(Bloomberg) — Germany may be forced to wind down or even switch off industrial capacity if Ukraine’s gas transit agreement with Russia isn’t extended after it expires at the end of next year, according to Economy Minister Robert Habeck.
Habeck, who is also the vice chancellor, issued the stark warning Monday at an economic conference in eastern Germany, saying that policymakers should avoid “making the same mistake again” of assuming that the economy will be unaffected without precautions to secure energy supplies.
Rules on sharing the burden of potential gas shortages in Eastern Europe would have to be respected, meaning Germany would have to export gas there to offset the deficit and manufacturers in Europe’s biggest economy could have their supply restricted or cut, he added.
“There is no secure scenario for how things will turn out,” Habeck said at the forum in Bad Saarow. Additional capacity — including a planned LNG terminal on Germany’s north coast that has provoked opposition from locals and environmental groups — will therefore be essential to maintain supply to both Eastern Germany and Eastern Europe, he said.
Despite the full-scale invasion of the country by Kremlin forces in February last year, Ukraine is still earning transit fees by allowing Russian gas to flow through its territory to countries like Austria, Slovakia, Italy, and Hungary.
Even if some supply continues beyond 2024, it’s unlikely that the current transit agreement will be extended under similar conditions, given the lack of political support, according to a report by the Center on Global Energy Policy published last week.
“Direct negotiations between Ukraine and Russia on the extension of the transit contract look highly implausible in the current environment,” according to the reports authors, Anne-Sophie Corbeau and Tatiana Mitrova.