Gas Constraints Pressure Chemical Industry

22.08.2022 - Just as the outlook for gas supply to Germany appeared somewhat brighter, at the end of last week Russian gas giant Gazprom announced it would shut down the pipeline NordStream 1 from Aug. 31 to Sept .2 to carry out repairs.

As in the recent slashing of the pipeline’s throughput from 40% of the contracted volume to 20%, skepticism dominated the market and few said they would be surprised if the pipeline was not restarted.

This presents another worry to the chemical industry, which relies heavily on gas to maintain production. The possibility of rationing and additional levies on gas consumption has denominated the conversation in Germany in recent weeks.

The jury is still out on the Ukrainian government’s surprise offer over the weekend to route gas through its own pipelines via Poland, but Ukrainian leaders maintain that some countries in southeastern Europe are successfully receiving gas through this pipeline.

Earlier in the week, German economics minister Robert Habeck attempted to reassure both industry and consumers that the government is doing all It can to nail down supplies of liquefied natural gas (LNG).

Habeck said a Memorandum of Understanding (MoU) had been signed with the country’s top gas importers, including utilities Uniper, RWE and EnBW, to safeguard the supply of two floating LNG terminals needed to help reduce reliance on Russian energy.

The MoU guarantees that the two Floating Storage and Regasification Units (FSRU) at Wilhelmshaven and Brunsbüttel on the North Sea coast will be supplied with sufficient gas from their planned start-up in winter 2022-23 until March 2024.

Together, the two FSRUs would allow Germany to receive up to 12.5 billion cbm of LNG per a year, about 13% of the volume consumed in 2021, the Reuters news agency reported, citing research firm Enerdata.

Habeck said the guarantees are part of the government’s drive to make Germany independent and “less susceptible to blackmail” from Russian president Vladimir Putin and to give Germany a resilient gas infrastructure.

Without knowing what was just around the corner, Habeck predicted that due especially to the “erratic actions” of the Russian president, the country will again and again have to deal with new challenges.

Challenges dominate the gas supply outlook

Good and bad news about fresh challenges in gas supply have been competing for attention over the past several weeks.

Though the ministry said in May that supply talks with Qatar had flagged, in July the gas exploration contracts signed by state-owned Qatar Energy with major international energy companies to develop the country’s North Field seemed to hold promise. It could be some time before gas begins to flow, however.

Apart from the macroeconomic forecasts, Germany’s Chemical Industry association (VCI) is preoccupied with its own questions, from gas rationing to the price of energy and efforts to ease the burden it sees as misplaced.

In a statement, the association consternated that chemical producers won’t benefit from the reduced value-added tax Berlin has offered, as they do not actually pay this tax but pass it through to customers.

VCI’s managing director, Wolfgang Große Entrup, said, some proposed remedies actually put more pressure on the sector‘s companies. In the association’s calculation, chemical producers will face a financial burden of more than €3 billion from the 2.4 euro cent levy per kilowatt hour to be imposed on all German gas consumers from Oct. 1.

As bitter a pill as it may be, though, the association said, this cost-sharing scheme evenly across all gas consumers makes the most sense economically. At the same time, it called on the federal government to provide price relief.

Author: Dede Williams, Freelance Journalist