Vera Eckert and Kate Abnett

FRANKFURT/BRUSSELS – Russian troops invaded Ukraine on Thursday. This has pushed European gas prices higher, and increased attention to gas supplies in other countries such as Germany.

The Dutch Gas Prices rose between 30% and 40% on Thursday due to concerns about supply disruptions. However, export flows from Russia of oil and other Western commodities remained stable in the hours after the invasion.

Russia is responsible for more than three quarters of Europe’s natural gas.

German Chancellor Olaf Scholz has stopped the Nord Stream 2 pipeline to deliver more Russians to Germany on Tuesday after Moscow officially recognized two regions of eastern Ukraine.

The project’s suspension would result in Germany not receiving a significant portion of future gas imports. Russia would have to increase its exports by building a pipeline from Yamal (Russia) to Poland or Ukraine. However, this seems unlikely after Moscow’s invasion.

The current situation in Germany’s Gas Sector is as follows:

WHAT NUMBERS ARE?

According to foreign trade statistics bureau BAFA (which does not provide information about the source of imported goods), Germany imported 119 million cubic metres of gas between January and October 2021. According to utility group BDEW, domestic gas consumption was 100 billion cubic metres (bcm) in 2021.

Germany boasts 24 billion cubic meters of underground gas storage caverns. Rehden is a unit of storage company Astora, which in turn is owned by Russian company Gazprom. (MCX): This means that Germany could store 25% more gas than it uses annually.

According to data from industry group Gas Infrastructure Europe, Germany’s storage caves are currently 30% full.

Germany imports the largest proportion of Europe’s gas. In the 1990s, domestic gas production reached its highest point and accounts for just 5% of all annual consumption.

Uniper, the German utility chief executive, said last month that Russia was responsible for 50% of Germany’s gas supply. This can vary from month-to-month.

ICIS analysis data regarding German supply indicated that Russian pipeline gasoline accounted for 32% of the total, Norwegian gas for 20%, and Dutch gas for 12% in December 2021. Storage 22% was also available, as well as other small sources such domestic production.

Maubach stated that Russia’s (gas supplier) position cannot be replaced in the coming years.

WHY DO GERMANY NEED GAS?

According to BDEW, 15.3% of German electricity production was generated by gas burning last year.

A large amount of gas imports could be lost, regardless of source. This would require either a temporary increase in coal-fired generation or the import of power from neighboring countries to make up the difference.

This is especially true in the case of home heating where half of Germany’s 41.5million households are kept warm by gas, as well in industries such as manufacturing, which cannot operate without fuel.

WHAT OTHER COMMODITY LINKS DOES GERMANY HAVE TO RUSSIA?

Since the Cold War, Germany and Russia has had strong energy supply partnerships. The Cold War saw the formation of this partnership. It has been strong through ups and downs in bilateral relations.

Germany is not dependent on Russian gas. BAFA reported that 34% came from Russia from January to October 2021, while VDKi claimed 53% came from Russia.

Will GAS DEMAND GO DOWN IN THE FUTURE

Germany has pledged to cut greenhouse gas emissions. It should comply eventually. Heat pumps will replace heating with natural gas in the long term.

In power generation however, the gas usage is anticipated to increase for a transitional period as part of plans to eliminate coal and nuclear energy.

The speed at which Germany implements its renewable energy program and the possibility of low-emission hydrogen being produced from solar and wind to replace fossil fuel will determine future consumption.

International Energy Agency stated that countries’ climate promises would reduce European gas consumption to 504 Bcm by 2030, from 596 Bcm in 2020. But, governments’ policies would indicate that it would drop only marginally to 587 BCm. The IEA doesn’t provide any breakdowns for specific countries.

HOW CAN GERMANY HELP RUSSIA WITH OTHER OPTIONS?

In the face of increasing tensions with Russia (the EU’s largest gas supplier), EU officials sought alternatives to Russia in the last months.

In January 2017, Europe saw a record number of imports for liquefied gas (LNG), with almost half coming from the United States.

LNG in Europe is consumed in Britain, on the coast of Northwestern Europe and at the Mediterranean. This industry is still in its infancy and growth. Germany doesn’t have an LNG infrastructure domestically, however the Dutch Gate landing terminal has 12 bcm handling capability and supplies customers in western Germany.

Europe is competing with Asian buyers for cargoes on global LNG markets. These markets are volatile, and can lead to high prices.

European utilities are able to roll-purchase Russian pipeline gas for as long as 30 years. These agreements include take-or-pay and link to agreed benchmarks like spot or oil prices at European gas trading hubs.

Companionies can only know when contracts are renewed at what terms. Transparency is possible.