Written by Jackson Overpeck
Few countries are experiencing the spillovers of the Russia-Ukraine conflict quite like Germany. Aside from their geographical proximity to the ongoing war and their prominent position in a European Commission dead set on de-escalating the conflict, Germany, like many countries, is feeling the economic effects of the ongoing war in many areas of their economy, none more notable than their energy sector. As the fighting in Ukraine continues, Germany faces greater pressure both internally and externally to implement sanctions that would significantly curb their approximately $70B worth of annual trade with Russia, including the roughly $26B of Russian fossil fuel, a critical resource for maintaining German industry and quality of life. German policymakers now must make a difficult decision: continue to fund Russian war efforts via fossil fuel purchases, or make the economic sacrifices necessary to break free from their decades long reliance on Russian fuels. At the center of this issue lies the question of how Germany would replace Russian fossil fuels and in what time frame would such a transition occur.
Entering into 2022, Germany sourced 40.9% of its energy from fossil fuels, with 29.6% coming from coal and 10.4% coming from natural gas. Germany’s fossil fuel reliance has decreased significantly over the past decade, falling 16% since 2012 due in large part to an aggressive nationwide shift towards renewable energy in response to a global effort to combat climate change. As part of their sweeping 2010 Energiewende initiatives, Germany has vowed to close all coal powered plants by 2038, and aims to be greenhouse gas neutral by 2045. This movement away from fossil fuels has been stifled by a government mandate to close all nuclear generators by the end of 2022, a somewhat controversial move for a country that recently sourced over a quarter of their energy from nuclear generation.
In the long run, a shift towards renewable energy will domesticize German energy production, but this is still a distant horizon for a country that imported 63.7% of their energy in 2021. As of 2018, Germany imports all of its coal (31.8 million tonnes in 2020), with 45.4% of coal coming from Russia and 30.6% coming from the United States and Australia. Germany is the world’s largest importer of natural gas and with domestic fields nearing depletion and a growing need for baseload power in the absence of nuclear and coal plants, domestic demand for natural gas imports is expected to rise upwards of 25% by 2035. 55% of German gas imports are sourced from Russia, while the majority of the remainder is sourced from within the European Union, notably from Norway and the Netherlands. German import patterns paint a picture of a country deeply dependent on Russian fossil fuels—a troubling reliance in the face of the Kremlin’s recent aggression.
The obvious solution to Germany’s problem would be for them to increase production from domestic and proximal suppliers. On the domestic front, Germany has placed previously shuttered coal plants on standby in case extra capacity is needed and it was concluded that all active nuclear plants are past the point of a possible lifespan extension. Germany is reportedly considering greatly expanding construction of new domestic renewable infrastructure, although such actions only offer a medium to long term solution and wouldn’t solve the current issue of short run supply. Germany could also lift their current ban on drilling in their allotment in the North Sea, as the United Kingdom has recently done, unleashing the potential of more domestic gas and petroleum production, although it would take time to prepare the requisite drilling infrastructure. Putting such drilling operations on standby would be difficult given significant opposition across government, but such actions would provide a reliable fallback if the situation deteriorates further.
Given their recent reduced reliance on coal and nuclear, Germany is leaning towards natural gas to gap the energy shortfall, but global supply is exceedingly tight. In the 40 days preceding Russia’s invasion, natural gas prices have risen 36.7% despite the warming spring temperatures that would typically damp demand. Furthermore, Germany’s second largest importer of Gas, Norway, is currently at production capacity, and their third largest importer, the Netherlands, is rolling back extraction in their largest gas field in an effort to reduce seismic activity in the region. Unable to source more gas from within the EU, Germany’s best short run option seems to be looking abroad for new suppliers of natural gas.
The construction of liquified gas shipping terminals, terminals capable of connecting shipments of dense liquified gas with the energy grid, is an attractive solution that would allow Germany to receive gas from anywhere in the world without the timely and costly process of constructing new pipelines. Germany currently uses liquified natural gas (LNG) ports in neighboring countries to import gas from abroad but the government recently committed to constructing two of its own in light of the Russian conflict, a move that signals Germany’s entry into the global LNG market. Germany is currently in negotiations with Qatar and other gas heavyweights regarding a long term LNG contract but they find themselves in steep competition with other countries for limited LNG shipments, most notably China, Japan, and India. Establishing a strong relationship with Qatar and maintaining their strong relationship with the United States would put Germany in geopolitical proximity to over 50% of the world’s LNG supply, although LNG will be more expensive than what Germany would otherwise be paying Russia.
Germany’s energy dilemma can be broken down into two time periods. In the short run, Germany is constrained to few options, none more promising than increasing the imports of liquid natural gas, which official sources predict will allow them to completely wean off of Russian energy imports by 2024. In the long run Germany will have to forge a new path of energy acquisition, whether that consists of constructing new pipelines from the Middle East and Africa, or establishing an aggressive domestic push towards renewable energy. The conflict in Ukraine has spawned a new energy paradigm; one defined by relative scarcity, moral judgements, and future uncertainty. Energy has been proven once again not only to be an economic asset, but an asset capable of distributing geopolitical capital across the globe. How Germany and other western countries manage energy resources in the upcoming year will undoubtedly have significant long-term consequences, none more pressing than how the global community approaches the current climate crisis, and short run supply issues aside, the conflict in Ukraine has the potential to be a catalyst for the move away from the globalized fossil fuel trade and towards a more localized renewable model for energy production; one defined by independence, justice, and long term prosperity.
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