveries, yet no other country is as exposed as the region's biggest economy, where nearly half the homes rely on the fuel for heating.

Chancellor Olaf Scholz's administration has been slow to address Germany's vulnerability, only recently laying out targets to cut demand as efforts to secure alternative supplies fall short. With Moscow continuing to tighten deliveries and France struggling to export electricity to its neighbours, little respite is expected and the risks go beyond this winter.

"The challenges we're facing are enormous and they affect significant areas of the economy and society," Robert Habeck, Germany's vice-chancellor and economy minister, said after unveiling a plan to pass on cost increases from energy companies to consumers. "But we are a strong country and a strong democracy. These are good prerequisites for overcoming this crisis."

The Kremlin is likely to keep vital gas flows to Europe at minimal levels as long as the standoff over Ukraine continues, according to people familiar with the leadership's thinking. That means shortages for the region will likely persist, with gas prices for every year through 2025 having already hit a record this year.

Rationing and recession are looming for Germany, and authorities have voiced concern about social unrest if the energy shortage spins out of control. The country can't even count on France, where faulty nuclear reactors are compounding the gas crunch. Electricity prices in Europe's two-biggest economies surged to records last week.

Russia - historically the European Union's biggest gas supplier, covering about 40 per cent of demand - has gradually reduced deliveries in evident retaliation against sanctions. The EU's challenge is to keep energy flowing across borders in a test of the bloc's unity and its resolve to resist President Vladimir Putin's aggression.

"Russia's policy has always been to divide because then they are stronger," said Martins Kazaks, governor of the central bank of Latvia, the former Soviet Republic that's now part of the euro area. "If we allow ourselves to be divided, then we will get weaker," he said in an interview.