German chemicals fear additional costs as Berlin imposes ‘gas levy’
LONDON (ICIS)–Germany’s government has decided to impose a temporary gas levy (“Gasumlage”) on natural gas consumption to cope with costs caused by the reductions in Russian gas supplies – but chemical producers warn of additional burdens that will hurt their international competitiveness.
The shortfalls in Russian supplies have forced gas-importing power firms to buy replacement volumes on the market, at much higher prices.
The resulting sharp cost increases are jeopardising the solvency of the firms who cannot pass through the additional costs to customers, industry bodies have said.
Last month, Berlin already bailed out one big importer of Russian gas, power firm Uniper.
With the gas levy, the government will raise funds to cover 90% of the additional costs. The firms will bear the remaining 10%.
- Amount: The levy amount is due to be announced on 15 August. Officials indicated euro cent 1.5-5.0/kilowatt hour, which could come to hundreds of euros per year, up to €1,000, for the average household, depending on gas use.
- Process: Auditors will certify the additional costs. A government agency that oversees gas availability (Bundesnetzagentur) will supervise the process. There will be monthly settlements, and the levy may be adjusted every three months. If Russia resumes normal contractual supply volumes, the levy will be reduced to zero.
- Timeframe: 1 October 2022 – 1 April 2024.
Thus, gas importers will be able to pass on the additional costs – albeit indirectly, under government supervision, and not the full amount.
Economic affairs ministers Robert Habeck said in a statement on Thursday that imposing the levy was a difficult but necessary step to help ensure that the country will have energy supplies for households and industry through the coming winter.
The current crisis was the result of Russia’s war on Ukraine, which has created an “artificial energy shortage” and driven up prices, he said.
The supply squeeze left Germany, which has relied for many years on cheap Russian gas, particularly exposed, he said.
Last year, Russia accounted for 55% of Germany’s gas imports.
The country has no liquefied natural gas (LNG) import terminals and is only now rushing to build up this infrastructure.
According to German chemical producers’ trade group VCI, the levy means that the industry will face even higher costs – adding to already high energy costs and making it even harder to compete internationally.
The government should be careful not to shift the insolvency risk from gas importers to energy-intensive industrial producers like chemicals, VCI said.
Furthermore, the process of calculating the levy needed to be transparent, it added.
Analysts have warned that Europe’s petrochemicals sector, and especially Germany’s, may be forced to curtail or shut production this winter if Russia continues to maintain its cuts in gas deliveries.
With the levy, the government wants to use market mechanisms and price signals to manage the gas supply shortages, as far as possible.
The objective is to prevent power firms from becoming illiquid and stop supplying customers, which could trigger domino effects and result in huge damage to the country’s industrial economy.
However, while looking to market solutions, officials have promised targeted interventions to help poorer households cope with the high gas costs.
The alternative to the levy would be to subsidise the struggling gas importers directly, financed out of the general government budget.
Co-incidentally, effective 1 July Germany abolished a levy on electricity consumption (“EEG Umlage”) that helped finance the country’s energy transition to renewables (“Energiewende”).
Meanwhile, the Bundesnetzagentur said in an update on Friday that gas wholesale prices are still at a very high level as a result of the latest reduction in supplies from Russia.
Companies and private consumers must expect a considerable increase in gas prices, it said.
The total gas storage level in Germany is currently at 70.39% of capacity.
However, if Russian gas supplies via the Nord Stream 1 gas pipeline persist at their low levels, it will hardly be possible to achieve the targeted storage level of 95% by November without additional measures, the agency said.
Front page picture: Chemical facilities at
BASF’s flagship site of Ludwigshafen this
Source: Ronald Wittek/EPA-EFE/Shutterstock
Focus article by Stefan Baumgarten
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