Germany set to permanently pay for reliance on Russian gas—as power chief says ‘significant structural demand destruction’ means it will never fully recover from energy crisis #NewsGerman

German industry got rich thanks partly to its close energy trading relationship with its political and economic rival Russia. The past few years have shown just how misguided that relationship was, as Russia invaded Ukraine and cut off Germany’s cheap, vital gas supply.

Now, one of Germany’s leading renewable power bosses has suggested it’s a mistake the country could rue forever, as the fallout from the energy crisis is set to permanently damage its industry.

Speaking to the Financial TimesRWE boss Markus Krebber said gas prices in Germany were structurally higher than elsewhere in Europe thanks to the country’s reliance on liquified natural gas imports.

Germany imported 55% of its natural gas supply from Russia when the country invaded Ukraine in February 2022. Russia was also Germany’s primary source of oil and coal imports.

The country has managed to shed most of its reliance on Russian gas. Germany cut its gas imports by 32.6% in 2023, the country’s energy regulator said, mostly as a result of cutting out Russian supply.

However, Germany is still heavily dependent on other countries for its energy supply, creating pricing issues for the embattled economy. The effects on German industry have been pronounced and, according to the RWE chief, are likely to be long-lasting.

“You’re going to see a bit of recovery, but I think we’re going to see a significant structural demand destruction in the energy-intensive industries,” Krebber told the FT.

Since Russia’s invasion of Ukraine, Germany has found itself in the unusual position of becoming the major laggard of Europe’s stuttering economic engine.

The country is on the brink of a technical recession after its economy contracted 0.3% in 2023. The outlook for this year is bleak, with the German government slashing its GDP growth forecast from 1.3% to 0.2% in 2024.

The former driver of its economic powerhouse, energy-intensive industry, has been sputtering since Russia’s invasion and has turned into a serious thorn in the country’s side.

Germany’s Purchasing Managers Index (PMI) for its construction sector has been declining since early 2022. Manufacturing, meanwhile, has been in decline since mid-2023.

“Germany’s manufacturing sector has been mired in recession since around the middle of last year, and the latest PMI readings signal another contraction in the first quarter of 2024,” Dr. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, wrote.

“To make things worse, the downturn is very broadly based, encompassing capital goods as well as intermediate and consumer goods.”

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