The energy crisis continues to ferment The German economic model may come to an end

Steam erupted from the cooling tower of the Nidrousem coal-fired power plant in Bergheim, Germany, on August 2. To increase natural gas reserves ahead of the upcoming winter, the German government is using coal as one of the alternative sources of energy for power generation. Courtesy of Visual China

All countries in Europe are struggling with a series of crises caused by the "energy shortage". Germany, one of the most dependent countries on Russian gas, has suffered the hardest – zero economic growth in the second quarter, companies being forced to shut down due to energy shortages, and more and more working-class workers are sliding into "energy poverty"... Will Germany be the first "domino" to fall in the global energy crisis?

Winter has not yet arrived, and the Germans have a hard time ahead of time

As the German presidential palace, the Bellevue Palace, which carries germany's historical memory, is a landmark of the city of Berlin. But from 25 July onwards, after nightfall, the lights of this neoclassical building cease to come on and plunge into darkness like other public buildings in Berlin, such as the Brandenburg Gate and the Red Town Hall.

With winter still 3 months away, Germans have already felt the chill from the energy crisis. The natural gas crisis continues to ferment, and energy-saving measures have been taken across Germany, hoping to reduce energy consumption and leave the saved energy for winter.

The city of Berlin and Munich announced a series of energy-saving measures, including turning off lighting in municipal buildings and fountains after nightfall, and stopping the supply of hot water to offices, gyms and sports venues. Germany's Ministry of Economy has called on people to reduce the use of air conditioning, shorten bathing time, raise the temperature of refrigerators by 1 degree Celsius, and take public transportation when they go out. Oldenburg Mayor Jurgen Krogmann told the public: "It is better to take a cold shower in the summer than to live in a cold apartment in the winter." ”

European Commission President von der Leyen urged European countries to immediately adopt gas supply restrictions and strive to reduce gas use by 15% by March 1 next year, "in preparation for a total cut-off of Russian gas supply.". If the balance between supply and demand is still not achieved by then, the German government will declare a "state of emergency" for natural gas supply and impose a quota supply on natural gas. Although infrastructure related to people's livelihoods such as houses and hospitals will not be affected by power outages, "indoor temperatures cannot be guaranteed to be as comfortable as in the past."

Soaring energy prices continue to push up inflation, leaving more and more Germans "impoverished by energy." According to a study by the Cologne Institute for Economic Research, about 25 percent of Germans have fallen into "energy poverty," where the cost of heating and lighting affects their ability to absorb other living expenses. Economist Maximilian Stockhausen notes that while soaring energy costs often have a greater impact on poor households, "the middle class is also increasingly affected by rising energy costs" and that "lower-middle-income earners" are twice as likely to become "energy poor households" as they were a year ago.

For some companies that need a lot of energy to operate, the "winter" may have arrived ahead of schedule. According to a survey, 16% of German industrial companies are considering cutting production or abandoning certain operations, and the German chemical giant BASF Group is one of them. As energy prices soar, which make it unprofitable, BASF will reduce the production of ammonia, a fertilizer feedstock. The company also intends to abandon some of its electricity and steam businesses and sell the saved natural gas back to the grid.

Data released by the German Federal Statistical Office in July showed that Germany's economic growth was zero in the second quarter due to the combination of a series of factors such as the new crown pneumonia epidemic, supply chain disruptions, and the Russian-Ukrainian conflict. World Bank chief economist Moritz Kramer expects the German economy to experience "relatively modest" negative growth in 2023, "but if Russia terminates gas supplies, a serious recession will be inevitable." Germany's unemployment rate has also climbed, in part because "the job market accepts 800,000 Ukrainian refugees who have fled to Germany." Agence France-Presse believes that various indicators indicate that the German economy is about to enter a dark period.

In place of Russian gas, Germany has few options

Germany is the world's fifth-largest energy consumer, and two-thirds of its primary energy sources rely on imports. Germany is also the largest consumer of natural gas in Europe, accounting for about 25% of its primary energy consumption in 2019, and nearly half of German households rely on natural gas for heating.

Before the outbreak of the Russian-Ukrainian conflict, natural gas imports from Russia accounted for about 50% to 75% of the total German gas. After the outbreak of the Russian-Ukrainian conflict, European countries continued to supply weapons to Ukraine and followed the United States to take all-round sanctions against Russia. In response, Russia halted gas shipments to Estonia, Latvia, Lithuania, Poland, Bulgaria and Finland, reduced its gas supply to Denmark, the Netherlands and Italy, and engaged in a psychological tug-of-war with Germany over energy issues.

In June, a turbine from Nord Stream 1, Russia's main pipeline for natural gas to Europe, was detained after being sent to Canada for repairs. Since June 16, Russia has reduced the supply of natural gas to Europe via Nord Stream 1 to 40 percent. After repeated calls from Germany, Canada finally returned the turbines to Germany. On July 11, Russia announced that it would conduct a 10-day annual routine inspection of Nord Stream 1 and stop gas supply during the maintenance period; On July 21, Nord Stream 1 finally restored gas supply to the Germans, but just a few days later, the Russian side said that another turbine also failed and needed to be repaired, reducing the pipeline gas supply to 20% of the design supply.

