Natural Gas in Germany: An Uncertain Future
A self-described “hands-on guy,” Stephan Dewald, Executive Manager Legal/Projects/Operations, dlp - dewald law & projects, has worked in the upstream and midstream and downstream segments of oil & gas in Germany, notably for Wintershall and Wingas. In addition to being a hydrocarbons consultant, he also advises on offshore wind projects and acts as an arbitrator.
In an exclusive interview with Natural Gas Europe, Mr. Dewald offers his views on, among other topics, how Germany and others will fare if Russia cuts natural gas supplies to Europe this winter, and how the oil and gas industry is doing in Germany, given the country's green sentiments and commitment to renewable power.
Given his former position as Chairman of Wingas Storage UK Ltd, we asked him what it means for countries like Germany in connection with gas deliveries and storage, with Europe facing a possible natural gas supply cut with the onset of winter and the continuing crisis in Ukraine.
Mr. Dewald says he believes the Russians will use the situation to pressure the regulator in Germany. He explains, “We have regulations , not on Nord Stream itself, which is an offshore pipeline, but for the grid which is connected with the NEL going to the Netherlands, and the OPAL going from north to south to the Czech Republic. There are some limitations: the Russians have always complained that they can't run Nord Stream as planned, and if they could now fill up Nord Stream with more gas because we might have a crisis through Ukraine, I think they can fully compensate this, especially via OPAL. The capacity can go down to the Czech Republic, where a lot of gas is arriving from Ukraine.
“There might be a shortage or even an infrastructure problem in the very south of Germany and I assume Austria and other countries might experience some trouble because I don't know the reach of the OPAL, volumes down to Austria – these will have to be checked. On the other hand the gas underground storages in the south are a good backbone to fight a crisis.
One of the major problems for the grid , he explains, is the inability to be sure that customers receive all the gas they've booked traditionally. “I think these days that the system is so optimized that there is no spare capacity really around, which means if you have a crisis in the south and your pipeline is full for your customers, to what extend can you support the south?” he queries.
This signals an internal problem, both in Germany and Europe, according to him, that grids are so well optimized.
“The reverse-flow aspects I think are now solved, which was the outcome of the first Ukraine crisis, that we now can do some reverse-flow to Hungary and other countries. That's fine, but first of all you need the gas volumes to be able to bring it down from the north, from LNG or however.”
In that context, as to whether there is a rationale for South Stream, Mr. Dewald says there is, but only if the Ukraine crisis subsides, as the pipeline project has become a political issue.
“I think this will now be used by the EU to pressurize Russia and to tell them 'you play by our rules, or you're out.' This may be a tough game – we'll see,” he says.
“If we had South Stream, we wouldn't need Ukraine at all, and I'm not sure this would be good for the Ukraine crisis, because then the world, or Europe, would pay less attention to what happens there.”
In Germany, Mr. Dewald reports, Russia's reputation as a gas supplier has become a bit fuzzy. He recalls, “During the Cold War, and during the 70s and 80s when it started, the Russians always delivered on time, always paid back the money we lent them; therefore, there was never any trouble, but I think political opinion in society is going to change – Unfortunately they do not trust them any more based on what they're seeing now.”
Meanwhile, natural gas is taking a beating in Germany, he says.
Today, he offers, the main natural gas producers in Germany are ExxonMobil, RWE, GDF and Wintershall, as well as smaller players that are trying to enter the market, like Vermilion, BNK Petroleum, CEP Central European Petroleum, and others who have acreage.
Mr. Dewald reports, “All the gas we have domestically is something which is relatively cheap, and companies are still earning a lot of money with gas produced here in Germany. The proportion used to be 20% of the entire gas consumption in Germany but now it's down to nearly 10% and will go further down, because we are not going for shale gas.
He observes that such companies have really lost their reputation upstream-wise and midstream-wise on gas, despite the fact that people are still reliant upon gas in Germany.
“I think Wingas especially has to fight to keep the trust, because they will be 100% owned by Gazprom. This will not be very easy for them, but gas is still accepted in Germany, as is underground gas storage because you don't see them.”
And, despite the pending nuclear power phase-out in Germany, set for 2022, he says the country's consumption of natural gas will not be increasing.
“It would be a good chance to build up gas power plants,” he explains. “The main conversation is that nuclear power plants are being covered for by the renewables, meaning to a good part wind. On the other hand, to compensate and keep the net and grid stable you need gas power plants for electricity, but they are always stand-alone projects, so we've made a big mistake in not combining: when we build a windfarm offshore I think you have to build a powerplant fired by gas to compensate the instability of your electricity. If these were combined, I think there would be an economical chance for gas power plants resulting into an increase of gas consumption.”
Despite this, he says virtually no company would be willing to do that, even for the most modern gas-fired power plants. “Even the most modern are shut down, because it's not economical anymore. Therefore, I doubt that there are any companies brave enough to say they're going to plan and build one, which takes at least 8 years.”
This is especially so, he says, in view of a big campaign in Germany to insulate households, and numerous other possibilities for domestic heating.
Not that long ago, he recalls, Germany was at peace with oil & gas exploration and production, but that's no longer the case.
“In the past, especially in oil and gas, upstream was very popular,” he recalls. “It had a good image. They were creating a lot of value. We have a kind of royalty system in Germany whereby it's up to the state to decide every year whether they take royalties or not, ranging from 0 to 40%. So whenever the prices were very high they increased the royalties, and when the prices were very low to support and continue local and domestic production, they lowered it again.
“So, in the end there was always a very good relationship between the industry, politics and society at large.”
These days, he admits, upstream has been under the microscope in Germany, mostly due to the bad reputation of hydraulic fracturing in Germany (which, thus far, has been under a moratorium).
He explains, “People in Germany are really going crazy over fracking. There are no real reasons for this – it's more a political aspect and a development we see in our lives in general, that everyone seems to be informed when actually they are not.”
Germans are even against many majorprojects that have been through long approval processes with the society, notes Mr. Dewald. “This is now the new culture we have,” he says, “and the politicians as well as the big companies do not really know how to deal with it.”
He reports that there are even municipalities in Germany with signs at their borders declaring that no fracking is going on.
“This is not their political business but that of the mining authorities,” he remarks. “People are very emotional about such things and the industry was not quick enough to communicate in a proper way.”
Fracking is something that has been done for 25 years in Germany, he says, a fact which many people are unaware of. “It's a different fracking indeed, but if you go for shale gas fracking you go for the rock source which is often deeper than the gas cap of a normal gas field so you go deeper.
“This is what people do not understand, they can't distinguish, and the oil companies here are really helpless,” he adds.
Mr. Dewald explains that the same sort of overly-cautious atmosphere prevails regarding wind power developments in Germany as well. Just a decade ago, he contends, such developments would have received their permits, but those days are over.
He remarks, “It's unbelievable how they've increased the standards without technical need, just to be on the safe side, so that you come to a point where it's not even technically feasible anymore to build it.”
As an example, Mr. Dewald says that for a transformer platform that is being built which needs a foundation on the sea bed, by 4 piles up to70 meter-long with a diameter of 3-to5 meters are being installed. Such measures, he says, are not even taken for oil & gas production platforms, which are less heavy but arguably higher risk. “So I think this characterizes the atmosphere we have in Germany, that we overdo it a little bit. We pretty clearly understand how important energy is and that we have to change, but we are so slow, so expensive, so unreliable even for investors that they step back and say, 'well, I don't know what's going to happen here.'” We have to be straighter on our 'Energiewende' and better in balancing the fear of the public and the energy needs of the future - and have to speed up."
-Drew Leifheit