German Dependency on Russian Gas
One of the major news themes has been the skirmish between Russia and Ukraine. As usual, it is expected that the West has risen in Ukraine’s aid but the response from Germany has been rather underwhelming. For instance, while other NATO nations are sending weapons to Ukraine, Germany sent only 5,000 helmets. Germany stated that they do not want to fuel conflict by sending lethal weapons, but there seem to be other more significant reasons — especially concerning Germany’s energy security. This is what this article would consider.
Firstly, we should recall that Russia is the second-largest producer of natural gas in the world, second to the United States. Russia also has the largest crude oil reserves in the World. Its productive capacity has enabled it to become the number 1 supplier of natural gas to the European Union — supplying 40% of their natural gas.
Figure 1. EU Imports of Natural Gas By Source
Source: Quarterly Report Energy on European Gas Markets with focus on the impact of the global LNG market on EU gas prices Market Observatory for Energy DG Energy Volume 14 (issue 2, second quarter of 2021)
Now that it has been established that Russia is the chief supplier of natural gas to the EU; it would be necessary to know how important natural gas is to the life of EU citizens, especially Germany.
Figure 2 EU Electricity Source
Source: European Network of transmission systems operators for gas
The figure above shows the dependency of the EU on Russian gas, and the figure below shows the dependency of Germany on Russian gas. Generally, the EU is more dependent on Russian gas (40%), than Germany is. Nonetheless, 30% dependence is large enough to cause concern when taking action. Furthermore, Germany and Russia are working towards launching the Nord Stream II pipeline, which would make Germany more dependent on Russian natural gas.
Figure 3 German Gas Supply By Source
Figure 4 Share of Electricity Production by Source, Germany
The EU derives 18% of its electricity from natural gas, while 16% of Germany’s electricity is derived from natural gas. With this considered, it seems that there is not much importance for natural gas in the EU but electricity is just one aspect of natural gas use in Europe. Also, one would look at the chart showing Germany’s electricity fuel/sources and would see that demand for natural gas for electricity generation has been increasing steadily over the past decades, thereby increasing the importance of natural gas in Germany. An explanation for this would be that natural gas is the intermittent fuel of choice to step in when renewable sources of electricity are not available (for instance, during winter, the sunlight shines 6 times less than during summer in Germany). There’s another chart to look out about natural gas consumption in Germany.
Figure 5 Share of Energy Consumption by Source, Germany
The chart above shows that natural gas is not just used for more than just electricity in Germany, and due to the cold climate, there is a need to heat buildings, and some sources state that up to 75% of German natural gas is used for heating. Anyone who has experienced winter would understand the importance of space heating. Let me paint a hypothetical picture for you: during the winter, if there were some event that required you to pick one use of energy for your survival (from two hypothetically mutually exclusive options), would you pick electricity or would you pick heating?
I guess you would pick heating because humans have survived winters without electricity but not without heating. The point of asking you this question is to have you consider the possibility of life without a necessity, and during wars, opposing parties often aim to deprive their enemies of as many necessities as possible to lead to their enemy’s surrender. In this case, the natural gas supply can be weaponized.
Throwback the 2010s
To some, it is unthinkable that a country would weaponize an important commodity such as natural gas, but in the past 2 decades, Russia has shut off gas supplies to Europe — twice. Russia accused Ukraine of stealing natural gas meant for Europe (piping off the gas without paying for it) and this resulted in them shutting off supplies. This dispute occurred in 2006 and 2009. It also cut off gas supplies to Ukraine in 2014, but it left European gas flowing. These events set a precedent that Russia can and will shut off gas supplies if it feels the need to without any recourse to the effect felt across Europe. In 2021, Russian gas supply to the EU declined and it has been suggested that this could be due to its current political position in Europe. It is therefore imperative that Europe finds a way to support its energy consumption without Russian natural gas.
Electricity
As earlier mentioned, natural gas is used mostly for electricity and heating. To reduce the dependence of the EU, Germany especially, on Russian natural gas, there is a need to find substitutes. These substitutes could be natural gas from another source or another source of electricity. A potential, reliable source could be nuclear energy, but Figure 4 shows that Germany has been reducing their use of nuclear energy. Germany is shutting off its nuclear capacity, especially after the disaster in Fukushima, Japan that occurred in 2011. Before that, there had been growing anti-nuclear sentiment in Germany since the 1970s. Hence, nuclear energy is a no-go area, with Germany having initially planned to phase out all nuclear energy production by 2022. With nuclear energy out of the way, the focus shifts to renewable energy sources, but these sources require a baseload energy source due to their intermittency — which is where natural gas was expected to come in.
Recall, the challenge is with the dependence on Russian natural gas, not just natural gas. Hence, a simple solution would be for Germany, and the rest of the EU to source their natural gas from elsewhere. For example, the United States and Saudi Arabia could increase their supply of natural gas to the EU. Due to Russia’s past activities in shutting off gas supplies to Europe, The United States has helped prepare for natural gas to be supplied to the EU in case Russia cuts off supplies. It would not cover the full shortfall from the supply cut but it would cover a majority.
Heating
Boilers are used all around Germany to heat buildings, and these boilers depend on natural gas. According to Clean Energy Wire, 20 million out of Germany’s 40 million homes are heated with natural gas. District heating is also dependent on natural gas, showing that over 50% of Germany’s heating fuels is dependent on natural gas. Changing this would require the use of another technology, and the technology which is currently catching up to natural gas-powered boilers (space heaters) is the heat pump technology. It can easily be described as an air conditioning unit working in reverse, taking air from the cold surroundings, heating it and pushing it into the room to be heated. As seen in Figure 7, 30% of new homes are built with heat pumps. This is in line with the use of green technologies and reduces German dependency on (Russian) natural gas.
Figure 6. Sources of Heating in German Homes
Figure 7 Sources of Heating in New German Homes
Normally, the green premium might be considered but instead, the energy used by the heat pumps would be compared to that used by natural gas. There is a known fact that when items switch to electricity from fossil fuels, that electricity is likely produced with a fossil fuel for instance when diesel vehicles are converted to electric vehicles, that electricity would probably be produced from natural gas (recall that an electrical grid depending on solar or wind energy would need a baseload fuel, with natural gas being a preferred option). Also, recall that German natural gas consumption has been increasing (and is expected to increase further if Nord Stream 2 comes online). The big question remains, if German houses switch to heat pumps, does it considerably reduce the consumption of natural gas in Germany?
A short analysis I did showed that heat pumps would use 4% more natural gas from the electricity source, than if the natural gas boilers were used directly — if natural gas is used to compensate for the increased electricity demand. Given that natural gas consumption is increasing in Germany, it is likely that this would be the case.
Figure 8. Energy Use Analysis
In conclusion, decisions with such gravity as this are not clear cut; they do not have black and white solutions. President Trump advised against German dependence on Russian gas in 2018. The short term solution would be to switch from Russian gas to LNG from different suppliers, although it doesn’t seem likely due to Nord Stream 2. Nonetheless, Germany is expected to make the best decisions to enable it to regain its energy independence, especially in the face of possible aggression in Europe. This challenge presents an opportunity for the global LNG market.
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