Oil and Gas Utilities: New Rules for Energy Security


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Status: 05/12/2022 12:44 PM

With the amendment of the law on energy security, Germany should be more prepared in the event of a freeze on Russian gas supplies. Provides for expropriation if necessary. There are also consumer innovations. What exactly changes?

By Notker Blechner, tagesschau.de

Today, the Bundestag is finally discussing an amendment to the Energy Security Act. The law reform is scheduled to take effect in June. In this way, the federal government wants to ensure that there is no disruption to the German energy market despite the massive effects of the Russian war against Ukraine. What are the most important innovations? Answers to some questions.

What is the Energy Security Act?

The Energy Security Act dates back to 1975. At the time, it worked to mitigate the consequences of the oil price shock. The law authorized the government to take countermeasures in the areas of energy production, transmission and distribution in the event of a threat to the energy supply. This also includes highway speed limits and driving bans. There was a driving ban on Sunday for four days. In addition, a maximum speed of 100 km on highways and 80 km on country roads was sometimes established.

Why is modification necessary?

When the law went into effect in 1975, there was still the Soviet Union and no internet. Therefore, the law, which has not changed much since then, will now be adapted to the current energy crisis. The case of Gazprom Germany shows how necessary this is. The German monopoly of Russian gas can be placed under the tutelage of the Federal Network Agency only because of an official mistake that was discovered by chance. The new law should make such a measure officially possible in the future. That is why some talk about “Lex Gazprom”.

A similar case is the PCF refinery in Schwedt, which is controlled by the Russian state-owned company Rosneft. With the Energy Security Act amended, Federal Economy Minister Robert Habeck wants to lay the groundwork for placing the refinery at Schwedt under state trust. In this regard, the novel has already been referred to as “Lex Rosneft”.

What is the most important change?

In the future, Germany could place a company in critical energy infrastructure under state tutelage if the supply is at risk. If necessary, confiscation is possible. The fiduciary administration can be ordered by the Federal Department of Economics if there is a risk that the company will not fulfill its energy performance-serving missions and there is a risk of poor security of supply, according to the bill. The Ministry will then issue such an order for a period of six months. It can then be extended for another six months.

If trust management is not sufficient to ensure security of supply, forfeiture will be a last resort. According to the Parliamentary Secretary of State in the Ministry of Economic Affairs, Oliver Krecher of the Green Party, it cannot be that someone who has vital energy supply infrastructure puts them at risk.

First, the PCK refinery in Schwedt, owned by Russia’s Rosneft group, could come under state custody. According to Economy Minister Habek, Rosneft’s business model is to buy Russian oil. If you no longer want this oil, you need a Schwedt replacement. One such alternative could be to place the refinery under state supervision – such as Gazprom Germania.

What rules apply to gas trading, pricing and storage?

In order to prepare for a possible gas embargo or stop delivery, the amended law provides for the creation of a digital gas platform. Major industrial companies and gas traders are required to register on this platform. On the basis of their data, a decision should be made in the event of an emergency as to where gas can be supplied and where the shutdown should take place. The corresponding gas safety regulation should be changed for this purpose.

Another change is the price adjustment criterion. Immediate price increases across the entire supply chain of the end customer must be possible so that suppliers do not face difficulties and bankruptcies in the event of a gas shortage. This is intended to prevent a chain reaction in the energy industry.

Changes are also planned in the energy industry law. In the future, the planned decommissioning of gas storage facilities must be reported and approved by the Federal Network Agency. This could prevent gas storage facilities from being shut down without the federal government’s knowledge, according to the bill.

What does the law bring to consumers?

In the future, energy providers will not be able to easily terminate their contracts. The Federal Network Agency must agree to terminate service provider contracts. Additionally, in the event of an energy provider going bankrupt, the insolvency official will be obligated to continue fulfilling the energy contracts. In this regard, the security of supply to customers increases. On the other hand, the standard of price adjustment with the possibility of increasing prices at any time in the event of an acute gas shortage is bad news for consumers.

What are the criticisms of the law?

Action is crucial to forfeiture plans. According to the Federation of German Chambers of Industry and Commerce (DIHK), encroachments on private property should only be carried out in an absolute emergency when no more moderate means are available. Thus, control of the Bundestag is desirable. The German Energy Dealers Association also considers the regulations for trust management and expropriation too broad. Before such a move, at least the energy suppliers who own the majority of German shareholders should get financial assistance.

The Energy Traders Association has also been highly critical of the price adjustment rules. Due to the individual design and the large number of commercial contracts, interference with private autonomy can lead to unpredictable results. The association expects a wave of contract terminations, financial difficulties and bankruptcies.

Does the law regulate who can get gas if needed?

The law does not go that far. A three-stage gas emergency plan organizes the location of gas rationing if necessary. This provides for prioritization. Accordingly, private families are given preferential treatment. In other words, in the event of a gas crisis, the industry has to close factories first, and private households come last. The Federal Network Agency decides which companies have priority.

In the event of bottlenecks, the Ministry of Economy may wish to intervene in the conduct of private heating with additional regulations. Secretary of State Patrick Gretchen said recently that there was “no right” to room temperature at 25 degrees. However, these limitations cannot be controlled.

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