Germany Defeats Putin's Energy Squeeze. But for How Long?

Germany appears to be on track to make it through this winter without relying on Russian gas, but the question remains as to whether it will be able to do so in future winters. The cost of making this switch could also be significant.

Germany has not received Russian gas deliveries since September, but is unlikely to face shortages in the coming months. This is an impressive feat, considering that before the invasion of Ukraine, Germany depended on Russia for 52% of its gas imports.

Rescue from potential rationing and forced blackouts came in the forms of liquefied natural gas, piped shipments from Norway and the Netherlands, and an old favorite: coal. These sources helped to meet the increased demand for energy and prevented blackouts from occurring.

In a recent interview, German Finance Minister Olaf Scholz expressed confidence that his country will avoid a recession this year. He pointed to strong consumer spending and a robust labor market as key indicators of continued economic growth.While acknowledging that global trade tensions and Brexit uncertainty pose challenges, Scholz remains optimistic about Germany's economic prospects in the coming year.

This sudden change - which could cost €46 billion ($50 billion) - is being made possible by unseasonably mild weather that is keeping demand for heating low.

The success of future years will depend on some fragile pillars.

This week, Chancellor Olaf Scholz told Bloomberg that Germany has learned its lesson from being too dependent on Russia. The goal now is to build capacity that would allow Germany to have as much gas as it did before the Russian invasion, without having to import it from Russia.

But capacity is only half the battle: without long-term contracts, LNG buyers face fierce competition on international markets. The amount of LNG available in the world isn’t expected to increase much for at least three years, so buyers will need to be prepared to compete for supplies.

If China's economy rebounds after loosening its Covid-19 restrictions, many volumes of gas may no longer be available to Europe. A 15-year deal Germany signed with Qatar only equates to about 6% of Russian volumes in 2021. This could leave Europe vulnerable to gas shortages in the future.

Simone Turri, head of western European structured trading at Swiss energy trader MET International, said that the biggest challenge for Germany in the next few years will be attracting LNG as a base load source. She noted that building up LNG terminals without having new contracts coming in doesn’t solve the problem.

Norway and the Netherlands have seen a surge in gas exports since Russia's loss, but there are already warnings that the good times won't last.

Norway is now Germany's largest supplier of natural gas, accounting for nearly one-third of all German imports. This is a significant increase from last year, when Norway supplied just over 10% of Germany's total natural gas needs. Oslo expects flows to remain steady for the next four to five years, but then gradually taper as supplies are depleted.

According to the energy lobby group BDEW, the Netherlands tripled its monthly share of Germany’s imports by December. Most of that increase was due to gas extracted from the Groningen field, which is scheduled to be shut down next year due to the hundreds of earthquakes it has caused.

Turri explained that there is a limit on how much gas exports can be increased in certain countries.

Germany is importing more gas from other countries as Russia cuts supplies. This is causing prices to rise and putting strain on the German economy.

The government has announced that temperatures in 2022 are expected to be 1.1 degrees Celsius (2 degrees Fahrenheit) above the annual average of the last four years. This winter has seen record-breaking temperatures in Berlin and other European cities, and last year was one of the five hottest years on record worldwide.

The extra warmth helped reduce gas consumption by 14%, network regulator BNetzA said. This in turn helped lower prices, easing inflationary pressure on industry and policy makers.

"The current favorable weather conditions are working in our favor," said Timm Kehler, chairman of the German gas industry lobby group Zukunft Gas. "In a normal year, the situation might be much more precarious."

There is a link between disruptions in the Polar vortex and warmer temperatures in colder climates, and vice versa. This is caused by climate change.

The average monthly consumption of electricity in the United States is 934 gigawatt-hours per day.

The dirtiest fossil fuel was once thought to be on its way out, but the current crisis brought it back to life. The government extended the use of mothballed coal-fired power plants until March 2024, sparking protests and potentially exacting a political cost for Scholz.

According to Bloomberg estimates, Germany is restoring enough coal to power about 5 million homes. This is a significant increase from previous years, and it shows that the country is committed to using this resource to meet its energy needs.

More than a third of the nation's electricity is generated from coal. Despite a push for more clean energy, RWE AG is still moving ahead with plans to extract more lignite from a western mine.

"Germany will have to continue to use coal, with power plants at maximum capacity," said Klaus-Dieter Borchardt, a senior energy adviser for Baker McKenzie. "There are not so many alternatives to Russian gas."

Gross power generation in the United States totaled 4,066 billion kilowatt-hours in 2018. This was a slight increase from the 2017 total of 4,052 billion kilowatt-hours.