“The key advantage is fading before our eyes”: how the creation of a gas hub in Turkey can threaten the German economy

Business sentiment in Germany deteriorated the most over the past 2.5 years.

This was announced on Tuesday, October 25, at the Ifo German Institute for Economic Research.

According to the organization, in October the business climate index in Germany fell to 84.3 points.

The last time a similar level could be observed was in May 2020, when the country was experiencing the consequences of the coronavirus pandemic.

As Ifo experts noted, pessimism persists in industry, services and construction.

At the same time, companies are less and less satisfied with the current state of their business.

“The economic mood in Germany remains gloomy ... the coming months continue to cause them (companies. -

) concern.

The winter of the German economy is going to be difficult,” the study says.

Economists of the American agency S&P Global came to a similar conclusion the day before.

According to the company's estimate, in October, the business activity index (PMI) in the manufacturing and services sector in Germany fell to 44.1 points, the lowest level since May 2020.

For the past four months, the indicator has been continuously below the critical level of 50 points.

This situation traditionally indicates a worsening economic situation.

“Preliminary PMI index shows the acceleration of the downturn in business activity in Germany at the beginning of the fourth quarter.

This is another sign of an impending recession in the largest economy in the eurozone,” said Phil Smith, deputy director of economics at S&P Global Market Intelligence.

As explained by the company, German business expectations remain extremely negative due to higher interest rates and persistently strong inflationary pressures.

Thus, over the past 12 months, consumer prices for goods and services in Germany have increased by an average of 10%.

Previously, such a high level of annual inflation was recorded at the end of 1951, according to the materials of the Federal Statistical Office of Germany.

As calculated in the department, the cost of energy carriers has risen most noticeably over the year in Germany - by an average of 43.9%.

At the same time, the price of energy for households went up especially strongly — by 51.8%.

One of the main reasons for the observed dynamics was a sharp increase in the cost of gas in Europe against the backdrop of a decrease in the supply of raw materials from Russia.

Sergey Kaufman, an analyst at FG Finam, told RT about this.

Recall that earlier the pumping of Russian gas through the Yamal-Europe pipeline was completely stopped due to restrictions from Poland, and Ukraine halved the transit of fuel from Russia to the EU through its territory.

Moreover, at the end of September, a sabotage occurred on three lines of the Nord Stream system at once, and the transportation of raw materials along these highways became impossible.

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Thus, among the pipelines oriented to Europe, only Turkish Stream is operating at full capacity today.

However, this trunk system allows pumping only 16 billion cubic meters.

m per year, while, for example, about 110 billion cubic meters could be transported annually through Nord Stream.

m.

If exports from Russia remain subdued, gas prices in Germany and other EU countries will remain high in the coming years, Sergey Kaufman believes.

As the analyst explained, the capacity to replace Russian supplies is limited today, and competition in the liquefied natural gas market may increase as demand for fuel in China recovers.

“In such a situation, the only thing left for the EU to do is to save gas, which we are already seeing.

Savings and higher prices inevitably have a negative impact on the industry and the economy of the region, primarily on energy-intensive industries and sectors where gas is directly included in the production cycle,” the specialist added.

Loss of status

It is noteworthy that at the moment German gas storage facilities are 97.53% full, and the reserves of the entire European Union are provided with raw materials by 93.61%.

Such data are presented on the website of the European Gas Infrastructure Association (GIE).

However, even this amount of reserves may not be enough for the successful completion of the current heating season, experts say.

“Demand in the coming winter months will be very strong.

Meanwhile, even if the storage facilities in Europe are 100% full, the countries of the Old World will still need new gas supplies.

At the current level of consumption of raw materials, the available volumes will allow using reserves on average only for two to three months, ”Valentina Milashevskaya, a specialist in the commodity markets of the Finmir marketplace, told RT.

A similar assessment is shared by Gazprom.

As Aleksey Miller, the head of the company, noted earlier, even if the coming months are relatively warm, the sudden onset of abnormal cold weather for five to seven days could “freeze entire cities” in Europe.

At the same time, depending on weather conditions, by the end of the heating season (in March 2023), only 5% of gas may remain in EU storage facilities.

“Yes, Europe will survive.

Just what will happen with the download by the winter of 2023-2024?