In order to survive the winter, the Germans had to tighten their money bags. In addition to throttling, the German government is also looking for alternatives to Russian gas, but so far there are few possible solutions.

Like the european union as a whole, Germany began importing liquefied natural gas (LNG) shipped from countries such as the United States and Qatar, but LNG requires sea freight and is more expensive. Germany is currently building LNG receiving terminals along the northern coast, but it will take months or even years to complete. Moreover, LNG alone will not be able to make up for Germany's energy gap. With global energy supply generally tight, any LNG facility is operating at full capacity and there is not much natural gas that can be sold to Germany.

European countries such as France, Italy, Austria and the Netherlands have announced that they will restart old coal-fired power plants, but no country has a plan to restart coal power with as much fanfare as Germany. According to the Washington Post, this year and next winter, Germany will allow 21 coal-fired power plants to restart or continue to operate after the planned shutdown date. A coal mine in the Beckersbach region of Saarland, Germany, was closed 10 years ago, leaving behind only a relic of a dying industry. But now, the equipment in the factory is roaring again.

The German people also began the "self-help" operation. In the past, firewood was only an ornament in the life of Germans, but now it is a hot commodity on the market, and the price has more than doubled. Some Germans even replaced their homes with natural gas heaters in order to survive the winter. Wood mill owner Christian Rosen told The Washington Post that workers were loaded onto trucks before they could make the compressed wood pellets into the shape of firewood. Firewood was in short supply, and he could only sell in limited quantities, stipulating that each customer could only order three boxes at a time.

During Merkel's administration, Germany announced plans to withdraw from nuclear power, and three more plants are still in operation, all of which are scheduled to close by the end of December this year. But now things have changed. German Finance Minister Lindner recently called on Deputy Chancellor and Economy Minister Habeck to completely stop natural gas power generation and extend the operation time of existing nuclear power plants until 2024. "We have to make sure there's no power crisis after the gas crisis," he said. Safe and climate-friendly nuclear power plants should not be shut down. ”

Some people's ideas may be more practical than the various solutions to the energy crisis mentioned above. On July 27, seven mayors of Rügen wrote a joint letter to federal officials calling on the federal government to work to introduce natural gas through the Nord Stream 2 pipeline. "We believe it is wrong to cut ties with Russian energy" and that "decoupling" from Russian energy means a surge in the cost of living and could trigger social instability and uncontrollable unrest, the letter said.

The energy crisis could change the German economic model

For a long time, Germany has been a pioneer in global "green development", and its development model of taking into account environmental protection and economy is highly respected. At present, around 42% of Germany's renewable energy sources, including wind, solar and hydropower. Renewable energy is also playing an increasingly important role in the labour market, providing jobs for nearly 700,000 people.

After German Chancellor Schoelz took office, the government originally planned to add a clause to its national Renewable Energy Law: "By 2035, almost all of Germany's electricity supply will come from renewable sources." However, the energy crisis triggered by the Russian-Ukrainian conflict has dealt Germany a heavy blow. The German Lower House of Commons, released on July 7, shows that the article "almost all electricity supply comes from renewable sources" has been deleted.

Compared with the inability to achieve climate ambitions, the impact of the energy crisis on the German economy is more severe and imminent. Analysts point out that German industry may soon lose its global competitiveness.

First, energy-intensive industries may move to regions with reliable renewable energy resources, such as windy coastal areas, solar-rich Mediterranean regions, and emerging developing countries such as Turkey. This will "hollow out" the old industrial areas along the Rhine and in southern Germany. Saxony Governor Michael Kreichmer told The Time: "Our economic system is at risk of collapse. If you are not careful, Germany may go to 'deindustrialization'. He called for an end to the Russian-Ukrainian conflict through peace negotiations.

Second, Germany's long-standing economic model may no longer exist. For decades, Germany's economic development has benefited in part from cheap Russian gas. Karsten Burzewski, an economist at ING, pointed out that the German economic model is based on cheap energy imports, high globalization and manufacturing exports, among which Russian natural gas production and transportation costs are cheap, stable prices, and contribute a lot to The German economic prosperity. The Russian-Ukrainian conflict has disrupted stable energy supplies, disrupted otherwise mature global supply chains, or ended "the German economic model as we know it."

Is it a return to the era of coal or nuclear power, allowing "sustainable development" and "climate action" to become empty words, or reintroducing cheap and stable Russian gas to allow Germans to survive the winter that will soon come? At present, the time left for Germany to make a choice is less than 3 months.

Beijing, August 3 (Xinhua) --

Hu Wenli, a reporter of China Youth Daily and China Youth Network

Source: China Youth Daily