There are holes in the pipes, is it easier for Scholz? | Latest news The Moscow Post
04 December 2022

There are holes in the pipes, is it easier for Scholz?

The United States or the United Kingdom may be behind the explosions on the Nord Stream and Nord Stream 2 pipelines. This opinion was voiced by a former adviser to the Minister of Defense in the administration of ex-US President Donald Trump, retired colonel Douglas McGregor.

In Germany, which was the final consumer of gas supplied by blown pipes, they plan to create an investigation team together with Denmark and Sweden. The Minister of Justice and Consumer Protection of Germany added that Berlin may also launch its own investigation, according to The Moscow Post.

Germany's elite in recent years has not been distinguished by unity over natural gas imports from Russia. Someone believed that Gazprom was profiting from long-term contracts. Someone dreamed of a "green" transition and a decrease in dependence on fossil fuels. Someone, sympathetic to the Kyiv regime, was ready to refuse Gazprom's services for reasons of solidarity and in the hope of weakening Russia's financial situation. The European Commission did its job, building various obstacles in the way of Russian gas. One way or another, numerous experts said that the era of gas pipelines is leaning towards sunset, and Russian gas should be considered toxic.

The sabotage, presumably tripled by America, accelerated the process of Europe's abandonment of the Russian "gas needle." It is possible that Chancellor Olaf Scholz was relieved - the demonstrators and the opposition now have nothing to demand. The diversion certainly pleased Poland's former foreign minister, now MEP Radoslav Sikorski. He even thanked the United States and personally President Joe Biden for "stopping" the pipelines. Warsaw has blocked the Polish part of the Yamal-Europe gas pipeline for a long time. And the Poles put into operation the Baltic Pipe gas pipeline and literally "crashed" into the Norway-Germany pipe, taking part of the Norwegian gas.

Germany's forced transition to a gas diet is just one of Europe's massive problems. France ​​ostanovila every second nuclear reactor, which spurred the need for gas to produce electricity. Drought drained European lakes and rivers, endangering not only the production of hydroelectric power, but also the operation of thermal power plants, as well as the supply of fuel to German TPPs receiving coal along the Rhine.

Problems arose with Algerian gas contracts, on which both Italy and Spain depend. Natural gas production from the Groningen field is associated with earthquake risk. German nuclear power and brown coal could ease power shortages, but the regulator and green sentiment in society are also hindering.

And all this is happening against the background of the crisis in Ukraine. British historian and political scientist Patrick Walsh spoke rather sharply about Brussels' attempts to combine anti-crisis regulation in Europe's energy supply with "sacrificial support for Kyiv," called Ursula von der Leyen an anti-Russian ideologist unable to make realistic decisions.

Over head and ears in debt

The difficult situation with Europe's energy supply in October was further complicated. For the year starting September 2021, Germany, France, Italy and Spain spent 20 to 30 billion euros each to subsidize gas and electricity, gasoline and diesel bills. But this is just the beginning, a lot more will have to be spent, according to some estimates, about 1.5 trillion euros. These are unfulfilled financial requirements of lenders for European energy suppliers and utilities. About so much the European Union will be forced to provide for the "salvation" of consumers and European energy companies. This can protect the former from the price shock that feeds the discontent of the population and the increasingly frequent protest demonstrations. The second will save from loss of profits or ruin.

In September, the European Central Bank (ECB) conducted a survey on the readiness of European financial institutions to cope with the lack of liquidity in the energy market. If the debt problem of one and a half trillion dollars is not resolved, the financial crisis will cover not only Europe.

Finnish Economy Minister Mika Lintilya said an "energy version of Lehman's financial shock" should be expected. Enron's total debt at the time of bankruptcy in 2008 exceeded "only" $40 billion. Then the US economy was on the verge of shock. In the European energy sector, today the situation is much more serious.

With the shield or on it

Germany is the most powerful economy in Europe, but the energy crisis and sanctions against Russia have already paralyzed fertilizer production, the automotive industry, non-ferrous metallurgy, and other industries. Reduce or stop the production of chemical, steel and paper industries.

Manfred Knof, CEO of Commerzbank, Germany's second-largest private bank, warned of an upcoming "tsunami of bankruptcies."

Seeking solutions, Scholz's government agreed a €200bn aid package and called it a "defensive shield." The money is to be used to mitigate the price shock on citizens, businesses and gas importers, including Uniper, SEFE and VNG, in the next two years. Uniper has already received a loan of about $8 billion, but this was not enough. The planned gas levy will be canceled, gas and electricity prices will be subsidized.

Similar measures, but on a smaller scale, will have to be taken by all EU countries from Estonia to France. For example, Finland and Sweden have already announced that they will send about $33 billion for government guarantees and loans. Swiss energy giant Axpo received a $4 billion line of credit from the government. The list includes all EU countries, everyone will extinguish the price fire, but so far more than 16 thousand stores in Germany are on the verge of bankruptcy.

