by Greg Barker
Monday, 5
September 2022
Analysis
07:30

The good news from Germany on gas prices

The European nation has managed to reduce its reliance on Russia
by Greg Barker
German Chancellor Olaf Scholz. Credit: Getty

Much has been made in the media about Germany’s impending gas crisis this winter. Following the announcement by Russia’s majority state-owned energy giant Gazprom that an “oil leakage” threatened the safety of its Nord Stream 1 pipeline, the major artery supplying natural gas to Germany, there are now concerns that Germans won’t be able to heat their homes.

But these worries of a heightened energy crisis are overblown. Germany has come better prepared for winter than the headlines suggest.

To sustain itself this winter, Europe’s largest gas import-heavy economy needed to reach above-average levels of gas storage, then maintain a continual flow of imports — while reducing dependence on Putin’s prime exports. It succeeded. After aiming for 75% storage levels by September, German Economy Minister Robert Habeck revealed that Germany reached its set targets, ahead of schedule. And this month, the European powerhouse achieved its October target of 84.26% gas fill level, according to the latest data from Germany’s Federal Network Agency.

As a political bonus, Germany also managed to reduce its reliance on Russia, with Reuters reporting how the country’s natural gas imports fell from 55% last year, to 26% this June, to merely 9.5% this August. And despite decreased gas outpours from the Nord Stream I pipeline, which drove the recent plunge in Russian dependency, Germany’s total gas imports have remained elevated. Taking Putin’s place was Norway and the Netherlands, making up around 60% of Germany’s natural gas inflows.

Storage has been assured, but the maximum quantity of gas able to be withdrawn from storage facilities could be insufficient to meet the needs of consumers in a harsh winter. Germany (and other import-heavy European countries) must still collectively scramble for future gas flows, a formidable struggle in an already tight global market.

Before a well-stocked France is capable of sending extra liquified natural gas (LNG) to Germany in the future, two of four floating LNG terminals that the German government has leased will come online. As for other sources of energy, renewables will try to take a further chunk out of Germany’s dominant lignite consumption, while negative sentiment around nuclear may start to reverse if an extreme cold snap calls for it.

But whatever happens, Germany will experience higher gas costs for longer. Citizens face the brunt of record energy prices, which have soared more than four times since last year, before peaking only recently. With many Germans incapable of affording such exorbitant energy bills, large-scale state intervention appears likely. In fact, it’s already underway. The G7’s latest announcement of price caps and windfall taxes on energy companies has kicked off proceedings.

This is a significant moment in European politics. Whether or not everyone agrees with these policies, it is noteworthy that even European Commission president Ursula von der Leyen said Brussels was working on “emergency intervention” as well as structural reforms to the power market, which may lead to cheaper renewable energy to help set electricity prices. The old consensus of letting the market ‘do its thing’ is over, as the energy crisis continues to remake European politics.

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Steve Elliott
Steve Elliott
27 days ago

Whether that 84% storage is good will depend on the absolute amount. If it only represents 1 day of winter usage then it might not be enough. I don’t know what the answer to that is but I don’t think percentages tell the whole story.

Knut Atle Klausen
Knut Atle Klausen
27 days ago
Reply to  Steve Elliott

True, and no papers has mentioned how long this reserve could last. Probably a bit longer than one day, though.

Anthony Spalding
Anthony Spalding
27 days ago
Reply to  Steve Elliott

Exactly. The main purpose of storage is to balance out seasonal variations in demand on the normal daily flow of gas through Nord Stream 1. If the daily flow is assumed to be gone, are we supposed to believe that full storage equals winter sufficiency? Sounds ludicrous.

Christian Moon
Christian Moon
27 days ago
Reply to  Steve Elliott
Chauncey Gardiner
Chauncey Gardiner
27 days ago
Reply to  Steve Elliott

Indeed. Prices tell a more organic story.
Gas prices over the last year–even before the whole business in Ukraine blew up–have been signaling stress in the system. Perhaps the market anticipated Germany shutting down half of its remaining nuke capacity by the end of 2021 and electricity generators have to turn to coal and natural gas to make up for lost electricity generation capacity.
Alas, the commitment of Germany to its Energiewende policy has been imposing pain, and with Germany committed to shutting down its last three nukes, the pain may persist. Gas prices remain nearly 25 times higher than they were 2 years ago.
Anyone can look up prices: https://www.barchart.com/futures/quotes/TGX22/interactive-chart

Steve Elliott
Steve Elliott
27 days ago

I read an article recently which contrasted oil price with coal and gas. Oil prices did go up but have moderated. Gas and coal have shot up. The theory put forward was that oil has a much more integrated global supply network. The availability of oil hasn’t changed much and it’s taken a little time for the distribution networks to reconfigure themselves but now that they have oil price has come back down.
It’s much more difficult for the distribution of gas and coal to adapt itself to the new market place so it’s price is still going up.

Carol Jones
Carol Jones
27 days ago
Reply to  Steve Elliott

The 84% storage is NOT 84% of the total amount of gas required for Germany this winter. It is 84% of the amount Gazprom kept in the underground storage to smooth out gas flows over the year — ie due to turbine issues, reductions in production etc. The storage units were seized by the German govt from Gazprom when they instituted their sanctions against Russian Gas and Oil earlier this year.
This is a very disingenuous article. Check out the Duran on locals for an excellent discussion with energy people explaining how this works.
BTW, the German energy and finance ministers (GREENs) are either purposely misleading by using this statistic out of context OR are “unaware” (ie a useful idiot doing globalist work) Harback actually said she didn’t care what Germans went through this winter her goal was to support Ukraine no matter what. A breathtaking admission by a green globalist puppet. Germans that elected them are not their concern its the globalist agenda. Wake up people.

Steve Elliott
Steve Elliott
27 days ago
Reply to  Carol Jones

Thanks Carol, I did understand about the 84%. That was my point.

Paul Walsh
Paul Walsh
27 days ago

I have just read that gas futures are up on the closure of NS1, but still a fair way from previous highs. I guess this will be the best measure of how well the markets believe that Germany and EU have insulated themselves.

Martin Brumby
Martin Brumby
27 days ago
Reply to  Paul Walsh

Maybe.
But what will be the ‘best measure’ of how well the German people believe the EU / Ursula von der Leyen / Olaf Scholz / “the Markets” have done, come March 2023?
That is the REAL question.

Ian Stewart
Ian Stewart
26 days ago

Bye bye Putin?