The German gas crisis is coming to a head. Energy giant Uniper is threatened with bankruptcy and could trigger a chain reaction. How can this be prevented?

When economists warn of an impending “Lehman effect,” the red alert is on. After all, it was the bankruptcy of the US investment bank Lehman Brothers that caused the American housing market to collapse in 2008 and triggered a global financial crisis. The Lehman bankruptcy was the trigger that suddenly collapsed a system that had been secretly ailing for a long time. As a result, other banks also got into difficulties, and governments had to intervene massively to prevent the financial system from collapsing.

Now an impending bankruptcy of the energy giant Uniper could become a German Lehman moment. The trigger that could bring down the worryingly wobbly house of cards for the German gas supply – and the economic system attached to it. The well-known economist Jens Südekum just warned on Deutschlandfunk about a kind of Lehman effect for the German gas market. And Economics Minister Robert Habeck also put the L word in his mouth a few days ago when he warned of a general bankruptcy of German energy suppliers.

Uniper needs state aid

On Thursday, the largest German gas importer Uniper shared the whole drama of the situation with the public. Because Russia has greatly reduced delivery volumes and prices have risen sharply, the company has gotten into serious trouble. It won’t be able to continue much longer without help from the state.

Since mid-June, Uniper has only received 40 percent of the contractually agreed gas volumes from Russia. In order to be able to continue to supply customers, including numerous municipal utilities, Uniper has to buy gas on the spot market at a multiple of the price at short notice. This causes losses in the millions every day, because the gas is – still – passed on at the much lower prices that were agreed before the gas crisis.

Should Uniper no longer be able to deliver as agreed, not only large industrial customers would be affected, but also municipal utilities and, as a result, millions of private households. There is a risk of a chain reaction that would shake the entire gas market.

Imminent chain reaction

The federal government is therefore working feverishly behind the scenes on solutions. The most obvious reaction would be for Economics Minister Robert Habeck to activate paragraph 24 of the Energy Security Act. This would allow Uniper to raise prices in line with the increased procurement costs despite existing contracts. However, this would only push the problem further down the chain.

The association of municipal companies warns that many customers simply cannot pay the skyrocketing prices. “That, in turn, would also bring many of our actually very healthy public utilities into liquidity problems and, in the worst case, to the brink of insolvency,” said VKU boss Ingbert Liebing of the “Rheinische Post”. “If a critical mass of municipal utilities were to collapse, it could trigger a chain reaction. That could lead to chaotic conditions on the energy market, which would definitely get the entire energy industry in trouble and endanger the security of supply from the ground up.”

New pay-as-you-go system as a solution?

For this reason, Robert Habeck is also reluctant to draw paragraph 24. Instead, the federal government is working on alternative solutions. In addition to possible massive direct state aid in the form of KfW loans and partial nationalization, the government is also considering incorporating the option of a pay-as-you-go system into the Energy Security Act. Instead of passing on the higher prices in bulk to some gas customers, the new solidarity system could distribute them to a broad range of consumers. Gas importers who are suffering particularly badly could thus receive financial compensation for not being able to pass on the prices. The municipal utility association VKU and the energy association BDEW support a levy solution, the details of which, however, still have to be worked out feverishly behind the scenes.

A possible solution should be approved by the Bundestag before the parliamentary summer break, because time is of the essence. As of July 11, the Nord Stream 1 Baltic Sea pipeline will be scheduled for maintenance, so that gas will no longer be supplied from Russia for the time being. The gas is scheduled to flow again on July 21, but there are serious doubts as to whether that will actually happen. Robert Habeck says it wouldn’t be “super surprising” if the gas tap stayed shut. Now he must ensure that July 21 does not become the Lehman moment for German energy supply.