The business magazine Wirtschaftswoche summed it up with a recent cover: Vladimir Putin controls Germany the way an agent controls an alcoholic. Natural gas is the drug of choice.
It is clear that the wisdom of Putin’s strategy now that the Russian tanks are rolling. Sanctions in effect would ban Russia’s energy exports or pay for them through the international banking system. But that heavy blow to Russia’s resource-dependent economy would hurt the Germans badly. The energy policy blunders of their leaders are obvious.
Prime Minister Olaf Scholz only stopped the second pipeline, Nord Stream 2, when Russia was invading eastern Ukraine. This will double the imported capacity to 110 billion cubic meters.
The first Nord Stream pipeline system delivered 2/3 of Germany’s imported energy. Half of the 40 million households in Germany keep warm using natural gas, 97 percent of which comes from abroad.
Scholz’s predecessors were Gerhard Schröder, a friend of Putin’s who is now a Gazprom board candidate, and Angela Merkel who steered Germany in the direction of addiction. According to official figures, renewables confirmed by Ms. Merkel provided 44% of the country’s energy output in the first half of 2021. But she also ordered the closure of nuclear plants.
Fossil fuels generate most of Russia’s foreign income. Last year, Russia’s natural gas exports brought in $55.5 billion – mainly from Europe. This is the highest level since 2013. The price of natural gas in Europe has increased fivefold compared to last year. The futures curve is now flat, says consulting firm Rystad Energy. Concerns about Russian supply disruptions prevented the typical spring and summer slide.
The full annexation of Ukraine would strengthen Russia’s grip on Western European energy supplies. Ukraine will no longer be a transit country that can cut exports through its aging pipeline system.
In the short term, Putin has the whip. Autocrats may be happier contemplating the hardships of their fellow citizens than democratic politicians. The West is unlikely to impose an outright gas export ban. Germany has several other energy options. Conventional sources, such as coal and nuclear, are politically incompatible with the Greens, a member of Scholz’s coalition government.
In the long run, Germany must build up alternative gas supplies. Finally, it will heed US warnings and the Nord Stream 2 mothballs forever. Invest in liquefied natural gas import terminals. It has no activity and only one is under construction.
The easier, cheaper choice would be to open Nord Stream 2 after the new Russian invasion has faded into recent history. Politicians will refer to this as “normalization of relations”. Pretending a provider is a friend is a telltale sign of an addict.
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