LNG: Germany’s Geopolitical Achilles Heel

So far, Germany has managed to overcome many of the economic challenges it has faced since weening itself off Russian gas with a hitherto successful energy policy. But German energy needs risk becoming beholden to less desirable actors and it would be wise for Germany to avoid once again falling into the rut of political dependence. 

Germany is currently going through what Chancellor Olaf Scholz described as a Zeitenwende, a turning point, or a seismic shift in the way Germany positions itself  to its environment, as an immediate reaction to the Russian invasion of Ukraine. For the time being, necessity has dictated this paradigm shift, which has initially had a real impact on energy policy (Russia provided 55% of Germany’s gas before the invasion), and should be translated into diplomatic, defence and security terms, which cannot be done overnight.

Many commentators were concerned that the shut down and subsequent sabotage of the Nord Stream pipeline and drastic restrictions on access to Russian gas would cripple the German economy and put untenable pressure on the country’s energy infrastructure. The German economic boom that had seen it grow into an economic and industrial powerhouse on the European continent would not have been possible without cheap Russian gas and manufacturing exports. Zeitenwende has thrown this hitherto fruitful economic model into purgatory.

Natural gas is an essential raw material for German heavy industry, and makes up 27% of Germany’s overall energy mix  and with the country deciding to phase out its nuclear capabilities back in 2011 over a ten-year period, the German government found itself in a somewhat urgent scramble to source new gas suppliers. These new supply channels have notably included Norway, and a vast increase in German LNG import and storage capacity, which it is importing from the United States and Qatar.

How has Germany fared since its rupture with Russia?

Russia’s use of gas supply chains to put pressure on European countries to roll back their support for Ukraine hit Germany the hardest. Gas flows to Europe had been decreasing slowly in the month’s leading up to the war, and Russian gas giant Gazprom completely stopped filling storage facilities in Germany, many of which were empty by February 2022. Many energy economists and macroeconomists believed that the closure of these supply channels would throw the country into a deep recession. But Germany managed to show real resilience in the face of these challenges.

A BPEA paper published by the Brooking’s Institute has found that far from the expected 6 to 12% decline in GDP predicated by those opposed to the Russian gas embargo, Germany’s economy merely suffered a mini recession with GDP dropping by 0.5%. The surprising resilience of the German economy and the non-occurrence of the more catastrophic scenarios predicted by many in German industry can be put down to widespread adaptation and substitution to ensure supply chains remained open and industry could keep going.

Germany’s ability to rapidly replace Russian gas and open up new supply chains has helped its economy weather the storm. It was able to open up new channels. Norway, for example, has since become Germany’s largest gas supplier, with its share of German gas supply increasing from just under 20 per cent in 2021 to 48 per cent in 2023. In all, Norwegian supply to Germany is up 250 per cent, and the country has really cemented its role as the EU’s main gas supplier. But Norway is not the only supplier… 

LNG import capacity 

Germany faces a key challenge in establishing new supply lines to meet its LNG storage targets, aiming for 37 Bcm/year by 2024 and a doubling by 2028, per the Federal Ministry for Economic Affairs and Energy. This expansion requires infrastructure investment, with LNG import terminals under construction along coastal sites. The government anticipates a 20% reduction in gas consumption by 2024, citing increased gas prices and cost-saving measures. Chancellor Scholz explored potential collaboration with Belgium’s LNG import program, highlighting the significance of LNG flows from Belgium in compensating for Nord Stream 1 gas.

Indeed, Germany has been accosting its European neighbours looking for investments and collaborative solutions. This has seen Czech utility CEZ book 2 billion cubic metres (bcm) of annual capacity at a yet-to-be build land-based terminal for LNG imported into Germany’s Stade from 2027. Other terminals are set to be constructed or are already in operation at Mukrain, Wilhelmshaven, Lubmin and Brunsbuettel.

Such industrial enthusiasm has really helped the German economy survive the threat of repeated energy crises, and new gas suppliers have played their part. There is, however, a problematic side-effect of putting energy security and the consolidation of resilient supply chains before political, moral and ethical concerns. The German public is well-known for its generally progressive values and thorniness when it comes to diplomatic relations with fundamentally incompatible state actors who they perceive as objectionable.

