The German government has announced that it will take a 99% stake in Uniper, its largest importer of natural gas. The process, which has been identified as nationalization of this business, will entail the control of the industry being ceded from a private company to the government.
In addition, it will be acquiring all of the shares held by Finnish energy company Fortum Oyj. The deal is a revision to a stabilization package originally put forward in July, wherein Germany planned to take a 30% stake in Uniper.
Nationalizing Uniper “secures the energy supply for companies, municipal utilities, and consumers,” says Klaus-Dieter Maubach, the company’s CEO. He views the amended deal as a crucial facet of Germany’s plan to combat an anticipated energy shortage this winter, and will ultimately cost €8 billion ($7.9 billion).
Energy prices have seen significant rises – particularly in Europe – as a consequence to the war in Ukraine. Russian control of gas supplies has inflated the cost of natural gas and electricity throughout the continent. Additionally, Russia’s state-run energy company Gazprom has suspended the supply of natural gas through its pipeline Nord Stream 1. The pipeline runs from St. Petersburg to north-eastern Germany, and it can send a maximum of 170 cubic meters of gas per day between the two locations. This being the case, the Nord Stream 1 is a resource that Germany has depended on for a large part of its own energy supply.
Gazprom has identified turbine malfunctions in the pipeline and cited necessary repairs as the reason for its indefinite suspension. As a result of its decommission, the price of natural gas in Europe has surged beyond €102/MMBtu ($100/MMBtu). Energy prices have followed a similar trend, currently amounting to more than €1,000/MWh ($980/MWh). These figures have risen significantly since Russia’s initial invasion of Ukraine in February.
The nationalization of Uniper is a measure the German government has taken to combat the issue of rising energy costs. The company plans to hold a meeting in the fourth quarter to obtain the approval of its shareholders, allowing them to continue moving towards nationalization.
The nationalization of an industry can be the most cost-effective method of obtaining a certain resource because it doesn’t involve imports, so the prices of goods aren’t dependent upon other nations’ circumstances. This is not a new phenomenon; during wartime, when nations tend to experience exacerbated economic turmoil, it can be a pragmatic solution to supply issues of certain resources. During the First World War, the U.S. Navy acquired privately-owned radio companies and consolidated them to facilitate telecommunications as part of the war effort. A similar situation arose during World War II with the coal industry. As for Germany, the nationalization of industries such as shipping, banking, and mining became widespread amid the Great Depression. With intentions being placed on preserving the nation’s resources, this situation bears resemblance to the one unfolding in Germany today. There is scarce historical evidence of the German government employing this tactic since the 1930s.
Germany is not alone in taking this sort of approach against the energy crisis. France nationalized Électricité de France SA this year, and the UK has nationalized retail energy suppliers on its own soil. Furthermore, the British government promises to impose a cap on the cost of electricity and gas costs for businesses, letting them go for less than half the market price. The European Union has also committed more than $500 billion to help households and businesses grapple with inflating energy prices.
So far, German consumers have experienced relatively lower gas prices than those in neighboring countries. As of right now, the nationalization of Uniper appears to be the most cost-effective option in procuring natural gas; the alternative of importing from other nations is significantly more expensive in many cases due to the constriction of gas supply.
The European Union has agreed to implement a cap on the price of gas for consumers in the participating countries, but negotiations beyond this have not yet been made. The disagreements on the matter range from what this price gap should amount to, to whether the limit should be a range of prices rather than one fixed value, and whether wholesale gas will be subject to the cap in addition to retail. German Economy Minister Robert Habeck speaks on behalf of the nation, claiming that a “better solution” than a broad price cap should be reached by their October 11 meeting.
Habeck believes the country will “get through winter well” without a dependence on Russian gas, but stability may not hold in the long run. Habeck has expressed his concern for the country’s energy supply levels in the following period of time, predicting a hard-hitting shortage. In the meantime, energy prices are projected to “remain high and volatile” moving into 2023, according to the European Commission. The situation has raised urgency for the implementation of the European Green Deal, which would increase the access of renewable energy resources; unfortunately, insufficient progress has been made in the development of renewable energy to make it a viable alternative to natural gas at this time. The Commission is also looking into the details of the shutdown of the Nord Stream 1 pipeline amid speculation of “anti-competitive” business practices.
Additional information is needed on the matter, but the bottom line is that Russia’s natural gas supply remains largely severed from Europe for the time being. The nationalization of Uniper is a promising solution to Germany’s energy supply struggle, but the nation may have to seek out additional resources in the coming months to keep its supply of natural gas sufficient and its prices affordable.