German ministers are racing to get measures in place following recently approved legislation allowing the government to rescue struggling energy companies and other firms before the key Nord Stream 1 pipeline supplying Russian gas to the country is temporarily shut down for maintenance on July 11.
The pipeline is the European Union’s (E.U.) single biggest piece of gas import infrastructure, and Berlin fears Moscow may delay turning it back on again, or further reduce flows – or even turn off the taps for good. Germany is particularly reliant on Russian natural gas, taking over 50% of its gas supplies from Russia last year.
German energy giant Uniper SE, whose business depends on cheap Russian gas, is set to be the first to receive government support. The company recently said it is expected to receive just 40% of its allocated gas from Russian gas supplier Gazprom PJSC (GM July 1, p. 1).
Officials said on July 4 that Uniper needed as much as €9 billion (approximately $9.2 billion), about twice as much as its market value, Bloomberg reported. Analysts estimate that reduced Russian gas flows are costing the energy giant some €30 million a day, according to the Bloomberg report.
While Uniper is the most urgent concern, the broader German economy is also in peril as the government tries to contain the fallout for consumers and industry.
Germany’s largest ammonia and urea producer, SKW Piesteritz GmbH, this week is reported to have brought forward a planned turnaround on one of its two ammonia lines. It is unclear if this is due to the temporary shutdown of Nord Stream 1 and/or due to other factors.
SKW has two ammonia plants, each with capacity to produce 0.54 million mt/y, according to the Green Markets Capacity Database.
The company was reported to be considering implementing force majeure if gas supplies are cut and gas prices increase further, according to media reports.
BASF said in late June that natural gas was being supplied to all its European sites “in line with demand,” according to a company spokesperson as cited by a Reuters report.
“BASF is monitoring the situation and will decide, depending on the situation, which adjustments may have to be made in the production value chains,” the spokesperson told Reuters.
A possible shutdown of the chemical major’s flagship Ludwigshafen site could be compensated by the company’s production facilities in Antwerp and in the U.S., according to Germany’s Baader Bank AG.
Meanwhile, Scotiabank analyst Ben Isaacson, as cited by Bloomberg, noted on July 5 that ammonia production cuts in the E.U. “are underway.”
“We see more of these cuts coming from reduced gas supply to Germany, rather than through negative cash economics,” he said.
In Poland, meanwhile, industrial companies are preparing emergency plans in case of gas rationing in the country, Bloomberg reported, citing Polish newspaper Puls Biznesu.
The newspaper also reported that Poland’s chemicals industry – a key user of gas – is in talks with public administration officials concerning the possibility of outages at some production facilities, possibly for a month, in exchange for compensation.
BDM analyst Krystian Brymora, as cited by a Bloomberg report, said on July 5 that traders may be concerned about polish fertilizers and chemicals producer Grupa Azoty SA’s ability to retain access to gas amid growing supply difficulties.
However, Bank Pekao SA analyst Krzysztof Koziel, also cited by Bloomberg, said Azoty may post strong earnings in coming quarters, given attractive prices for gas locked into contracts.
Azoty and Polish oil and gas major PGNiG late this week once again extended terms of their natural gas supply contract, this time through the end of September 2023, according to a PAP Biznes report on July 7, citing market filings by both companies. The overall value of the contract extension annexes is now estimated at Pln13.4 billion (approximately $2.85 billion at current exchange rates), according to the report.
Benchmark gas futures on the TTF gas futures in Amsterdam have been rising further this week, with the front-month contract (currently August) up 7.895% on the day by 3:59 p.m. (GMT) on July 7, at €184.5 per megawatt hour (MWh). This compares to the August contract’s July 1 opening at €147.785 per MWh.