At the end of February this year, Norway's Energy Ministry published information on hydrocarbon reserves in light of geological survey data obtained in an area which came under Norwegian jurisdiction under an agreement with Russia in 2010. The information confirmed speculation by experts regarding the presence of high-grade deposits: Norwegians estimate that the volume of their new resources is 31 percent higher than previously calculated, 85 percent of which is natural gas and the rest – oil. (1)
What are the implications of this for Russian gas exports to Europe, including to Germany? Shortly before the report on the increase in Norway's reserves, German Chancellor Angela Merkel paid a visit to Oslo accompanied by representatives of German companies that import and extract Norwegian oil and gas.
Norway has half of Europe's oil and gas reserves (excluding reserves in Russia). The country extracts more oil than the rest of Europe and in terms of gas, Norway outstrips the European Union's record holder, the Netherlands. Norway is also believed to be a thoroughly reliable fuel supplier: this was confirmed by a questionnaire distributed to experts from Germany, the Netherlands and Austria in January this year (2). The Scandinavians have a serious problem, however: the depletion of resources. This primarily affects oil, the production of which has fallen by more than one and a half times over the last ten years. Between 2001 and 2011, proved resources of natural gas diminished from 2.2 to 2.1 trillion cubic metres (3), but with regard to the revaluation of reserves, the situation has somewhat improved: additional reserves in the Barents Sea make up 0.23 trillion cubic metres.
The active development of reserves in hard-to-reach parts of the Arctic Ocean is associated with solid investment; to alleviate the task, Norway has decided to make use of the military infrastructure already in place. According to Norwegian Oil and Gas, growth in investment will continue until 2017. It is therefore unsurprising that the German Economics and Technology Ministry is looking at Norway as a priority area for Germany (4).
For their part, German companies are also widening their involvement in hydrocarbon production. In 2012, every German company engaged in the exploration and production of oil and gas took part in a tender for licences initiated by the Norwegian Ministry of Energy. Of the 51 licences issued by Norway, Germany received 18. German energy company Wintershall, the leader in terms of the amount of licences for production in Norwegian waters, is the most active. In addition, an exchange of assets took place between Wintershall and the Norwegian state company Statoil in 2012 and an agreement was reached on the mutual supply of gas over the next ten years.
A noticeable role is also being played by German company RWE Dea. The situation surrounding this company deserves close attention. The RWE Group implemented an asset sale programme in which the production company RWE Dea was initially included. In March 2012, the company was excluded from the list of sales, but recently everything changed: it is for sale and, what is more, it is for sale in its entirety. In our opinion, this decision regarding the company, which has earned the group noticeable profit over the last year, is evidence of the fact that the management of RWE is not pinning any hopes on their gas business in Germany. It is apparently a question of long-term strategy, if we remember the futile negotiations with Gazprom in 2011 and the rumours surrounding a possible withdrawal from the Nabucco project, in which RWE has a 16.61 percent stake. The withdrawal of the German company Bayerngas from negotiations with the Nabucco consortium (January 2013) can also be seen in the same light. In addition, Bayerngas is energetically taking part in the development of fields in Norway.
As for Angela Merkel, she expressed a high opinion of the working conditions for German companies in Norway: «We are extremely satisfied with local investment conditions and I think that in this regard, we can expect a bright future» (5).
Norway is apprehensive about the future of its own investments in Germany, however. Norwegian Prime Minister Jens Stolternberg referred to large-scale investment (680 million euros) in the gas receiving terminal in the German city of Emden. At a press conference with the German Chancellor, the Norwegian Prime Minister expressed hope that «gas has a future» (6), despite the fall in global coal prices. The implication is that in Germany, an increase in coal consumption will take place at the expense of gas. Companies are openly expressing their own concerns regarding the future of the German gas industry. The head of Wintershall, Dr Rainer Seele, stressed that to deepen the energy partnership with Germany, which Norway is willing to do, a «planned guarantee that the German market is not going to collapse» is needed (7). It is unclear whether gas in general will be needed for Germany's future and Norwegian gas in particular. For the time being, more than a quarter of all revenue from Norwegian gas exports is provided by sales to Germany, and the Norwegians are interested in increasing their supply.
