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Factbox-What happens if Russia shuts off Germany’s gas?

Gas pipelines are pictured at the Atamanskaya compressor station, a facility of Gazprom's Power Of Siberia project outside the Far Eastern city of Svobodny
Gas pipelines are pictured at the Atamanskaya compressor station, a facility of Gazprom’s Power of Siberia project, outside the far eastern city of Svobodny in the Amur region, Russia, November 29, 2019. REUTERS/Maxim Shemetov.

March 30, 2022

FRANKFURT (Reuters) – Germany has activated the first stage of a contingency plan to manage gas supplies in Europe’s largest economy in preparation for a possible disruption or disruption to natural gas supplies from Russia.

Russia accounted for 55% of German gas imports in 2021 and 40% in the first quarter of 2022.

Economics Minister Robert Habeck said Germany would not achieve full independence from Russian supplies before mid-2024.

WHAT IS THE PROBLEM?

Moscow said last week it would work out a mechanism by March 31 under which so-called “unfriendly” countries – behind sanctions over Russia’s invasion of Ukraine – would pay for gas in rubles. This includes Germany, Europe’s industrial powerhouse, and other European allies.

Most now pay in euros or dollars.

Habeck, the minister responsible for Germany’s energy security, has dismissed Russia’s request, saying treaties would be honored on current terms.

Russia’s largest German customers are Uniper, RWE and EnBW’s VNG, all of which have long-term gas supply contracts. You have not commented on individual preparations for a disruption.

WHAT IS GERMANY’S GAS PLAN?

The Berlin “Gas Emergency Plan” has three crisis levels.

The first stage the government has launched is early warning when there are signs that a supply emergency might be developing. The second is alert when a supply disruption or exceptionally high demand upsets the usual balance but can still be corrected without intervention.

The third level is an emergency when market-based measures have not helped to resolve bottlenecks. At this stage, the German network regulator, the Bundesnetzagentur, must decide how the remaining gas supplies will be distributed nationwide.

WHO IS AFFECTED FIRST?

If Germany does not secure enough gas, industry, which accounts for a quarter of Germany’s gas needs, will be hit first.

“This means that industrial production is lost, that supply chains are lost,” Leonhard Birnbaum, CEO of the German energy group E.ON, told the public broadcaster ARD. “We are certainly talking about very high damage.”

Private households have priority over industry, while hospitals, care facilities and other public facilities with special needs would be the last to be affected by a disruption.

Electric utilities, which accounted for 13% of gas consumption last year, could theoretically switch to coal-burning plants in their portfolios. However, an ongoing coal phase-out program may need to be amended under emergency legislation to ensure sufficient capacity is on standby.

Along with utilities, one of the industries most concerned about gas losses is the chemical industry, where gas is used to make everything from plastics and fertilizers to fibers and solvents. Car manufacturers, in turn, depend on chemical products for products such as batteries and paint.

The trade union IG BCE has announced that the BASF site in Ludwigshafen could be reviewed for a reduction in operations if the gas supply were to be more than halved.

Refineries require gas to operate crackers to produce products such as naphtha, gasoline, jet fuel, diesel, and heating oil.

(Reporting by Vera Eckert, Christoph Steitz and Tom Kaeckenhoff; Editing by Nina Chestney, Edmund Blair and Barbara Lewis)

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DUSTIN JONES

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