What ultimately appears to be the mastery of a delicate energy situation is leading to an effective distancing from old practices that were too synonymous with dependence, and a certain rapprochement with countries like Qatar, whose human rights record is as questionable as that of Russia. “This bowing is a historic image, but it is also the result of the last 20 years of energy policy,” exclaimed publicist Hajo Schumacher. First, the phase-out of coal, then the exit from nuclear power, “without sufficiently building up renewable energy and then relying on it: Yes, we are now building a few gas power plants, where the gas comes from, that will somehow work,” is an illusion. Schumacher explained in a Deutschlandfunk Futur article that Germany now finds itself in a moral dilemma: “We do not want to finance Putin’s war of aggression. But the supposedly 6,000 dead on the construction sites for the World Cup are also not without consequences.” Not to mention the serious doubts expressed by German public opinion about its government’s backtracking on human rights in the run-up to and during the football World Cup, particularly on the subject of LGBTQ+ people. Yet the German government has championed policies, namely its LGBTI Inclusion Strategy, that promote LGBTQ+ inclusion abroad as a concrete component of its foreign policy.

Is Germany’s Zeitenwende really leading to the concrete implementation of the change in strategic orientation, where the country no longer allows itself to be chained to the satisfaction of commercial needs? Not so sure… There is little coherence in many of the choices being made post-Russia.

Qatar, a state at odds with German values 

The Gulf-state was seen by many back in 2022 as a real lifesaver as Putin threatened to turn off the tap. This enthusiasm for Qatari gas was thrown into disarray with the cash-for-influence scandal that engulfed the EU and shook European democracy to its core. Qatar was seen as a reliable source of LNG for a number of EU countries looking to cut ties with Moscow, and for Germany especially, the scandal highlighted the complexity of geopolitical energy diplomacy.

In November 2022, German Economy Minister Robert Habeck (Green Party) exclaimed his delight at a 15-year gas deal signed with the Gulf state. QatarEnergy and ConocoPhillips signed two sales and purchase agreements to export 2 million tonnes LNG annually to Germany for at least 15 years from 2026. “Fifteen years is great,” Habeck told a business conference in Berlin, referring to the length of the contract. “I wouldn’t have had anything against 20 (years) or longer contracts.”

But the corruption scandal really put Germany’s relationship with Qatar further under the spotlight. “We have to ask ourselves whether the West, with its billions of euros for gas purchases, wants to continue supporting this corrupt regime in the Gulf, or whether business relations should be frozen due to the current situation,” stated CDU Member of the European Parliament Dennis Radtke. Habeck, for his part, had to explain in Brussels why Germany was buying gas from Qatar. He emphasized that trade with other countries must always be weighed against the “moral consequences” and simultaneously ensure “security of supply.” 

Germany’s reliance on Qatari LNG has been put under further scrutiny since the Hamas attacks of October 7th. Germany has long outlined that its unconditional support for Israel remains a ‘Staatsräson’ and has offered its unwavering support as Israel continues its operations against Hamas. But Qatar has always been one of the most influential sponsors of the Muslim Brotherhood, of which Hamas is an offshoot, and it is well known that the leaders of Hamas direct their operations from Doha. Many voices inside Germany are calling for a cutting of ties with the Gulf state. “The barbaric attack by the terrorist Hamas shows how important it is to combat the financing of terrorism,” said Michael Kruse, the energy policy spokesperson of the liberal Free Democratic Party (FDP). “If Hamas has received financial and non-material support from Qatar for years, Germany cannot buy billions of cubic meters of gas as a thank you.” 

But Scholz has defended the “important mediating role” he believes Qatar is playing as both sides seek the release of hostages. Many inside his own coalition are not so sure…

[Photo by Ra Boe, via Wikimedia Commons

Paul Fischer is a former chemical engineer and oil and gas executive, energy consultant with 30 years of experience, expert in the field of development/strategy in the energy sector. The views and opinions expressed in this article are those of the author.

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