RUSSIA

Economic growth and employment in Germany largely depend on key, energy-intensive industries, such as the production of chemicals or metal. 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, almost all petroleum and natural gas is 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. Russia is not Germany’s only option for importing energy, however. Both oil and liquefied natural gas (LNG) can be purchased from other producers and transported by sea. But 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 were booming even during the Cold War. Politically and economically, Russia is absolutely prepared 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 Covid 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 – with Germany being one of the largest customers in Europe. Thus, the need for Russia to remain a reliable energy supplier for Germany is high.

It should be mentioned, however, that Russia is also increasingly trying 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, through which the Chinese market is supplied (38 billion cubic metres of gas per year). The pipeline project Sila Sibiri II is designed to massively enhance capacities for supplying gas to China. An additional supply volume of 50 billion cubic metres of gas per year is planned. This would raise the volume of supplies to China to almost the level of supplies to Germany. Russia is also working on linking its existing gas transport capacities in Eastern Siberia with gas transport capacities and gas supply systems in the European part of the country. Apart from internal Russian supply, this will enable a more flexible distribution of Russian natural gas in both directions in the future.

There is already very active cooperation between Germany and Russia in the energy sector. 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 flow to Germany each year, transit costs will be largely 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 somewhat allayed 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 affect Europe’s. Russia’s higher dependence on the European energy market, relatively speaking, compared to Europe’s dependence on Russian resources thus offers Germany and the EU the political leeway to continue and, if necessary, gradually intensify the energy trade.

In the medium term, there is potential for expanding energy cooperation or, at least, for maintaining it 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. One reason for this is the slightly increasing demand for natural gas in Europe, from 613 billion cubic metres (2017) to 622 billion cubic metres (2025). Another reason is that the EU’s own production – especially in the Netherlands – is declining, and the export potential of the next biggest importers of gas to the EU (such as Norway or Algeria) has been exhausted.

Alternative projects, such as the Tanap pipeline from Azerbaijan, have comparatively small capacities. Russia, however, is the country that has by far the largest conventional gas reserves, which would enable it to close the import gap on its own, using additional export capacities via pipeline. Moreover, following the phase-out of nuclear and coal-fired power generation in Germany, natural gas, a fossil fuel that is less damaging to the climate, is becoming increasingly important for the energy mix.

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

Even in this area, however, there will be little change in Russia’s importance. Being the world’s third largest oil producer, Russia will continue to be the major supplier for Germany. Petroleum will remain indispensable for both energy generation and the transport sector in the medium term – despite the increasing share of electric vehicles in Germany.

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

It is likely that the importance of Russian natural gas and petroleum supplies to Germany will remain high. That is why there is a need to fully exploit the potential for energy cooperation between Russia and Germany. 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.

This, however, should not induce Germany to pursue purely bilateral energy relations to Russia. . As the example of Nord Stream 2 illustrates, other German partners (the US or East-Central European EU members) sometimes harbour strong reservations against an intensification of bilateral energy relations between Russia and Germany.

This, in turn, has direct political consequences, as illustrated by the EU’s attempt to expand the European gas directive or the adoption of sanctions by the US Congress. In both cases, the objective was to stop Nord Stream 2.

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.

Aktualisiert am: 23.08.2021

[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].