Uncertain German Perspectives on Energy Relations with Russia

Beyond the energy sector itself, natural gas induces structural dependency at the macroeconomic level. The pipeline mode of delivery is based on long-term contracts, locking in the predominant share of the German market for Russia. The spot market for natural gas, which could provide an alternative to Russian gas, is poorly developed in Germany compared with other West European countries. Some sectors of German industry, notably BASF, the world’s largest chemicals conglomerate, also rely on Russian gas as a raw material for industrial processing.

In its quest for stable long-term access to Russian gas, on which the company’s competitiveness is seen to depend, BASF has committed its fully-owned gas subsidiary Wintershall to the Nord Stream pipeline project and high-cost, high-risk extractive projects in Russia. In return for such “access,” Wintershall has yielded large chunks of Germany’s lucrative internal market to Russia’s Gazprom monopoly. E.On Ruhrgas, Germany’s largest gas trader, is pursuing the same basic strategy of “integration” with Russia, correctly claiming to have pioneered it.

On the other hand, Rheinisch-Westfaelische Elektrizitaetswerke (RWE) is seeking to increase its reliance on non-Russian gas supply sources such as Norway and North Africa. RWE is Germany’s largest power-generating company and second-largest gas trader (after E.On Ruhrgas). RWE joined the Nabucco pipeline project consortium last year and recently co-founded a joint venture (with Austria’s OMV and open to other participants as well) for transporting Central Asian gas through Nabucco (see EDM, January 6). During the current, Moscow-triggered gas crisis, RWE’s CEO Juergen Grossmann is holding talks in Turkmenistan (Turkmen TV, January 8).

Gas dependency is spilling over into German heavy-industry sectors. Multibillion-dollar contracts have recently been awarded to the Salzgitter Mannesmann, Dillinger Huette, and other German companies to produce steel pipes for Nord Stream, the planned Russo-German pipeline on the Baltic seabed. Russian steel companies could not cope with this task and have been left with a small share of the assignment (Sueddeutsche Zeitung, January 8).

Mannesmann and Dillinger are worldwide leaders in their own right for large-diameter pipes and high-quality special steels, respectively. They hardly need Russia to sustain their competitiveness; but given the international financial crisis and industrial slump (deeply affecting the metallurgical sector), such contracts are seen as an incomparable boon for the German steel industry. It may even motivate the German government to increase pressure on Baltic Sea countries to permit construction of the Nord Stream pipeline.

Moscow is seeking to advance German structural dependence and capitalize on it politically. In Berlin on January 6 and 7 Gazprom Vice-President Aleksandr Medvedev blamed Ukraine for the Russian gas supply halt to Europe and called, in effect, on Germany and the EU to join Russia in pressuring Ukraine. In front of a large media audience, Medvedev called for the soonest possible construction of the Nord Stream and South Stream pipelines, planned by Gazprom to bypass Ukraine and other transit countries. Gazprom itself lacks the funding and technology but relies on German and other lobbying to elicit European financing for its projects (Handelsblatt, Die Welt, January 7, 8, 9).

The Kremlin is almost certainly seeking European Union and, in particular, German endorsement of some form of Russian control over Ukraine’s gas transit system. Moscow is also trying to obtain European and German financing of Gazprom’s pipeline projects, Nord Stream and South Stream, on the beds of the Baltic Sea and Black Sea, respectively. These lines should, according to Gazprom’s propaganda, prevent problems associated with “unreliable” transit countries.

These arguments now seem to be losing some of their traction in Germany. Whether this is a short-term shock-effect or the beginning of a German strategic reassessment is too early to tell. For now, Chancellor Angela Merkel is attempting to mediate between Moscow and Kyiv. On January 7 Merkel held telephone calls with the Russian and Ukrainian Prime Ministers, Vladimir Putin and Yulia Tymoshenko, proposing to both of them to resume negotiations. The core of Merkel’s proposal is for Russia and Ukraine urgently to accept European experts at gas transit points on both sides of the Russian-Ukrainian border, so as to clarify the causes of the gas transit problems.

On January 8 Merkel and French President Nicolas Sarkozy held a joint news conference in Paris—a step that might hardly have been possible without a compelling sense of emergency on Merkel’s part. Germany is vulnerable while France, heavily reliant on nuclear-generated power, is immune to Russian blackmail. Merkel and Sarkozy jointly urged Russia to respect its contractual commitments on energy deliveries. Meanwhile, Putin is due to arrive in Germany on January 17 on what Moscow describes as a preplanned visit that would focus on Russo-German energy relations (Frankfurter Allgemeine Zeitung, Interfax, January 7, 8).