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Explainer: Germany plans to spread gas price risk

Pipes in the landfill facilities of the ‘Nord Stream 1’ gas pipeline are pictured on March 8, 2022 in Lubmin, Germany. REUTERS/Hannibal Hanschke/File Photo

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FRANKFURT, July 1 (Reuters) – Germany has prepared a facility to impose tariffs on all gas consumers to help suppliers struggling with soaring gas import prices, according to a draft law amendment seen by Reuters. Read more

In late May Germany passed a law to enable the state to ensure energy supplies in the event of a market failure due to Russia’s invasion of Ukraine and cuts to Russian gas exports on which it is heavily dependent.

An additional clause to be considered by parliament on July 8 is aimed at helping German suppliers comply with rules designed to protect consumer price guarantees as Russian exports dwindle after Western sanctions over the war in Ukraine.

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Uniper ( UN01.DE ) became the week’s first major casualty. The company, which was Russian supplier Gazprom’s ( GAZP.MM ) biggest German customer, asked for government help on Thursday as it buckled under heavy losses. Read more

Citing fears of inflation and consumers’ cost of living crisis, the government has stopped allowing vendors to pass prices through the supply chain.

Below is how the amended law can be implemented and how company defaults can be prevented and the burden can be spread fairly to consumers.

Why the amendment?

The Energy Security Law has the facility to pass prices after a state declares a gas emergency, but the provisions need fine-tuning as the law is drafted quickly in response to unprecedented events.

What next?

Legislators must identify who can claim and how much, as well as establish what mechanism can be used to shift costs to consumers.

How will this be handled?

Friday’s proposal showed that Trading Hub Europe could be involved in managing such a project. The gas zone operator already handles billing and balancing services for transport companies and has been roped in by the government to purchase LNG and pipeline gas for storage.

A Trading Hub Europe spokeswoman confirmed options had been discussed but political processes needed to be finalized before more information could be released.

Trading Hub Europe has experience in auction and surcharge proceedings, which can be a legally secure option in which consumers can negate the need to go to court and compel companies to honor pre-war price guarantees.

It can check the accuracy of companies’ cost calculations.

When can Berlin pull prices?

The government this month moved to the “alarm” stage of its emergency gas plan – stage two of three – but expects suppliers to continue to absorb price increases, which led to the Uniper crisis.

The amendment, which will enter into force on July 8, includes the Trading Hub Europe model but leaves open the possibility of triggering common clauses 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 from Russia to Germany.

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

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

It could wait longer because social measures to help poorer consumers cope with higher bills won’t come into effect until the fall.

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Reporting by Vera Eckert Additional reporting by Marcus Walkett, Riham Alkousa, Andreas Rinke, Tom Keckenhoff and Christian Kramer Editing by David Goodman

Our criteria: Thomson Reuters Trust Principles.

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