The price of natural gas in Europe has risen by almost 350 percent since last summer. For Germany, this means additional costs of 125 billion euros. It is still unclear who will pay for it. There are three options, none of which are pretty.

Germany consumed 90.5 billion cubic meters of natural gas last year. Private households and companies split the consumption almost exactly half-half. With the prices that have been in force since January, this year will be extremely expensive. At the Dutch trading center TTF, which is crucial for Europe, a megawatt hour now costs around 160 euros. A year ago it was 36 euros. The 350 percent price increase will lead to additional costs of 125 billion euros if Germany does not limit its consumption.

It probably won’t be that bad. According to the Federal Association of Energy and Water Industries, natural gas consumption in Germany fell by 14.3 percent between January and May. But even that would cause additional costs of 106 billion euros. Although the values ​​of the Dutch TTF do not reflect the actual costs in Germany, they are considered a reference value for European gas trading.

Possibly cheaper gas deliveries from the USA and Qatar will not play a role for Germany this year. Both countries would deliver the gas in liquid form (“LNG”) by tanker. However, the necessary port terminals on the North Sea should not go into operation until the end of the year at the earliest. Recently there have been signs that this could even be delayed until next year.

So this year Germany will definitely be stuck with bills in the billions for its gas consumption – regardless of whether Russia will still be able to supply enough gas to Germany. The bill must be paid. When asked who does this, there are three options.

The first option would be to pass the costs on to the gas suppliers. In many cases this is already happening this year. Utilities that have long-term contracts with their customers have to buy much more expensive natural gas on the market and deliver it at significantly lower prices. This causes high losses, under which some utilities have already collapsed in the first half of the year. Kehag Energiehandel from Oldenburg, which supplies companies with electricity and gas, is one of the largest insolvencies of the year so far. Four energy suppliers in Germany went bankrupt by the end of March. The giant Uniper must now be saved with a government protective shield. Regardless of how gas prices develop, many gas suppliers will not survive 2022.

The only way for gas suppliers to survive is to pass high gas prices on to their customers. The state gas emergency plan allows them to do so in moderation, although no specific values ​​have been set. Gas suppliers have already increased prices for many customers. The comparison website Check24 recently calculated that gas prices for households have already more than doubled on average compared to the previous year. For the coming months, the analysts are expecting further price increases there, because suppliers are now running out of quotas that they had bought before the energy crisis. The price increases do not only affect private households. Many industries from chemicals to steel production are also dependent on natural gas and have to pay correspondingly higher prices. Every corporation with offices has to heat them and is presented with a higher bill for this.

Passing on the cost of gas to the consumer does not solve the problem. It is true that no gas supplier will then go bankrupt, but many of those who purchase the gas will. A Dax giant like BASF can live with being forced to let its main plant in Ludwigshafen run on the back burner or close it temporarily. Small and medium-sized companies often do not have this option.

The same applies to low-income households. Since they have to heat in winter, the high gas prices would quickly bring many to the brink of bankruptcy or beyond.

The last possibility would be for the state to bear the additional costs. 106 billion euros is a lot of money, but it could be argued that such sums do not represent a hurdle in the Corona crisis or when it comes to restructuring the Bundeswehr. And in fact, the federal government is already helping with money in many places. The protective shield for Uniper alone could cost up to ten billion euros. The 9-euro ticket costs 2.5 billion euros, the fuel discount with about 3 billion euros. In total, the federal government has spent around 30 billion euros on the two relief packages so far.

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However, if the state pays, that ultimately means that everyone pays. After all, the state in turn finances itself from the tax payments of its citizens and companies. The costs of more than 100 billion euros would thus only be distributed to the general public. The advantage, however, is that the state can pay more attention to ensuring that no one is overburdened. Although there would also be bankruptcies for companies and suffering for private households with this variant, the scope should in theory be smaller.

In reality, there will probably be a mix of all three options in the end. As I said, the state has already taken over 30 billion euros, and billions more are likely to come. Many gas suppliers have seen their profits melt away this year, and some have already ended up in bankruptcy as a result. Private households and companies will not be spared significantly higher gas bills this year. How high the additional costs are here will depend not only on financial aid from the state but above all on one’s own consumption.

Germany is far from alone with this problem. The financial news agency Bloomberg estimates that government aid measures alone will cost at least 200 billion euros this year. France banned gas price increases for months and compensated the suppliers with tax money. Aid was also given to private households and cheap loans to gas suppliers in Great Britain and the Czech Republic.

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