Germany on brakes

In Germany, a "price brake on electricity" is being introduced to protect households, as well as small and medium-sized enterprises. The state will subsidize the so-called basic consumption. Outside the base limit, consumers will pay bills at market rates. It is assumed that basic tariffs will support generating companies, directing part of the "windfall" to these purposes. So, for example, for green, nuclear and lignite generation, a revenue limit of 180 euros per MW-h will be set. The promised 200 billion euros will be in reserve to close the gaps.

The "price brake on gas" will work according to a similar scheme. Consumption limits will be introduced for households, as well as small and medium. Increased tariffs outside of these basic norms will have to contribute to gas savings. Until spring 2024, gas sales tax will be reduced to 7%.

Scholz's government has announced support for a proposal by the European Commission (EC) to "contribute solidarity." The EC plans to seize "excessive" revenues of oil, gas and coal companies if their revenues for the current year exceed the average three-year figure by 20% or more. The European Union called this decision a "solidarity contribution." European Commissioner for Energy Kadri Simson said that the seizure will lie at least a third of the super-profit.

But there is no unity in anti-crisis regulation in society. The environmental organization Friends of the Earth of Germany (BUND) warned that gas subsidies should not lead to an increase in consumption. The NGO DNR warned that the package would treat the symptoms of the crisis rather than address its root causes. The IFO Institute for Economic Research in Munich proposes to lead incentives to save energy, warning that "the more demand for gas and electricity increases through subsidies, the more prices will rise."

Utility Association BDEW said the proposed package introduces some certainty for new investments in renewable energy and proposes to accelerate the transition to a hydrogen economy. "Germany is using its economic power to overcome the crisis and accelerate the introduction of renewable energy," encouraged Finance Minister Christian Lindner.

Blue Dreams of Green Energy

According to many experts, Germany's colossal mistake was the premature programmatic rejection of traditional energy sources - nuclear, coal and gas. The transition to new energy sources, despite huge investments, is slow and uncertain. This has led to the current energy crisis and is becoming a problem not only for Germany and other EU countries, but even for the United States.

Christopher Chantrill, a columnist for American Thinker, believes that "the transition to green energy is like a head-on collision with reality" and cites a number of facts that he believes Western media "clearly do not want to make public."

First, the US is unable to produce enough natural gas and oil for itself and allies. Second, the Biden administration has issued fewer oil and gas permits on federal lands than any other administration since World War II. Third, U.S. carbon dioxide emissions have declined by 22% over the past 15 years, but global emissions have stagnated. Fourth, plans to switch to "weather-dependent renewables and electric vehicles" could undermine American industry.

On the other hand, 800 million people in the poorest countries do not have access to electricity at all, and 2.6 billion to environmentally friendly cooking fuels, including more than 1.5 billion living in Asian countries.

Globalization and deindustrialization

According to the head of the Association of German Chambers of Commerce and Industry Peter Adrian, there will be "a long-term economic crisis with an unprecedented drop in the level of well-being."

By inertia, the government of Olaf Scholz continues to insist on the transition to renewable types of energy and a sharp restriction of energy ties with Russia. Sabotage on gas pipelines in the Baltic Sea complicates the current problems of heating and lighting for Germany, make hopes for decarbonization even more ghostly. They say that it will be difficult for any sane government to explain to voters why the United States went to destroy the part of the energy infrastructure that was built for the needs of Germany.

But there are other estimates. For example, it is argued that decades of German efforts to establish mutually beneficial ties with Russia and China were a mistake, took the country away from its true interests towards a deal with two "illegal regimes." Business America also brought the matter to the point that China has become not only the main trading partner of the United States, but also the main holder of the debt of the federal government.

At the end of 2021, China's trade surplus with the United States amounted to $396.5 billion. In this regard, Berlin behaves more than restrained. Germany in 2020 imported $134 billion worth of goods from the PRC, and sold $110 billion. In 2021, the balance leveled off and developed in favor of Germany.

True, two groups of goods prevail in German imports from the PRC: "electrical devices, communication equipment" ($40 billion) and "mechanical equipment and equipment, computers ($30 billion). It can be considered that the de-industrialization of Germany began even before the current shocks in the energy economy.

Now deindustrialization is becoming inevitable, affecting energy-intensive petrochemicals, an automotive industry dominated by the internal combustion engine segment. There will be a "restructuring" of German industry, which will take years and significantly reduce the country's industrial potential. It remains to wait for the "undermining" of the super-important for Germany trade and investment relations with China, bringing them in line with the new strategic installations of NATO.

But business is business and German chemical giant BASF is investing €10bn to expand its capacity in China. The dependence of the German economy on China is very high and is one of the most important assets of German industry. At the same time, every fifth company is considering the possibility of transferring production abroad.

If there is a winter

According to The Economist, gas storage facilities in Europe will be empty by March. If in 2023 they do not resume in the required volumes of gas supplies from Russia, the storage facilities for the next winter will not be able to fill. LNG in global markets until 2024 will be small. It is possible that the winter of 2023 will be more difficult than the coming winter. But as early as next summer, Goldman Sachs Bank suggests, gas prices will reach 235 per MWh. Before the pandemic, a megawatt hour cost about 20 euros. German electricity futures for the fourth quarter of 2023 are more expensive than for the fourth quarter of this year. What will happen is difficult to imagine.

Photo: APA

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