Does German 'Ausstieg' mean more Russian gas?
Germany has set out a daunting challenge for itself to come up with a sustainable solution for finding an alternative to almost a quarter of its electric power mix, after its government decided to phase out nuclear energy by 2020. As part of the solution, the push for renewable energy in Germany will undoubtedly become even stronger. We will similarly witness a strong push for gas as a flexible and cleanest of all fossil fuels. At first glance the case seems simple. Additional gas demand could be covered with more gas from Russia with the first string of Nord Stream becoming operational this year. While German politicians appear to be in favour of this, German energy majors, such as RWE, seem to see things differently.
Although Germany has showed exemplary results in the past decade with regard to renewable energy, most senior professionals in the German energy industry agree that, both from an economic and practical point of view, renewable energy will not save the day by 2020. An attractive alternative seems to be gas to power, it is both affordable and CO2 emissions are low.
With European indigenous production declining, an increase of gas supplies from Russia seems as a logical step. Moreover, Germany and Russia enjoy a long lasting gas relationship with Russia being its traditional supplier for decades. In 2009, 40% of German gas consumption was covered with gas from Russia.
One day after the German government had announced the phase out of nuclear energy by 2020, on 31 May, its Minister of Economic Affairs, Philip Roesler, paid a visit to Moscow. The Minister reportedly talked energy and the timing of the visit seemed symbolic, Russia could contribute in finding a solution to the German phase out, most likely by increasing its gas supplies. According to media reports at that time, German diplomats in Brussels stated that Germany would prefer to build gas fired power plants over coal fired.
Not surprisingly Russian Gazprom was glad to acknowledge the German need for additional volumes. In an interview with Russia Today in early June, the General-Director of Gazprom Export, Alexander Medvedev, stated that Gazprom would be able to provide as much gas as would be needed to compensate for the German phase out. Medvedev stressed that the necessary resources and infrastructure for this are already in place. Besides being able to deliver gas to the German border, Gazprom was also able to supply directly to the end users, either through joint ventures or its subsidiaries.
A recent Prime-Tass report perhaps sheds some light on where Gazprom might find additional resources. According to the report, Gazprom's German subsidiary, Gazprom Germania, plans to buy over 60 BCM of gas in Central Asia from Kazakhstan, Uzbekistan and Turkmenistan. It also said that the transport of the gas to Germany would be organised by the mother company Gazprom. The fact that Gazprom might draw such large gas volumes, at pre-crisis levels, from the region, suggests that Central Asia might again take up its traditional role as Gazprom's swing supplier and raises questions about Gazprom's spare production capacity.
Obviously, the current European situation, in particular the German, provides an opportunity for Gazprom to gain a larger market share in the financially attractive European downstream. In an Associated Press report from 2 June, Gazprom's CEO, Alexey Miller, explained that the German situation had influenced his company's strategy. Talking to a select group of European journalists, Miller said that direct gas supplies to gas fired power plants was something that interests Gazprom greatly.
Nord Stream coming ashore at German Greifswald. While German political parties CDU/CSU and SDP seem to be in favour of more Russian gas and closer cooperation with Gazprom in order to cope with the nuclear phase out, German energy majors, such as RWE, appear to see things differently. Source: Nord Stream AG
Gazprom's strategy to integrate itself further into the German energy market seems to be welcomed by both the largest governing German Christian Democratic party CDU/CSU and the largest oppositional party, the Social Democrats, SDP. In an article by the German business newspaper Handelsblatt, from 7 June, the SDP official representative for economic policy, Martin Lindner, stated that with the phase out of nuclear energy in Germany, there will be an even greater interest in Russian gas deliveries than before. Linder's counterpart at the CDU/CSU, Joachim Pfeifer, noted that if Gazprom wishes to increase its share in the energy sector, then this could also be in the interest of the German economy. According to Pfeifer, an accelerated phase out of nuclear energy will lead to a substantial increase of the role natural gas plays in providing stable power supplies to the German industry.
German politicians might perhaps be more enthusiastic about increasing the imports of Russian gas than some of Germany's energy majors such as RWE, Germany's second largest electricity producer. The share of nuclear energy in RWE's energy mix has been reduced from 12% to 6% after the closure of its Biblis-1 and 2 nuclear power plants. Speaking at a conference on nuclear energy in the Netherlands, on June 22, the Head of the Department for New Constructions at RWE, Mario van der Borst, agreed that Germany would see more gas to power as a result of the phase out. However, based on RWE's policy of "resource management", there would be no increase of gas from Russia, since it would increase dependency on a single supplier, van der Borst noted. Currently, around 22.5% of RWE's power production is generated by gas fired power plants.
The question is whether there are real alternatives for Germany when it comes to additional gas supplies. Both Norway and the Netherlands, the second largest suppliers to Germany after Russia, are facing a peak in domestic gas production and will have difficulties in substantially increasing exports to Germany. Russia, on the other hand, can increase production and with the first string of Nord Stream becoming operational this year, a stable import channel is opened up. A possible participation of German Wintershall in South Stream could suggest that more gas could ultimately reach Germany's industrial South. Nevertheless, Germany's energy majors are diligently searching for alternative solutions. It would not be inconceivable when their nuclear know-how would find its way to new nuclear power plants outside Germany, to for example the Netherlands, where the construction of one, or possibly two, new nuclear power plants is being considered. These nuclear power plants would supply the North West European market, including Germany.
