Explainer-Germany's Plans To Spread Gas Price Risk

Germany has prepared a facility to impose a levy on all gas consumers to help suppliers grappling with soaring gas import prices, according to a draft law amendment seen by Reuters.

In late May Germany passed a law to enable the state to ensure energy supply in the event of market failure because of Russia's invasion of Ukraine and reductions to the Russian gas exports on which it relies heavily.

The additional clause to be considered by parliament on July 8 is aimed at helping German distributors that have had to contend with sharply higher prices as Russian exports have dwindled after Western sanctions over the war in Ukraine while keeping to rules designed to protect consumer price guarantees.

Uniper became the first major victim this week. The company, which was Russian supplier Gazprom's biggest German customer, on Thursday asked for government help as it buckles under heavy losses. [L8N2YH1SL]

The government has stopped short of allowing sellers to pass on prices through the supply chain, citing fears of inflation and a cost of living crisis for consumers.

Below is how the amended law might be implemented and how it could prevent company defaults and spread the burden fairly for consumers.

WHY THE AMENDMENT?

The energy security law has the facility to pass on prices once the state declares a gas emergency, but the provisions needed fine-tuning because the law had been drawn up quickly in response to unprecedented events.

WHAT NEXT?

Lawmakers need to identify who can claim and how much they can claim, as well as establishing what mechanism could be used to pass on costs to consumers.

HOW WILL IT BE MANAGED?

The proposal on Friday showed that Trading Hub Europe could be engaged to manage such a scheme. The gas zone operator already handles billing and balancing services for transport companies and has been enlisted by the government to buy LNG and pipeline gas for storage.

A Trading Hub Europe spokeswoman confirmed options have been discussed but said political processes need to be finalised before it can release further information.

Trading Hub Europe, which is experienced in auctioning and surcharging processes, could be a legally safe choice in that it could negate the need for customers to turn to the courts to try to force companies to honour prewar price guarantees.

It could also vet the accuracy of companies' cost calculations.

WHEN COULD BERLIN PULL THE PRICES TRIGGER?

The government moved to the "alarm" stage of its emergency gas plan this month - stage two out of three - but expects suppliers to continue to absorb price increases, which resulted in the Uniper crisis.

The amendment to be passed on July 8 includes the Trading Hub Europe model but also leaves open the chance to trigger a general clause allowing higher prices to be passed on directly to consumers.

Europe is anxiously awaiting this month's scheduled maintenance on the Nord Stream 1 pipeline that brings gas to Germany from Russia.

If Russia does not reopen the pipeline after the planned July 11-21 maintenance, that could spark a gas emergency and potential force majeure declarations or state rationing,

Such measures could serve to cut demand and prices, so Berlin might want to wait until after July 21 before triggering any action under the amended energy security law.

It might even wait longer because social measures to help the poorest consumers cope with high bills do not come into force until the autumn.