How much gas does Germany need?

Some periodicals and experts reacted very tumultuously to statements by German chancellor Angela Merkel that Germany does not need a bigger amount of Russian gas and that gas consumption in her country will not increase on the whole.

We would venture to claim that by 2020 to 2022 natural gas consumption in Germany cannot but will increase, and we will elaborate on the reasons.

The first reason obviously concerns the shutdown of nuclear power stations in Germany. The German government tries to show that it envisaged such a strategy beforehand planning to close NPPs somewhat later – by 2025, not 2022. Considering Germany’s 2010 electrical energy production figures, the volume of electrical energy generation by nuclear power plants is currently approximately equal to the volume of electrical energy produced from 35bn cu m of natural gas. It means the total production is to reduce by this amount. Whether you planned it or not, you will have to somehow compensate the missing volume. In other words, Germany will have to find an alternative amount of electrical energy equal to consumption of 35bn cu m of gas. So, where will Berlin find this amount? Theoretically coal consumption may increase. But adherents of the global warming theory struggling for reduction in greenhouse gas emissions are becoming more and more active in Europe these days; this is why coal is not acceptable from the point of view of ecology.

Germany may attempt to replace nuclear energy with wind energy. This is an interesting variant. Production of alternative energy, excluding hydro electrical energy, is growing quite quickly. Energy production from renewables advanced 10% in Germany in 2010. In the gas equivalent current capacities of wind turbines, solar batteries and other green facilities are equal to about 21bn cu m of natural gas. This is quite an amount!

But the question is whether Germany is able to continue expanding renewable energy production by 10% per year? I think it is not, because alternative energy still relies on subsidies being unprofitable. It cannot compete against fossil fuels yet. Given that saving Greece and later probably Spain is entrusted to Germany, will the European Union’s locomotive be able to spend huge money on subsidizing the renewable energy sector? The question is likely to be put like that: windmills or Greece? If your resources are limited, you cannot do several things at once. And it seems this will be Germany that will have to save Greece, regardless of whether Berlin wants it or not.

The wind energy sector will be certainly growing but if you do not want to replace nuclear energy with natural gas, you will have to find some source to substitute 35bn cu m of natural gas. Germany’s windmills generate energy equal to 21bn cu m of gas, but another 35bn cu m is required! Thus, wind energy production will have to jump by in fact 2.5 times in 10 years. Such a pace is possible at the beginning but if you have already reached a serious level the growth pace is unlikely to be substantial. As far as Merkel’s idea about developing energy efficiency in Germany is concerned, the country has already produced fantastic energy efficiency results and further improvement will be inconsiderable.

By the way, Germany’s own gas production has dropped from 16.9bn cu m in 2000 to 10.6bn cu m in 2010. Thus, even if the gas consumption level is preserved, imports will increase, because production will keep reducing.

As a result, in any case the demand for gas in Germany will be rising. The question is whose gas will satisfy this demand.

Let’s examine the structure of imports in 2010. According to BP, Germany received slightly over 35bn cu m of gas from Russia, its leading supplier, over 30bn cu m was imported from Norway, followed by the Netherlands that delivered slightly less than 25bn cu m of gas to Germany. Norway and the Netherlands are an interesting case because the situation with gas in the Netherlands will soon remind of developments in Great Britain. By the way, Britain is the fourth largest gas supplier to Germany with almost 3bn cu m. In Great Britain production fell sharply due to the lack of reserves. The Netherlands will face the same situation in the near future and 25bn cu m of exports to Germany will be under question. It is not ruled out that Norway, the country that has been quickly increasing gas output, will see the beginning of decline in its gas production at the end of the next decade. This is why even preserving the current almost 60bn cu m of supplies (Norway, the Netherlands and Great Britain combined) will be doubtful in 2020.

It is absolutely clear that traditional gas suppliers to Germany will not cope with this volume. May be there were political reasons behind Angela Merkel’s reluctance to admit growth in cooperation with Russia. It is quite understandable that Ms. Merkel tries to go by the USA in a certain way. But whatever her desire is the figures objectively point to the fact that the demand for natural gas in Germany is rising and will be rising and currently it is very hard for Berlin to find additional non-Russian gas.

The situation for Germany is not that favorable as it will be very difficult to count only on wind turbines, solar batteries and energy efficiency.

By Konstantin Simonov, General Director, National Energy Security Fund