And then it becomes clear that the energy crisis did not come for a short period of time, ”the top manager said.

According to him, for many years the economic well-being of Europe, and in particular Germany, rested precisely on the supply of raw materials from Russia at relatively low prices.

However, now the EU does not have the opportunity to provide business and the population with cheap energy.

“This went on for more than 50 years ... Cheap energy resource - gas - in Germany gave more than a hundredfold leverage for the successful financing of German industry.

In fact, this (high gas price. -

) is a blow to the economic model that has existed until recently.

A very serious blow, ”Miller emphasized.

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It is curious that against this background, the European authorities continue to declare the need to abandon Russian gas and at the same time propose to set a price ceiling for raw materials from the Russian Federation.

As Andrey Loboda, an economist and director of communications at BitRiver, explained to RT, the EU leadership still does not understand that the era of cheap energy resources has come to an end.

“The loss of energy communications with Moscow is already having a detrimental effect on the EU economy.

Germany’s key advantage is fading before our eyes, and for about 30 years it was the largest gas hub that controlled energy flows from Russia and redistributed them within the European Union,” Loboda said.

As the expert emphasized, now the status of the main gas hub of Europe can pass to Turkey.

Relevant agreements were previously reached between the head of the republic, Recep Tayyip Erdogan, and Russian President Vladimir Putin.

Change of landmarks

Vladimir Putin voiced the idea of ​​creating a gas hub in Turkey on October 12 during his speech at the Russian Energy Week forum.

According to him, after the sabotage at Nord Stream, the lost volume of transit could have been moved from the Baltic Sea to the Black Sea area to ensure greater security.

“Thus, to make the main routes for the supply of our fuel, our natural gas to Europe through Turkey, creating in Turkey the largest gas hub for Europe, if, of course, our partners are interested in this.

But in general, there is, of course, economic expediency, and the level of security here, judging by recent events, is, of course, much higher,” the president explained.

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As Russian Deputy Prime Minister Alexander Novak later noted, one of the options for creating a hub is the construction of new branches of the Turkish Stream.

On October 25, the head of the Turkish Ministry of Energy announced that Ankara had already begun to carry out part of the work under an agreement with Russia, RIA Novosti writes.

According to experts, the implementation of the initiative may take several years.

“The timing of the creation of such a hub will primarily depend on the time required for the construction of Turkish Stream 2.

In our opinion, this will probably take at least two to three years.

Although there are more optimistic estimates, ”Ronald Smith, senior analyst at BCS World of Investments, told RT.

As part of the creation of a gas hub, in addition to the Turkish Stream, Blue Stream can also be supplemented with additional branches, Valentina Milashevskaya believes.

Today, Turkey pumps gas from Russia through this pipeline exclusively for domestic consumption.

In addition, the Trans-Anatolian gas pipeline passes through the territory of the republic, which allows pumping gas from Azerbaijan to Europe, the specialist noted.

“Also, Turkey has now entered into a fight (so far only at the level of statements by government members) with Greece and Israel for the right to mine recently discovered fields in the Mediterranean Sea near Cyprus.

Therefore, Ankara, most likely, will be able to become a regional player that will supply gas through pipelines or through LNG terminals to Europe,” Milashevskaya added.

According to Andrei Loboda, as a result of the transfer of the gas hub from Germany to Turkey, the energy companies of Germany, France, Austria and the Netherlands risk missing tens of billions of euros in net profit.

At the same time, the cost of raw materials in these EU states may further increase, the specialist is sure.

“Russia, together with Turkey and other countries, will now dictate its terms, for which the incoming cheap energy resources will become a significant point of economic growth.

New energy lines in the Black Sea can ensure the energy security of the countries of Southern Europe, but for Germany, France and the Netherlands this will only lead to an increase in fuel prices,” Loboda said.

In his opinion, the persistence of high energy prices in the long term will be accompanied by the deindustrialization of Germany.

So, some enterprises of the country have already begun to transfer their production to jurisdictions with cheaper energy.

“The last quarter of 2022 will be the starting point for German business to make decisions regarding the transfer of energy surplus production to other macroeconomic regions.

At best, Germany will lose up to 5% of its industrial sector.

At the same time, any variant of recession or zero growth in Germany is fatal for the EU, since the German economy is considered the locomotive of the region's economy,” the specialist concluded.