What hap­pens when the gas stops flowing?

Sup­pliers in cri­sis and secu­ri­ty of sup­ply in jeo­par­dy: surch­ar­ges should help (but will crea­te a finan­cial bur­den for end consumers)

As a result of the cur­rent (glo­bal) mar­ket situa­ti­on, and par­ti­cu­lar­ly due to the Euro­pean sanc­tions which were impo­sed becau­se of the Russia-Ukraine war, ener­gy pri­ces have incre­a­sed con­si­der­ab­ly in recent mon­ths, a deve­lo­p­ment which has affec­ted near­ly all com­pa­nies in the sup­ply chain. This alrea­dy dif­fi­cult situa­ti­on is being exa­cer­ba­ted by restric­tions on gas deli­ve­ries to Ger­ma­ny and by the finan­cial trou­bles expe­ri­en­ced by gas sup­pliers. With the gas sup­ply situa­ti­on cri­ti­cal, the “alert level” of the Ger­man government’s “Emer­gen­cy Plan for Gas” was pro­c­lai­med on 23 June. This is the second of the three esca­la­ti­on levels, and calls for clo­se moni­to­ring of the gas supply.

In an effort to miti­ga­te the cri­sis and avoid bankrupt­ci­es and fur­ther uncer­tain­ty, the Ger­man government will be intro­du­cing a gas surch­ar­ge as of 1 Octo­ber 2022. This surch­ar­ge is based on § 26 of the Ener­gy Secu­ri­ty Act and spreads the hig­her mar­ket pri­ces among all end con­su­mers, both  cor­po­ra­ti­ons and indi­vi­du­als, both public sec­tor and pri­va­te. Gas con­su­mers will also have to pay an addi­tio­nal char­ge in the form of a sto­rage fee based on § 35e of the Ener­gy Act.

The­se char­ges will com­pen­sa­te gas importers for the added cost of obtai­ning gas from alter­na­ti­ve sources (by means of the gas surch­ar­ge) as well as for the cost asso­cia­ted with ensu­ring the secu­ri­ty of sup­ply (by means of the sto­rage fee). The added cos­ts will be pas­sed on to gas consumers.

High gas pri­ces: grounds for con­trac­tu­al revision?

The rise in ener­gy cos­ts repres­ents a finan­cial bur­den for com­pa­nies in every sec­tor. But it may not be so easy for com­pa­nies to pass on or spread out the­se cos­ts by revi­sing their pri­ces and con­trac­tu­al arrangements.

In accordance with the case law of the Federal Supre­me Court, pri­ce adjus­t­ments can only be made in excep­tio­nal cases which are very nar­row­ly defi­ned. Whe­ther gas pri­ces doub­ling is enough to clear the hurd­le for the­se excep­ti­ons to app­ly is unclear. But that should be the case, cer­tain­ly in cases whe­re cur­rent pro­duc­tion cos­ts are ruin­ous­ly expen­si­ve for com­pa­nies. This ques­ti­on depends on the cir­cum­s­tan­ces of the indi­vi­du­al case. It is important in this regard to com­mu­ni­ca­te with the cus­to­mer at an ear­ly date in order to pre­vent inter­rup­ti­ons in sup­ply or, in the event that gas can no lon­ger be pro­cu­red due to the high cost, so that inter­rup­ti­ons in sup­ply can be announ­ced with enough lead time, giving cus­to­mer the time and oppor­tu­ni­ty to take reme­di­al mea­su­res and mini­mi­ze dama­ges. When con­clu­ding new agree­ments, com­pa­nies would be well-advised to inclu­de pri­ce adjus­t­ment clau­ses for the future.

What hap­pens when the gas stops flowing?

One pos­si­ble future sce­n­a­rio is the ratio­ning of gas sup­plies. In this case, it would be the respon­si­bi­li­ty of the Federal Net­work Agen­cy to deter­mi­ne how much gas will be sup­plied to whom, and a plan is  cur­r­ent­ly being deve­lo­ped for the prio­ri­tiz­a­ti­on and dis­tri­bu­ti­on of Germany’s gas stocks. Of cour­se, ratio­ning may app­ly to com­pa­nies as well. The decisi­on as to whe­ther a com­pa­ny will con­ti­nue to recei­ve gas deli­ve­ries, as well as the amount of gas it will recei­ve, will depend on a varie­ty of fac­tors, such as e.g. whe­ther or not it manu­fac­tures pro­ducts which are important for the gene­ral wel­fa­re. While the­re is no for­mal pro­cess by which com­pa­nies can seek prio­ri­ty sta­tus, com­pa­nies should alrea­dy exami­ne whe­ther and to what extent they meet the cri­te­ria for prio­ri­ty sta­tus and then noti­fy the Federal Net­work Agency.

If the sup­ply of gas is dis­con­ti­nued and com­pa­nies are the­re­fo­re com­pel­led to sus­pend pro­duc­tion, they may be unab­le to per­form con­trac­tu­al duties towards their cus­to­mers. In most cases, lack of gas will make it impos­si­ble for com­pa­nies to con­ti­nue manu­fac­tu­ring their pro­ducts and making deli­ve­ries. Regard­less of whe­ther such an event is clas­si­fied as an event of “for­ce majeu­re” based on the rele­vant con­trac­tu­al agree­ment, it may qua­li­fy as a case of ina­bi­li­ty in accordance with § 275 of the Civil Code. In that case, the cus­to­mer would no lon­ger be able to demand per­for­mance, or the affec­ted com­pa­ny would have the right to refu­se per­for­mance. In the lat­ter case, the com­pa­ny would typi­cal­ly be requi­red to pay dama­ges to the cus­to­mer. But sin­ce the pos­si­ble dis­rup­ti­on of the gas sup­ply is based on a government action, the affec­ted com­pa­ny would not be respon­si­ble for its fail­u­re to per­form its con­trac­tu­al duties. Accord­in­gly, a duty to pay dama­ges would not app­ly due to the lack of negli­gence. Howe­ver, com­pa­nies would still be requi­red to noti­fy affec­ted cus­to­mers without delay that they will be unab­le to con­ti­nue manu­fac­tu­ring and deli­vering their pro­ducts so as to give them an oppor­tu­ni­ty to take reme­di­al actions and mini­mi­ze their dama­ges. If they fail to do so, this alo­ne may be view­ed as a bre­ach of con­tract on the part of the affec­ted com­pa­ny, which may be requi­red to pay damages.

Con­clu­si­on

The situa­ti­on in the gas mar­ket is fast-changing and impos­si­ble to pre­dict. In par­ti­cu­lar, it remains to be seen how high the gas surch­ar­ge will be, and in the event that ratio­ning is intro­du­ced, the man­ner in which prio­ri­ties will be assi­gned is still unclear. Given the uncer­tain­ty of the situa­ti­on, it is important for com­pa­nies to take pre­cau­ti­ons right away, which may inclu­de revi­sing con­tracts (pri­ce adjus­t­ments, ter­mi­na­ti­on), exami­ning exis­ting con­tracts for “for­ce majeu­re” clau­ses and stay­ing in clo­se con­ta­ct with cus­to­mers, as well as con­ta­c­ting the Federal Net­work Agency.

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