Germany sees no need for third Nord Stream string
Founded with the support of former Russian President Vladimir Putin and then German Chancellor Gerhard Schroeder more then ten years ago, the Saint Petersburg Dialogue has turned into an annual event where, amongst others, representatives of Russian and German major companies meet. As a result of the German decision to phase out nuclear energy by 2020, the business debate was mostly dominated by energy. Russian First Deputy Prime Minister Victor Zubkov stressed Russia’s willingness to increase gas supplies to Germany and suggested to build a third string of the Nord Stream pipeline if needed. German Chancellor Angela Merkel, however, does not see any need to increase gas supplies from Russia, arguing that renewable energy would replace most of the nuclear power plants.
Russian - German trade flows have followed a traditional pattern over history, natural resources from Russia in return for German processed products and technology. Today this is little different, oil and gas are in the center of Russian - German trade, around 75% of all Russian exports to Germany consist of oil and gas. Russia is Germany’s biggest supplier of oil and gas, ahead of Norway and the Netherlands. The Russian state budget, on its turn, is heavily dependent on taxes from oil and gas. Speaking at 11th Saint-Petersburg Dialogue in Wolfsburg on 18 July, Bernard Reutersberg, the CEO of Germany’s largest gas supplier, E.On, noted that the Russian government had not succeeded in diversifying its economy, a goal which it had set out by itself. Reutersberg called for more German assistance in Russia's striving to diversify the economy. The Chairman of the Russian Union of Industrialists and Entrepreneurs, Aleksandr Shokhin, however, believed that the Russian energy sectors will remain the key sectors of Russia’s economy for decades to come.
As for E.On itself, it will continue its cooperation with Gazprom, Reutersberg noted. For the time being it seems that the term “cooperation” does not entail an increase of gas supplies from Russia. E.On has, without success, tried to renegotiate its long term oil indexed contract with Gazprom over the past two years. The gas price in the contract, E.On argues, is too expensive and has put the company’s profitability under pressure. It seems that this has not gone unnoticed in the German government. Talking to press after the Russian-German government consultations, on 19 July, German Chancellor Angela Merkel stated that if the price for Russian gas was ‘right’, then an increase of imports could be considered. Nevertheless, Reutersberg stressed the importance of new supply routes, such as Nord Stream and the fact that Russian gas would remain part of the German gas mix.
The Russian Zapolyarnoye gas field. Russian First Deputy Prime Minister, Viktor Zubkov, assured Germany that Gazprom can easily increase gas production and supplies to Germany via Nord Stream or the Europe - Yamal pipeline if needed. Source: Gazprom.
After it became clear that Germany would phase out its nuclear power plants, Gazprom showed interest in a partnership with RWE, Germany’s second largest power producer. According to German press reports, the Russian gas major is interested in either acquiring a share in RWE shares or to participate in joint gas to power projects. Member of Gazprom’s Board of Directors, Valery Golubyev, also attending the Saint Petersburg Dialogue, explained that the issue of a possible partnership with RWE is still rather new and, as a consequence, no clear framework for a possible partnership yet exists. He added that Gazprom’s interest does not go out specifically to RWE. It is rather part of the company’s strategy to become a world integrated company. On the Russian domestic market Gazprom already has quite some experience with gas to power generation through some of its subsidiaries. It similarly wishes to expand its gas to power activities to the EU, in the first place to Germany with whom it maintains good relations, Golubyev noted. Moreover, it is part of the of the company’s program, which has been endorsed by both the government and Gazprom’s Board of Directors, Golubyev concluded.
Whether Germany’s decision to phase out nuclear energy by 2020 offers an opportunity for Gazprom to increase its sales to Germany or start gas to power activities remains to be seen. Visiting the Saint Petersburg Dialogue, on 19 July in Hannover, together with Russian President Dmitriy Medvedev, Deputy Prime Minister Zubkov, who also serves as the Chairman of Gazprom’s Board of Directors, made it clear that the long term contracts with Germany could be easily adjusted and that increasing supplies via Nord Stream and the Yamal - Europe pipeline would be no problem. Germany’s Chancellor Angela Merkel had a different view on things. According to Merkel, currently around 8,5 of the 20 GigaWatt that Germany’s nuclear power plants provide has been shut off. The remaining 11 GigaWatt is expected to be substituted with mainly renewable energy, Merkel explained. Also energy efficiency measures would help to temper energy demand. Merkel therefore saw no reason for the construction of a third or fourth Nord Stream string.
Gazprom's German subsidiary, Gazprom Germania, does not share the view of the German government. Burkhard Woelki, Head of Marketing and Communication at Gazprom Germania in Berlin, told EEO that his company expects German gas demand to increase noticeably within a year or four, including for Russian gas. Woelki explains that the 11 GigaWatt gap cannot be replaced by renewable energy alone, since renewable energy does not provide a stable power supply, for example, wind turbines obviously only produce power when the wind blows. Therefore gas is the ideal partner when output from renewable energy is low, Woelki noted. Moreover, as a clean fossil fuel gas is well positioned to help Germany reach the EU's emission goals.
