'Emergency Loans & Rationing': Germany 'Devising Crisis Plan' for Abrupt End to Russian Gas Supply

After Russia launched a special military operation in Ukraine, Western countries slapped Moscow with sanctions and vowed to reduce dependence on its energy. Many also pledged to eventually abandon Russian energy altogether when President Vladimir Putin issued a decree requiring settling payment for gas deliveries to “unfriendly” nations in rubles.

A team of German officials led by the Ministry for Economic Affairs has been working on a contingency plan in the event of an abrupt halt in Russian gas supplies, Reuters reported.

The emergency measures currently being thrashed out could include the government signing off on further loans, emergency credit lines, and guarantees to prop up energy firms, the report said.

Furthermore, it could take control of critical companies, such as refineries, as a last resort, sources were cited as saying, adding that a legal change allowing this was approved in April.

For example, in practice, the government could take over control of the PCK refinery operated by Russia's Rosneft in Schwedt near Poland, the sources revealed. The refinery, accounting for most of Germany's remaining Russian oil imports, would be hit hardest by a European Union embargo.

Nationalisation of energy companies was an option being warily considered, the report said, as it would have to be duly justified on the grounds of securing critical energy supplies. Other aspects of the emergency package presuppose Germany taking stakes in other companies, according to the insiders, with the 2018 move by state development bank KfW a case in point. At the time, it acquired 20 percent of the energy network operator 50Hertz as an offer was looming from China's State Grid.

Options contained in the government emergency package, yet to be finalised, such as taking minority stakes in companies, remained under discussion, the sources were quoted as saying.

Looking ahead towards a worst-case scenario, Germany is also purportedly examining how to ration gas in an emergency. Thus, in a reversal of its current policy, regulator Bundesnetzagentur is said to be considering whether to give industry priority over households.

German gas storage sites are currently just 38 percent full, according to Gas Infrastructure Europe data.

Amid the European Union’s wrangling over how to impose sanctions on Russian energy in response to Moscow’s special operation to demilitarise and de-Nazify Ukraine, gas deliveries have loomed large, despite warnings from experts that the move would hurt Europe more than Russia.

As EU officials have introduced package after package of sanctions, they have also pledged to drastically reduce the 27-nation bloc's dependence on Russian oil, gas, and coal.

In early March, the EU, which gets about 40 percent of its natural gas from Russia, announced plans to cut its reliance by two-thirds during 2022 and end deliveries completely within five years.

That same month, President Vladimir Putin instructed the government and Russian energy giant Gazprom to switch to gas payments in the local currency – rubles – with countries that have imposed sanctions on Moscow.

Putin stressed that Russia would continue to meet its obligations to supply gas at volumes and prices set under existing contracts.

Furthermore, in late April, Gazprom’s press service announced that the company had suspended gas supplies to Poland and Bulgaria due to their rejection of ruble payments.

In line with Russia’s gas-for-rubles directive, “The Joint Stock Company Gazprombank, which for the purposes of this decree is an authorised bank ... opens special type K ruble accounts and special type K foreign currency accounts for payments for the gas supplied on the basis of applications made by foreign buyers".

Four European gas buyers have already paid for supplies in rubles, Bloomberg reported late last month, with 10 European companies having already opened the accounts at Gazprombank needed to meet Russia’s payment demands.

Thus, German gas company VNG has stated it similarly intends to transfer euros to Gazprombank for further conversion into rubles “in order to guarantee timely payment to the supplier for gas”, Reuters reported.

VNG expressed the hope that there will be no difficulties with the conversion of euros into rubles.

Energy Sanctions on Russia

On 4 May, European Commission President Ursula von der Leyen presented a sixth package of sanctions, which needs to be unanimously approved by member states to take effect. Among other things, it presupposes banning Russian oil imports. However, countries like Hungary and Slovakia requested exemptions after saying they were not ready to do so immediately.

Analysts cited by the media outlet say that once Brussels agrees on sanctioning oil, cutting Russia's gas supply will be next.

Berlin has been under increasing pressure to wean itself off Russian supplies. Russian gas, critical for the production of steel, plastics, and cars, accounted for 55 percent of Germany's imports last year. Germany has acknowledged that it expects to remain largely reliant on Moscow for gas until the middle of 2024.

Germany purportedly hopes to avert an escalation over the energy issue by shying away from backing a European gas embargo after hesitantly supporting sanctions on coal and oil, sources said. Curbing gas supplies, they were quoted as warning, could send prices rocketing.

Furthermore, Berlin’s stance on the matter has ostensibly been swayed by German industry chiefs, who lobbied officials not to ban gas.

Germany's Economy Ministry, in response to the Reuters report, referred to statements by its head, Vice Chancellor Robert Habeck. The official acknowledged that his country had made "intense efforts" in recent weeks to reduce its use of Russian energy.