RUSSIA

Economic growth and employment in Germany largely depend on key, energy-intensive industries, such as chemical or metal production. Despite the increasing importance of renewable energies, petroleum and natural gas – the first and second most important energy sources in Germany – play an important role for these industries. Because of Germany’s lack of natural resources, both petroleum and natural gas are almost completely imported.[i] Russian gas supplies account for about 50 percent of German gas imports, and a third of German petroleum imports also come from the Russian Federation.[ii] The country has thus become Germany’s main supplier of natural gas and crude oil.

These figures clearly underline the relevance that Russia has for securing Germany’s energy supplies. However, Russia is not Germany’s only option for importing energy. Both oil and liquefied natural gas (LNG) can be purchased from other producers and transported by sea. Nonetheless, the oil and gas that is supplied primarily by pipeline from Russia is more competitive in the current market environment than the oil and gas that would have to be provided via alternative supply routes.

Russian energy exports to Europe have a long history and even took place during the Cold War. There is great political and economic willingness on the part of Russia to work together in the energy sector. Due to its economic structure, Russia is highly dependent on the export of fossil fuels. Almost 60 percent of Russian exports and almost 50 percent of Russian state revenue come from the oil and gas sector.[iii] At the same time, pressure on the Russian state to generate revenue for its macro-financial stabilisation continues. The Russian economy has also suffered a massive slump in the wake of the coronavirus crisis. This puts the state budget under pressure. To balance its budget, the Russian state is dependent on continually generating revenue on the EU energy market – and Germany is one of the largest customers in Europe. Thus, the need for Russia to remain a reliable energy supplier for Germany is high.

It must be noted that Russia is also increasingly striving to diversify its energy exports. Examples of this diversification policy are LNG plants on the Jamal peninsula and the Sila Sibiri (Power of Siberia) pipeline project, through which the Chinese market is to be supplied, thereby making China the second largest buyer of Russian natural gas. In the medium term, however, this will do little to change the relevance of the EU and Germany for Russia’s energy exports, since the total volume of supplies to China remains comparatively low.

Cooperation between Germany and Russia in the energy sector is already being actively pursued. Russian oil and gas imports to Germany have both continued to increase in recent years.[vi] With the completion of the Nord Stream 2 pipeline through the Baltic Sea, an additional 55 billion cubic metres of gas can be transported to Germany each year, transit costs will be partially eliminated, and Germany will become the central distributor of Russian natural gas in the EU.

At the same time, the EU’s dependence on Russian natural gas and petroleum imports is lower than Russia’s dependence on its fossil fuel exports to the EU. The share of EU energy imports coming from Russia is around 40 percent for natural gas and just under 30 percent for oil. This is significantly lower than the share of Russian natural gas and petroleum exports going to the EU, which is currently around 70 per cent for both resources.[v] The repeatedly voiced concern that Russia could use its energy exports as a means of exerting pressure, is thus countered by the fact that the potential damage caused by a supply bottleneck or interruption of energy supplies would hit the Russian economy far harder than it would Europe’s. Russia’s relatively high dependence on the European energy market compared with Europe’s dependence on Russian resources thus offers Germany and the EU the political room for manoeuvre to continue with and, if necessary, to gradually intensify the energy trade.

In the medium term, there is potential to further expand energy collaboration or at least to continue at this high level. According to forecasts, the need to import Russian natural gas will continue to increase until the mid-2020s and will not start to decrease until 2030. On the one hand, this is due to the slightly increasing demand for natural gas in Europe, from 613 billion cubic metres (2017) to 622 billion cubic metres (2025). On the other hand, this is also due to the fact that the EU’s own production – especially in the Netherlands – is declining, and the export potential of other large importers of gas to the EU (such as Norway or Algeria) has been exhausted.

New projects, such as the Tanap pipeline from Azerbaijan, have comparatively small capacities. Russia, on the other hand, is the country that has by far the largest conventional gas reserves, and thus it can fill the import gap with additional export capacity via pipeline. In Germany, natural gas, a fossil fuel that is less damaging to the climate, is becoming increasingly important for the energy mix due to phasing out nuclear and coal-based electricity generation.

Cooperation beyond the gas sector offers less potential for expansion. In the medium term, European demand for petroleum will remain largely constant at 12 million barrels per day (2025)[vi], compared to 13 million barrels per day (2017)[vii].

In this area, too, little will change with respect to the importance of Russia, which, as the world’s third largest oil producer, continues to have a central supply role for Germany. Petroleum will remain indispensable for both energy generation and the transport sector in the medium term – despite the increasing percentage of electric vehicles in Germany.

However, the economic recession in the EU resulting from the coronavirus pandemic is an element of uncertainty for future energy cooperation. Depending on how severe it is and how long it continues, energy requirements will decrease, at least temporarily. In the medium term, however, the above forecasts should remain valid.

In the long term, the importance of Russian natural gas and petroleum supplies for Germany will probably only decrease again when demand and import requirements in the EU decline from 2030 in accordance with the forecasts. Until then, there is a need to exploit the potential for energy cooperation between Germany and Russia. To achieve this, supply reliability would have to be kept stable in the medium term and, where necessary, energy imports would have to be expanded.

However, this must not lead to Germany cultivating its energy relations with Russia in its own interests on a purely bilateral basis. As the example of Nord Stream 2 illustrates, there are sometimes strong reservations on the part of other German partners (USA or East-Central European EU members) with regard to a bilateral intensification of energy relations between Russia and Germany.

This in turn has direct political consequences, such as the (ultimately failed) attempt by the EU to expand the European gas directive or the adoption of sanctions by the American Congress. This demonstrates that Germany cannot simply assert its, albeit legitimate, energy interests in the face of resistance from other partners. Instead, as with its foreign policy in general, it should only pursue these interests in a multilateral context. The EU remains the first frame of reference in this respect.

Thomas Kunze heads the KAS Office in Russia; Philipp Dienstbier was, until April 2020, Desk Officer for Eastern Europe in the European and International Cooperation Department.

[i] https://de.statista.com/statistik/daten/studie/251605/ umfrage/importabhaengigkeit-der-deutschen-energie- versorgung-nach-energietraeger/ [26/02/20].

[ii] https://de.statista.com/statistik/daten/studie/151871/ umfrage/erdgasbezug-deutschlands-aus-verschiede- nen-laendern/; https://de.statista.com/statistik/daten/ studie/2473/umfrage/rohoelimport-hauptlieferanten- von-deutschland/ [26/02/2020].

[iii] https://bruegel.org/wp-content/uploads/2019/12/EU- Russia-China-energy-triangle.pdf [26/02/2020].

[vi] https://www.bmwi.de/Redaktion/EN/Infografiken/ woher-kommen-die-deutschen-rohoelimporte.html and https://www.swp-berlin.org/fileadmin/contents/ products/research_papers/2017RP13_wep_EtAl.pdf [26/02/2020].

[v] https://bruegel.org/wp-content/uploads/2019/12/EU- Russia-China-energy-triangle.pdf; https://www.eia.gov/ todayinenergy/detail.php?id=33732 [26/02/2020].

[vi] https://www.iea.org/reports/world-energy- outlook-2018/gas#abstract [26/02/2020].

[vii] https://www.iea.org/reports/world-energy- outlook-2018/oil#abstract [26/02/2020].