The response from Angela Merkel was vague: the Chancellor began by saying that private companies, rather than the government, deal with gas imports. That is true, but the level of state intervention is so great that when it comes to the German energy industry, people often talk of a planned economy. Renewable energy is virtually immune from competition with other types of energy. The acute problem of energy supply was reliability, since fuel power plants not dependent on weather and climate conditions are unprofitable. This primarily concerns stations that use more expensive fuel – natural gas. At the end of last year, 29 thermal power stations were under threat of closure in the federal state of North Rhine Westphalia alone.
The use of gas in the energy industry is also being hampered by conditions established by the Third Energy Package, although in this case, it is more about the European Commission's interference in the energy industry, rather than the national government’s. Last winter, it was shown that the main threat to energy supplies did not come from reduced import deliveries, but from gas pipeline shortages within the country. The head of Wintershall puts it simply: «If… the Federal Network Agency orders that you can only have limited use of its pipelines, then you will not invest at all» (8).
Subsequently, it is the federal government that is determining the future of unconventional gas production in Germany (meaning shale gas, gas from coal seams and tight sands; all of these refer to the use of the hydraulic fracturing method for the development of fields). The Bundestag rejected proposals from the Left Party that production be prohibited (as it is in France) and from the Greens for a 30-year moratorium on the production of unconventional gas. At the present time, a law is being finalised in Germany which regulates the conditions of this type of production. If the bill is not blocked by the opposition, the issue of developing unconventional gas in Germany will move from the political arena into the sphere of economics and become the concern of producer companies. At this point, Wintershall is ready to affiliate itself with the American company ExxonMobil, which has already drilled six wells.
So it is private companies that officially deal with the import of gas, but in reality their strategy is moulded by the government. During negotiations with the Norwegian Prime Minister, the Chancellor assured him that no matter how much demand for gas changes within Germany itself, Norway will remain its strategic partner in the sale of gas. «In politics, we are placing a huge bet on Norway». Such a statement sounds like a warning signal for Russian exports, especially on the back of plans to produce unconventional gas.
Is there a way to reverse this trend? What does the experience of Germany's energy partnership with other foreign partners say on that score? In connection with the Desertec project for North African countries, for example, the idea was expressed that owing to generation based on renewable sources, oil and gas exporters (Libya, Algiers, Egypt) could increase hydrocarbon exports to Europe. This idea fell on deaf ears in countries rich in oil and gas, however.
It is interesting that Norway would also prefer to limit its energy partnership with Germany to the supply of fuels and the participation of German companies in the development of fields. However, Germany needs the output of pumped storage units which only Norway is able to provide (the UK has similar plans and an underwater cable from Denmark is already in operation). The outcome of a recent meeting between Germany and Norway confirms that for environmental reasons, Norway finds the role of gas exporter more attractive than the role of an accumulator supporting European wind energy. Accidents on offshore drillers do not happen very often, but the construction of pumped storage units destroys the ecosystem irreversibly.
Not having obtained reliable assurances from Germany regarding the sale of natural gas, should Russia itself initiate cooperation with Germany in the field of renewable energy? In other words, to provide a market to German companies with the expectation of guaranteed gas sales? Judging by the recent bilateral seminar «Dialogue on Wind Energy», Russians are prepared to go down that road. In the invitation to the seminar's participants prepared by Germany, emphasis was placed on the amount of investment earmarked by the Russian government (USD 20 billion), which would open up new horizons for German exporters.
In our opinion, Russia should select its foreign partners for a wind energy programme with great care. In the near future, German wind turbine manufacturers are at risk of repeating the unfortunate experience of their colleagues – photovoltaic cell manufacturers. As a result of competition from Southeast Asia, the industry experienced a series of bankruptcies in 2012. Bankruptcies are now also being seen in the wind energy sector: SIAG Nordseewerke (Emden, 700 employees) and the Sietas shipyard (Hamburg) have been the first to fall victim. It is probably not worth Russia building up its hopes that the purchase of German energy-purpose engineering products will be of benefit to the Russian-German energy partnership as a whole. If Russia needs wind turbines, it would be more beneficial for the country to purchase them in China, laying the foundations for a long-term energy partnership with its Asian neighbour. Another more attractive option would be to establish production at home, or in cooperation with a strategic partner like Belarus which, by the way, is interested in producing its own renewable energy.