Germany’s half-a-trillion dollar energy bazooka may not be enough

FRANKFURT, Dec 15 (Reuters) – Germany is spending money to keep the lights on. About half a trillion dollars, I reckon, since the war in Ukraine created an energy crisis nine months ago.

That’s the amount the Berlin government has set aside to support the country’s energy since prices rose and it lost access to gas from Russian suppliers, according to Reuters calculations.

And it may not be enough.

“How big the crisis will be and how long it will last depends on the nature of the electricity crisis,” said Michael Groemling at the German Economic Institute (IW).

“The global economy is facing a massive loss of wealth.”

The money set aside reaches 440 billion euros ($465 billion), according to the calculation, which provides the first guide for all German vehicles that aims to avoid running out of energy and find new energy.

This equates to about 1.5 billion euros per day since Russia invaded Ukraine on Feb. 24. Or about 12% of the country’s economic output. Or about 5,400 euros per person in Germany.

Europe’s traditional economy, which is often the talk of smart planning, is now facing a climate crisis. The energy bill is as dire as the long freeze this winter, Germany’s first in half a century without Russian gas.

The country has turned to the commodity, or currency, energy market to replace some of Russia’s losses, which is helping prices rise to two levels. There is no such thing as a safety net anymore, and the push for a two-pronged approach to Russian oil production – natural gas (LNG) and renewables – is years away from the target.

“The German economy is now at a greater risk because the future of energy is more uncertain than ever,” said Stefan Kooths, vice president and director of business management research at the Kiel Institute for the World Economy.

“Where does the German economy stand? If we look at inflation, it is very hot.”

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When asked about Reuters’ money being set aside, Germany’s finance ministry cited the information on its website. The Ministry of Finance, which is in charge of energy security, said it is continuing to distribute various products, adding that LNG and the terminals needed to import it are an important part of this.

The high cost of energy will be so painful that the economy is predicted to shrink the most among the G7 countries next year, according to the International Monetary Fund.

Germany’s energy exports will grow by 124 billion euros this year and next, from a growth of 7 billion for 2020 and 2021, according to data provided by the Kiel Institute, which presents a major challenge to the country’s most powerful industries.

The country’s pharmaceutical sector, which has been hit hard by rising energy costs, expects production to drop by 8.5% in 2022, according to the VCI, which warns of “a major industrial collapse in Germany”.

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CLOSE TO COVID CASH

The 440 billion euros set aside to tackle the energy crisis is already close to the roughly 480 billion euros that IW says Germany has spent since 2020 to protect its economy from the COVID-19 pandemic.

The funds include four 295 billion euro bailout packages, including a 51.5 billion dollar bailout for Uniper ( UN01.DE ) and a 14 billion euro rescue package for Sefe, formerly known as Gazprom Germania; up to 100 billion in aid payments to protect their businesses in the short term; and about 10 billion for LNG-based infrastructure.

The investment includes a previously undisclosed 52.2 billion euro deal by state lender KfW ( KFW.UL ) to help utilities and traders fill gas wells, buy coal, switch gas supply sources and make offshore calls, according to KfW data reviewed by Reuters.

Despite these efforts, there is little certainty as to how the country will replace Russia; Germany imported 58 billion cubic meters (bcm) of natural gas from the country last year, according to Eurostat and BDEW data for German companies, which represents about 17% of its total energy consumption.

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Germany wants renewables to account for at least 80% of electricity production by 2030, from 42% in 2021. At the current rates of expansion, however, that is still a distant goal.

Germany has installed only 5.6 gigawatts (GW) of solar power and 1.7 GW of offshore wind power in 2021, the most recent year.

To meet the 80% target, new offshore wind installations need to increase sixfold to 10 GW per year, according to an October report by the federal government and the German states. Solar installation should quadruple every year to 22 GW, it said.

Susi Dennison, senior fellow at the European Council on Foreign Relations (ECFR), said that while Germany had done a “good job of sticking” to removing gas and energy from the market, it had fallen short. a thought-leader in clean energy.

“For me what is not really present in the German approach is a similar assessment of the promotion of renewables, that this is the time to use hydrogen devices and wind power, instead of gas.”

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GERMANY STARTS LNG PLAN

In March, Finance Minister Robert Habeck set a target to replace Russian energy by mid-2024, although many economists and energy players believe this is too ambitious.

For example, Marcel Fratzscher, president of the German Institute for Economic Research, and Markus Krebber, CEO of Germany’s largest energy company RWE (RWEG.DE), think that it will happen as soon as 2025, and only if other options are found or grow faster.

On the LNG front, there is also an uphill climb.

Germany does not have its own LNG base due to its long-term dependence on Russian gas, so it is now starting to develop its own LNG import capacity.

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Currently, it plans to rely on six floating terminals to support its gas supply, the first of which is due to arrive on Thursday. Three are due to come online this winter, and the rest will be commissioned by the end of 2023, bringing the total capacity to at least 29.5 bcm per year.

RWE, Uniper and its smaller partner EnBW (EBKG.DE) have promised to come up with the books to ensure that the terminals are fully operational until the end of March 2024.

Germany has only secured two firm LNG contracts since the complete suspension of Russian gas supplies in the summer, short-term contracts for the next two winters, according to ECFR research.

The first is a 1 bcm per year contract between Woodside and Australia’s Uniper, which became Germany’s biggest business title. The second was agreed between the Abu Dhabi National Oil Company and RWE and involves the delivery of 137,000 cubic meters in December and another unspecified delivery in 2023.

Uniper and RWE have said they will be able to secure additional supplies through their LNG portfolio, without giving details. EnBW said that the purchase agreements are still being negotiated and it is looking for opportunities in the market.

Habeck’s busy travels with Chancellor Olaf Scholz highlight the difficulty of securing long-term deals that could weaken Germany’s valuable assets. This year they will travel the world in search of additional books, including trips to Canada, Qatar, and Norway.

“I think Germany has been doing everything it can,” said Giovanni Sgaravatti, a researcher at the Bruegel think tank. “In the LNG market Germany had to start from scratch, which is not easy.”

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Christoph Steitz reports; Additional reporting by Rene Wagner; Photographs by Vincent Flasseur; Edited by Pravin Char

Our Standards: Thomson Reuters Trust Principles.

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