Is Germany Relying Too Much on Russian Oil and Gas?


INSIGHT


  • THE RUSSIAN ENERGY SUPPLIERS HAVE BEEN EXTREMELY RELIABLE AND HAVE KEPT THE LIGHTS ON AND THE INDUSTRY RUNNING IN GERMANY. THESE ARE LONG-TERM STRATEGIC PARTNERSHIPS.
  • THERE ARE ALMOST NO OTHER ALTERNATIVES FOR PROCURING OIL AND GAS FOR GERMANY. INTERRUPTIONS IN THE MIDSTREAM SUPPLY CHAIN CAN EASILY COLLAPSE GERMANY’S EXPORTS. GERMANY IS EXPERIENCING MASSIVE PROBLEMS IN OBTAINING SUPPLIES OF RAW MATERIALS DURING THE PANDEMIC.
  • THE FUTURE OF GERMAN INDUSTRY DEPENDS ON ENERGY SUPPLIES THAT ARE AFFORDABLE AND AVAILABLE. THE MANUFACTURING SECTOR NEEDS A STABLE FORECAST OF WHAT PRICES WILL BE LIKE TOMORROW IN ORDER TO BE ABLE TO MAKE LARGE INVESTMENTS. THESE INVESTMENTS WILL ONLY BE MADE IF PRICES ARE STABLE.


1. RUSSIAN OIL AND GAS ARE INDISPENSABLE FOR THE FUNCTIONING OF THE GERMAN ECONOMY.


Germany pursues an independent energy policy that takes into account both its own energy needs and the requirements arising from its central position in the European Union. In both cases, Germany is acting with great care.

On the one hand, Russian natural gas and oil are essential to the continuation of Germany’s industrial capability. For many, it is difficult to imagine how Germany could ever replace Russian oil and gas. At the same time, Germany is ensuring that there is an outlet for LNG exports from the United States. Therefore, Germany is willing to support the construction of a new LNG port in the German North Sea region. Both options will contribute to energy security in different ways.

Germany is a major exporting nation whose prosperity depends almost entirely on the produce of its labor force. Germany is relatively poor in natural resources, with the possible exception of coal deposits in the east and west of the country and rich potash and salt deposits in many areas. Germany does have some uranium deposits. They are uneconomical to exploit. German hard coal reserves are not competitive even domestically with international imports from Colombia, the United States and Australia. Most of the remaining coal reserves are mined in the east of the country and consist of lignite deposits. At first glance, this is not an ideal situation for an economic powerhouse. It requires international cooperation and sophisticated supply chains, midstream operations, and low insurance premiums to supply the industry.

We have written about this topic before, and this current topic relates to one of our articles on German-Russian cooperation in the energy sector. We would like to share this article with all of you.

Moreover, the phase-out of nuclear power and the closure of coal-fired power plants have put a damper on the carefully calibrated energy trading that ensured grid stability. Infrastructure was maintained based on coal and nuclear power to ensure the availability of cheap, relatively abundant energy in Germany, albeit with lax environmental standards in the 1960s and 1970s in the eastern and western parts of Germany. Germany is now trying to replace the lost energy with natural gas sourced from Russia.

For a closer look, we would like to recommend the following article as reading material, which takes a closer look at the importance of energy imports for the German economy.


2. CONCLUSION


  • The German industrial sector was in the enviable position. Germany has been able to procure energy through its Atlantic trade relations, the Gulf states and trade with Russian energy companies. This has given Germany some leverage over prices, even though from an economic perspective Russian oil and gas would have been the preferred option. 
  • An increase in LNG volumes could replace volumes from Russian gas pipelines. This could increase gas prices and thus production costs for German companies. These costs would have to be passed on to customers. This process only works in an environment in which German companies remain technology leaders in their respective fields.
  • LNG can supplement existing fuel supplies. We find it hard to imagine that LNG can replace the bulk of Russian energy supplies to Germany.

Many thanks for the shared interest in the energy world!



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