Germany’s Energy History Is at the Root of Its Current Challenges

Over a year after the start of Russia’s attack on Ukraine, Germany is at the heart and center of current debate when it comes to energy dependence. Like most European countries, Germany did not have adequate time to wean off Russia’s rich and steady inflow of natural gas. But the impact of Russia’s abrupt supply cut-off dealt the heaviest blow to Germany, Europe’s largest economy.

This is because Germany is also one of the world’s largest importers of natural gas. Its steadfast reliance on Russia, dating back decades before the start of the war, has caused reprehensible damage, and while Germany has demonstrated its ability to pivot in record time, its energy landscape is being reshaped in direct response to the crisis. Years of work to shift its internal focus on the “Energiewende,” its transition to clean energy, has been undone in less than 12 months.

To grasp just how deep Germany’s reliance ran, in 2020, Germany outpaced Europe in gas import volume. It brought in roughly 64%, a slight decrease from the year previous by 3%, while the entire European Union (EU) imported only 58% of its gas.

As a result, Germany is on track to experience natural gas shortages for years to come unless it works to actively reshape its energy landscape. It is also now the world’s worst-performing major developed economy. A daunting setback from its earlier days in which the country was a consistent leader in luxury car development and other high-end products.

Viable Solutions

Doubling down to ensure energy security, the EU has taken a sharp stance on addressing the crisis by implementing strict gas storage targets. And fortunately, most countries of the bloc, including Germany, hit the 90% gas storage target ahead of the November 1 deadline.

Providing breathing room for long-term revisions to its energy policy, Germany is now exploring a host of different solutions. The country’s energy history provides some clear insight into not only what the best options may be, but also where the country failed to seal gaps in its existing energy plans.

Its history indicates that Germany has been slow to act when it comes to energy security. While not necessarily to blame, given ties with Russia have been strong and reliable for decades, the circumstances have slowed economic growth and industrial production, and resulted in inflation.

Ultimately, Germany’s domestic gas resources took their first sharp decline in 2004. The country’s usage levels began to far exceed its production levels. Driven by the exhaustion of its oil fields, coupled with changes in existing regulations and increased environmental regulations, Germany chose to abandon domestic projects and earmarked coal units for retirement.

Had Germany started its transition at an accelerated rate to renewables, or implemented internal safety measures to a degree, immediately following the depletion of oil fields and a reduction in domestic production 20 years ago, Germany today may have been in a different position. A clear downfall for the economy with a wave of criticism crossing into every aspect of its business model.

Future Solutions

In 2022, Germany recommissioned the use of coal units. In fact, coal accounted for 33% of electricity production last year, according to the Federal Statistical Office. Germany still has plans to ban coal by 2030, but for now, it’s opened itself up to all options.

Germany has made enormous progress on the side of domestic energy infrastructure. In record time at the end of 2022, Germany built its first liquefied natural gas (LNG) floater terminal and today is en route to completing its third. This signifies rapid progress for Germany’s energy independence.

Additionally, Germany has also reinstated domestic natural gas exploration projects. For example, it has licensed a historical area in Bavaria called Lech and Lech East to exploration companies. The size potential of the amount of supply in this area could bring about significant returns and supply Germany with a modest amount of oil. It also increased trading and made new deals with suppliers to fully replace Russian gas, and put in place measures to urge citizens to save energy.

Conclusion

This war has drastically underscored the importance fossil fuels hold in modern economies. Regardless of the shift to renewables, access to fossil fuels remains abundant. Its ability to energize societies remains reliable and, at present, critical. Ultimately, Germany’s historical decline in domestic production opened the country up to supply disruptions, geopolitical pressures, and much uncertainty. It remains to be seen whether Germany will be able to avoid shortages and further setbacks.

—James Hill is CEO of MCF Energy, a company established in 2022 by leading energy executives to strengthen Europe’s energy security through responsible exploration and development of natural gas resources within the region.