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Germany sets out ways to cut gas usage amid Russia supply crunch
Global Banking & Finance Review®
Company
By Vera Eckert and Ludwig Burger
FRANKFURT (Reuters) -Germany’s energy regulator on Tuesday outlined plans to cut industrial gas usage to try to avert disruption of critical industries if Russia reduces gas supplies further.
The plans, which the Economy Ministry had said on Sunday would be announced soon, include a tender bidding system to start in the coming weeks to encourage manufacturers, particularly those using gas in high-temperature processes, to consume less.
They are part of measures implemented after Russia’s invasion of Ukraine to speed up the refilling of gas in storage. Eventually, the nation wants to wean itself off Russian gas but needs to cope with the dependency over months to come.
“The regulator is in close talks with the industry and with energy utilities, and will push complementary measures with high intensity,” the regulator said in a statement.
As outlined by the federal network regulator, the state would reimburse companies if they cut gas consumption by stopping certain production temporarily or longer term, so that critical sectors can uphold their output.
The chemical industry, the largest gas-using sector in Germany, welcomed the procedure as efficient.
“The intention is to handle the reduction in consumption at the lowest cost possible, as the lowest bids will win,” said Joerg Rothermel, in charge of energy policy at the association of the chemical industry, VCI.In Tuesday’s paper, the Bundesnetzagentur energy regulator, which oversees pipeline distribution among other networks, specified that compensation payments would be financed via gas price surcharges, likely imposing more costs on heavy industries in Germany that are already burdened by inflation on inputs.
It said manufacturers would be asked to make tender bids for contracts that would bind them to cut gas use below previously agreed volumes, receiving compensation in return.
The system, which favours the lowest bidders, will have long-term contracts to cushion supply shortfalls during the winter as well as separate contracts to deal with gas slippages at shorter notice.
VCI’s Rothermel said he did not believe that entire factories would be shut down. He expected certain low-margin product lines, where profitability was already under pressure due to high energy prices, would be suspended.
He added it was not clear yet when the regulator would use the tender procedure to allow strategic gas reserves to be replenished.
(Reporting by Vera Eckert and Ludwig Burger, editing by Madeline Chambers, Miranda Murray and Barbara Lewis)
A tender bidding system is a competitive process where companies submit bids to provide goods or services, in this case, to reduce gas consumption in exchange for compensation.
Gas consumption reduction refers to measures taken to decrease the amount of gas used, particularly in industries, to manage supply shortages and environmental impacts.
Compensation in this context refers to payments made to companies that reduce their gas usage, incentivizing them to lower consumption while maintaining production.
The chemical industry involves the production and processing of chemicals and related products, often requiring significant energy resources, including gas.
Supply shortfalls occur when the demand for a resource exceeds its available supply, leading to shortages that can impact industries and consumers.
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