Understanding German energy dependency
Germany has been searching its soul this week over its deep dependence on Russian energy supplies. The country is waking up to the fact that a policy that was supposed to moderate the Kremlin’s behaviour is instead filling Russia’s war coffers.
A mad scramble is now underway to source energy elsewhere.
In light of this, I thought it might be useful to give you a little background on German energy needs. Is this just about gas? How easy is it to change suppliers? And finally, can these needs eventually be met domestically instead?
Sticky, tricky, crude
The first thing to emphasize here is that this is about much more than just natural gas.
In the media, Russian gas is often used as shorthand for German energy imports. This is pretty misleading.
The sobering reality is that crude oil is still the country’s single most important energy source. It supplied roughly a third of Germany’s total energy needs back in 1990 and - after 30 years of climate policies - it makes up roughly a third of energy consumption today.
The reason for this is the transport sector, which remains stubbornly reliant on petroleum and diesel.
Germany has next to no oil wells of its own, meaning it is highly reliant on imports.
After getting its fingers burned in the 1970s oil crisis, when it was too reliant on the OPEC cartel, Germany diversified its suppliers. Unfortunately this diversification happened in one direction: to Siberia. One dependency was replaced by another. In recent years Germany has bought roughly 40% of its oil from Russia.
Much of this arrives through the Druschba (Russian for friendship) pipeline, which brings the black gold over eastern Europe to two German refineries, one in Leuna and one in Schwedt.
An Economy Ministry plan published today sets a target of halving oil imports from Russia by June and almost eliminating them by the end of the year. Instead of imposing an outright embargo, the government is pressuring the energy companies to buy elsewhere.
There has already been success in this regard. The refinery in Leuna (Saxony-Anhalt) is owned by French energy giant Total, which this week announced that it wouldn’t renew its contracts in Russian, which expire at the end of the year.
Persuading the owner of the refinery in Schwedt to find new suppliers won’t be quite so simple.
In an example of just how lax previous German governments were in handing over control of key infrastructure, the refinery is majority owned by Russian state company Rosneft.
“The fact that a Russian energy company has been given such strong influence over our supply, despite the war in Crimean, is now coming back to haunt us,” the Green-controlled Economics Ministry remarked.
Coal - a seamless switch
The one fossil fuel that Germany still has plentiful reserves of is coal, which is used for electricity and heating as well as in the steel industry.
Back in 1990, Germany’s own coal reserves more or less covered domestic demand. These days though mining is on its the way out.
The last deep coal mine closed in 2018; remaining reserves of black coal are buried so deep that it’s cheaper to import from Australia.
What Germany has in abundant supply is the poorer quality brown coal, which is dug up in open cast mines. German reserves in the Lausitz and the Rhineland are estimated to total to 40 billion tonnes.
As Germany’s deep coal mines have shut down, energy companies have bought Russian black coal instead. In 2021, 56% of imports came from Russian mines .
There is general agreement though that these can easily be replaced.
“There is a well-functioning, liquid world market,” says Alexander Bethe, head of the Verein der Kohlenimporteure. “Sufficient quantities are available. Germany imported about 18 million tons of black coal from Russia last year. That’s only about two percent of total world trade.”
The Economy Ministry claims that energy companies have already found new suppliers meaning Russian imports will be obsolete by the autumn. While the ministry has not released specifics on where the new coal will come from, the US and Australia are both likely suppliers.
Natural gas - the friendly fuel
Germany has become increasingly reliant on natural gas over the past few decades. Between 1990 and 2021 it increased its share of the primary energy cake from 15% to 27%.
Natural gas is prized for the fact that it is relatively clean, reliable and flexible. German politicians like to refer to gas as a Brückentechnologie (bridging technology) due to the fact that a gas-fired power station produces around half the CO2 that a coal-fired plant does.
Again, there are no domestic reserves - Germany relies on imports for 95% percent of its natural gas needs. Over half of this total arrives from Russia via various pipelines that travel overland and under the Baltic Sea.
Successive German governments advocated the construction of new pipelines under the Baltic despite concerns raised by Poland and Ukraine.
The Economic Ministry has admitted that diversifying from Russian gas will pose the greatest challenge. It has set itself the target of slashing the Russian weight of imports to just 10% by the summer of 2024. In the short term, it wants to achieve this by firing up coal-fired stations to full capacity and securing massive imports of LNG. In the long run, it wants to replace gas with a mixture of more renewables and hydrogen.
Progress has already been made with an agreement in principle with Qatar to increase LNG imports.
The Economics Minister says its targets on gas can only be met with a “common act of strength” on the part of federal and local governments as well as private households.
Can Germany become energy independent?
Ultimately, Economy Minister Robert Habeck wants to make Germany capable of standing on its own two feet by increasing domestic renewable production.
Becoming energy independent has obvious advantages. The countries that are gas rich tend to be human-rights poor. Producing one's own energy would free Germany from morally dubious trade deals.
But is it realistic to think that an economy of Germany’s size can replace natural gas with wind and solar in the space of a few years?
Data on domestic extraction over the past three decades doesn’t provide grounds for optimism. Massive investments in renewable energy infrastructure haven’t altered the fact that Germany has become far more reliant on imports over the past thirty years.
Back in 1990 domestic energy extraction covered over 40% of demand. These days that ratio has fallen to roughly a quarter.
Wind and solar have struggled to stabilise the losses that have resulted from the closure of coal pits. For the next few years at least renewables will be plugging the gaps left by the planned 2030 coal exit and the imminent shut-off of the last three nuclear plants.
Germany could keep burning coal - it has the third largest brown coal reserves in the world. The Free Democrats, who are part of the governing coalition, called on Habeck to do just that this week, saying it would help stabilize prices.
But such a move would likely lead to a rebellion in Habeck’s own party, the Greens. Brown coal is particularly CO2 intensive and ending its use has been a central demand of young environmentalists for years.
Habeck doesn’t have any easy choices. He has admitted that finding new suppliers for fossil fuels is going to be expensive. His own stated plan of creating a hydrogen economy isn’t likely to be cheap either. High energy prices means inflationary pressure - and prices have already been soaring in recent months.
The Free Democrats say that extending the use of coal and nuclear would offer affordable ways of securing reliable energy. But both are political taboos.