German economy worried about gas supply

Dusseldorf, Munich Ulrich Bettermann, Chairman of the Board of Directors of the Menden-based manufacturer of fastening technology, OBO Bettermann, was looking for a new supplier. In 14 days, his company will import liquid gas from the desert state of Qatar for the first time since it was founded in 1911. Bettermann fears that he will not be able to get enough gas if the conflict between Russia and Ukraine escalates.

The family business has drawn up an emergency plan “so that the large galvanizing plants in Sauerland Menden and in Hungary do not freeze,” says the manager. In Hungary, OBO Bettermann is now also using woodchips as an energy source, and Bettermann now wants to check this in Germany as well. “Germany has made itself too dependent on Russian gas.”

In retrospect, he considers it a mistake that the federal government did not coordinate better with its European partners before the construction of the Nord Stream 2 gas pipeline.

Many entrepreneurs are currently in the same situation as Bettermann and are wondering what effects an armed conflict in Ukraine could have on their business. A secure energy supply is high on the agenda of many business representatives.

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Germany currently covers around 55 percent of its gas requirements with the help of Russian suppliers. If they have to stop their deliveries due to sanctions, energy-intensive companies like OBO Bettermann face serious difficulties.

“In the medium term we need more gas from Russia”

Many companies are already groaning under the recent sharp rise in electricity prices, which have risen by around a third since last year. If there are no gas deliveries from Russia, this could further increase prices. A similar development can be observed with the price of wheat, for example: In anticipation of a war, it has recently increased noticeably because both Russia and Ukraine export large quantities of wheat.

Economic representatives are correspondingly cautious in assessing economic sanctions against Russia. In the future, Germany’s dependence on Russian gas will tend to grow, says Klaus Mangold, former chairman of the Committee on Eastern European Economic Relations, in an interview with the Handelsblatt. According to the multi-manager, German energy policy has its back against the wall due to the simultaneous phase-out of coal and nuclear energy. As long as there is no armed conflict between Russia and Ukraine, Germany should therefore continue to build the Nord Stream 2 gas pipeline.

Klaus Mangold

The manager is one of the most experienced experts on Russia in the German economy.

(Photo: Bloomberg)

Mangold’s successor, Oliver Hermes, who also chairs the board of directors of the Dortmund-based pump manufacturer Wilo, made a similar statement. “The last few months have shown us very clearly that we will remain dependent on natural gas as part of the energy transition,” said Hermes in a personal guest article that he recently published on the Wilo company website. “We therefore need more gas imports from Russia than fewer in the medium term.”

Risk management is required in Ukraine

Energy security is therefore at the top of German industry’s list of concerns. As a trading partner, the Ukraine only plays a subordinate role for the German economy. But many companies have plants and employees there who would be directly affected by the outbreak of war.

The German-Ukrainian Chamber of Industry and Commerce assumes that around 2,000 companies with German participation are active in the country. German companies such as BASF, Metro and Kärcher have created around 50,000 jobs, most of which are occupied by locals. Anyone who still has German employees in the region currently has to fly them out anyway – if only for insurance reasons.

Nevertheless, production with local workers continues. Many of the local companies have been preparing for an emergency for some time after Russia annexed the Crimean peninsula in a night and day operation. From the point of view of Alexander Markus, Managing Director of the German-Ukrainian Chamber of Commerce and Industry, the excitement is mainly felt outside the country, not inside. “Companies in Ukraine have been confronted with a difficult situation since 2014,” said the head of the chamber, referring to the beginning of the conflict. “For them, that’s part of risk management.”

Many companies stayed calm when Russia started troop exercises near the border a few days ago. For example, the Lower Franconian gypsum producer Knauf reports that the company’s plant near the Ukrainian-Russian border in Donbass is currently running without restrictions. “We very much hope that a diplomatic solution to the conflict can be found soon,” hopes Jörg Schanow, Head of Human Resources and Legal Affairs at Knauf.

Prices could go up

According to its own statements, the Metro retail group is also hoping for a diplomatic solution to avert further escalation. The company has 26 wholesale stores in the Ukraine and generated sales of EUR 790 million in the past financial year. Metro employs 3,400 people in its stores and head office. As with Knauf, these are all local staff.

With the exception of a few internationally sought-after top brands, the vast majority of goods are procured within Ukraine. That is why Metro in the Ukraine sees itself as a very strong “domestic company”, i.e. it is in a different situation than German companies that export their goods to the Ukraine or purchase them from there for other markets. “We continue to rely heavily on diplomatic efforts from all sides to avert further escalation.”

On the other hand, those who have important suppliers in Ukraine could face delivery difficulties in the event of a conflict. According to a survey by the supply chain start-up Interos, more than 400 companies in the USA and Europe have at least one direct supplier in Ukraine. The threat of war is already causing the world market price of wheat to rise, for example, a product that both Russia and Ukraine export in large quantities.

More: German economy fears the Russia crash

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