Russia Pries Open the German Energy Market
German Energy Sector Open For Russian Grabs After Merkel-Medvedev Meeting
The German government’s cave-in on nuclear energy has opened the gates to a new round of Russian expansion into Germany’s energy sector. This political decision has boosted demand for natural gas overnight, and with long-term consequences in Russia’s favor, since Germany is under-equipped with LNG import terminals. Even those energy concerns that had previously avoided dependence on Russia are now being drawn into partnerships with Gazprom and, for the first time, Novatek. Shorn of their nuclear power plants, German concerns now seek massive increases in Russian gas supplies for power plants and consumers in Germany.
The Russia-Germany Interstate Consultations, co-chaired by President Dmitry Medvedev and Chancellor Angela Merkel in Hannover on July 19-20, highlighted this trend.
In the run-up to the summit, RWE president Juergen Grossmann and Gazprom CEO Aleksei Miller signed a memorandum of understanding about a possible joint venture, or ventures, in Germany. This would involve selling stakes in RWE-owned gas-fired or coal-fired power plants to Gazprom, and/or building new plants in joint ownership. The Essen-based RWE (Rheinisch-Westfaelisches Elektrizitaetswerk) is Germany’s second-largest energy company overall and the number one electricity producer in its nuclear and gas-based plants.
Energie Baden-Wuerttemberg (EnBW), a major energy producer and supplier to municipal utilities in western parts of Germany (beyond the eponymous Land), seeks to create a joint venture with Russian Novatek in Germany. The Karlsruhe-based, Land-owned EnBW holds an option to acquire 48 percent of Verbund Netz Gas (VNG), which used to be the “German Democratic Republic’s” gas supply system, and continues to supply that same territory with gas. EnBW now offers to transfer that option to Novatek, in return for Russian gas supplies for EnBW. Whether the 48 percent option would go entirely to Novatek, or partly to Novatek and partly to a joint EnBW-Novatek to be created, is a matter under discussion. EnBW’s move defies the diversification policy advocated by the EU’s Energy Commissioner, Guenther Oettinger, who was prime minister of the Land Baden-Wuerttemberg before taking up his present post (2010).
Meanwhile, Gazprom and its earlier co-opted German ally, Wintershall, hold a blocking minority (26 percent combined, not counting allied minority shareholders) in Guenther Oettinger. This came about when Gaz de France (GDF Suez) handed over its 5 percent stake to Gazprom, in return for GDF Suez being allowed to join Gazprom’s Nord Stream project as a minority shareholder. The proposed sale of shares from EnBW’s option to Novatek can turn the blocking minority into a Russian or Russian-led majority.
Inaccurately described in German and international media as an “independent producer,” Novatek is controlled by Prime Minister Vladimir Putin through his close associates. Gennady Timchenko (head of the Gunvor oil trader in a parallel line of business) and Leonid Mikhelson (Novatek president) are reported to hold more than 20 percent each of Novatek’s shares, aggregating 51 percent between them.
Germany’s largest energy company overall, E.ON, is also hard hit by the abandonment of nuclear power in Germany. Its natural gas subsidiary, E.ON Ruhrgas, is now being targeted by Gazprom for a possible buy-in. Gazprom CEO, Aleksei Miller, first announced this intention explicitly at the recently held general meeting of Gazprom’s shareholders. German government officials reacted with open minds to this idea in the run-up to the Merkel-Medvedev summit.
Ruhrgas is a major importer of Russian gas and a partner to Gazprom in major transportation projects, but has always maintained its corporate independence from Gazprom. The concern’s CEO, Johannes Teyssen, met with Miller during the Merkel-Medvedev summit and said afterward that he did not expect Ruhrgas to become a takeover target for Gazprom. He used the curious argument that the buyer [Gazprom] would acquire not only a stake from Ruhrgas but also the problems associated with it, such as slumping share price, market turmoil, and Germany’s political problems affecting the energy sector.
This month, the Gazprom-Wintershall joint venture Wingas together with E.ON Ruhrgas are completing the construction of the OPAL pipeline (Ostsee Pipeline Anbindungs Leitung – Baltic Connector Pipeline), running from the Baltic coast to the German-Czech border. With a capacity of 36 billion cubic meters (bcm) per year, the line is dedicated to transporting Russian gas from the Gazprom-controlled Nord Stream pipeline into Germany’s interior.
Gazprom and its German partners insist on exclusive use of the OPAL pipeline’s capacity, contrary to EU anti-monopoly legislation, and despite the near-certainty that Nord Stream volumes will be far from sufficient to fill the line’s 36 bcm capacity. OPAL exemplifies the implantation of Gazprom-led, vertically integrated monopoly arrangements in Germany (Wingas is another example). The German competition agency, Kartellamt, is examining the proposed regime for OPAL in light of anti-monopoly legislation since this project’s inception in 2009.
Following Germany’s repudiation of nuclear power, and consequent jump in demand for Russian gas, German authorities will find it even more difficult politically to challenge Russian expansion into Germany’s energy sector. Dependence on Russian supplies will increase further, and Gazprom seeks for the first time now to leverage that dependency into acquiring energy-generation assets in Germany.
Vladimir Socor is a Senior Fellow of The Jamestown Foundation and a regular contributor to Eurasia Daily Monitor. He is one of the foremost experts on NATO enlargement, as well as political, diplomatic and energy affairs in the Baltics, Belarus-Ukraine-Moldova, the South Caucasus and the Caspian.
Further Reading: European Energy Review - Gazprom: Back in the game - and ready to take on Brussels (HERE - registration required)