Why Germany is hooked on Russian gas

On April 8th 2022, the European Union issued a fifth round of sanctions against Russia. "And, ladies and gentlemen, I think that measures on oil, and even gas, will also be needed sooner or later. " Did you get that?

“Even gas will also be needed sooner or later” In other words, not now. Since the war in Ukraine began, the EU has imposed sanctions that restrict the flow of Russian money, and goods. .

. they’ve targeted banks, companies, individuals. .

. But natural gas remains untouched. The EU gets nearly a quarter of its energy from gas.

And nearly half of it comes from Russia: the world's largest gas exporter. Russia delivers the vast majority of its gas to Europe through this network of pipelines. And as the EU’s largest economy, nobody buys more of it than Germany.

Since the invasion of Ukraine began, Germany has paid Russia about 220 million euros a day for gas. Germany uses gas to heat more than 20 million homes. And to power a lot of the country’s industry.

And Germany’s government has spoken out against sanctions that would limit the flow of it. "It's not possible. .

. to cut the gas supplies. " But with every payment Germany makes to Russia’s state-owned natural gas company.

. . it’s also paying for Russia's war.

So, how did Germany become so dependent on Russia for something as vital as their energy supply? And why can’t they quit? Germany was at the literal center of the Cold War.

After World War II, a fortified border separated independent West Germany from East Germany and other Soviet satellite states. WWII had left Germany in ruins. But by the 1950s West Germany was experiencing a remarkable economic recovery.

German industries like steel prospered. But they needed more energy to power their growing economy. Meanwhile, over here in western Siberia the Soviet Union had just discovered huge natural gas reserves.

They had a network of pipelines to supply major Soviet cities, but extending their pipelines to potential customers in Europe would be a huge infrastructure project. Then, in 1969, West Germany elected a chancellor with a new foreign policy called Ostpolitik, focused on bringing the two sides closer together through dialogue and deals. Energy provided a great opportunity.

And West Germany and the Soviet Union struck a deal. The Soviet Union would supply West Germany with natural gas. And in return, West Germany would provide high quality steel pipes to extend the pipelines.

It was a major 20-year deal. To get how this deal locked Germany in, it’s important to understand what makes piped natural gas different from other energy sources. Natural gas, with coal and oil, is one of the three main fossil fuels used around the world.

But unlike coal and oil, which can be shipped or rerouted worldwide, piped natural gas is a regional product that depends on proximity. To transport it, gas producers spend millions of dollars to build pipelines that connect producers and buyers. Because these pipelines are such big and permanent commitments, gas deals can link a buyer’s energy infrastructure to the sellers for decades.

By the 80s, the Soviet Union built this pipeline network to Europe. And by the 90s, it was supplying Germany with 40% of its gas. Then, the Soviet Union collapsed.

Russia’s state-owned corporation, Gazprom, took over the old Soviet gas pipelines. But, the map had been redrawn. Russia's main pipelines now ran through a newly independent Ukraine, putting a key part of their gas infrastructure on land they no longer controlled.

So, in order to diversify the routes to Germany, Russia began building new ones. In 1999, they finished this pipeline that ran through Belarus. And in 2005 they began building the Nord Stream pipeline along the Baltic Sea to reach Germany directly.

They also built pipelines inside Germany. And opened a subsidiary there to operate gas storage facilities. Including this one here, one of the largest in Western Europe.

Russia now had three routes reaching Germany, as well as pipelines and storage facilities inside Germany. The gas trade was strong. But it had also changed Russia's relationship with Europe.

At the end of 2008, gas price negotiations between Russia and Ukraine fell apart. A few days later, Russia cut off gas to Ukraine for 20 days. The thing is, because Ukraine was a major transit country, when Russia cut off their gas, they cut off a lot of European gas too.

As a result, all these countries saw a drop in their supply, and tens of thousands lost heat. In Poland, at least eleven people froze to death. All this put Europe on alert.

It was now clear that through gas flows, Russia held immense power over Europe. But, up here, another link to Russia was in the works: Nord Stream 2. A new 11 billion dollar pipeline to run alongside the first Nord Stream and double the capacity to Germany.

Then, in 2014, Russia annexed Crimea and invaded Eastern Ukraine. In response, the EU issued a series of sanctions. Some countries began to wean themselves off Russia’s gas.

But Russian gas kept flowing to Germany. In fact, Germany imported more gas than ever before. Today, as Russia’s atrocities in Ukraine continue to shock the world, pressure on Germany is mounting.

But replacing Russia’s gas isn’t easy. Because it’s been piped to homes and businesses for decades, without a major infrastructure overhaul, Russian natural gas can only be replaced with other natural gas. And Germany’s options for that are limited.

The largest European natural gas reserve, here in the Netherlands, is closing this year. Gas from Algeria and Libya is increasingly used in those countries. Most of what is pumped to Europe goes to Italy and Spain.

And a southern gas corridor connecting Azerbaijan to Europe is not transporting as much as expected. The other option is Liquified Natural Gas or LNG. That’s gas that’s been cooled until it becomes liquid and can be transported in these massive ships from anywhere in the world.

But It’s a time-consuming and expensive alternative that requires a lot of new infrastructure. In the last two decades, European countries have built LNG terminals along their coasts. Germany plans to open 3 in the next 5 years.

But as of today, doesn't have any. Replacing natural gas and all fossil fuels with renewables is Germany’s ultimate goal, but that requires a massive and expensive transition that won’t be complete until 2035. Meanwhile, at home, Germans are demanding action.

According to this poll, the majority of Germans support a boycott of Russian gas. But economists predict that cutting gas imports could cause an economic recession that could cost hundreds of thousands of jobs. But they have taken some steps.

The Nord Stream 2 pipeline was canceled. They have also reduced dependence on Russia's gas by 15%. And have taken over the Gazprom subsidiary that runs gas operations in Germany.

But the government and business leaders continue to push back against sanctioning gas entirely. Germany is stuck. And the stakes are now higher than ever.