Germany to wean itself off Russian oil, gas in next 2 years

The famous Reichstag building, seat of the German Parliament Deutscher Bundesta, in Germany Source: iStock/photosvit

Germany plans to stop almost all Russian oil imports this year and broadly wean itself off the country’s gas by mid-2024, a hugely ambitious plan that poses complex logistical hurdles for Europe’s biggest economy.

As Economy and Climate Minister Robert Habeck unveiled the plan on Friday, he once again made clear that Germany will not back an immediate embargo on Russian energy, as the cost to business and households would be too great. At the same time, Chancellor Olaf Scholz has pledged to become independent from Russian energy “as soon as possible.”

Germany, which has limited natural resources of its own, allowed itself to become reliant on Russia for more than half of its gas, almost half of its coal and about a third of its oil and the invasion of Ukraine has been a colossal reality check for policy makers in Berlin.

“In recent weeks, we have made intensive efforts together with all relevant players to import fewer fossil fuels from Russia and to put supply on a broader footing,” Habeck said. “The first important milestones have been reached in order to free ourselves from the grip of Russian imports.”

Germany wants to halve imports of Russian oil by mid-year and be “almost independent” by the end of 2022, Habeck said. It could be completely free of coal imports by the fall, he added.

The government acknowledged it will be difficult to remove Russian oil quickly from supply chains and is rushing to make complex plans to line up deliveries by sea, truck, and train.

The biggest part of the challenge lies in eastern Germany where the refining industry’s logistics are set up to essentially turn crude from Russia into fuels for consumers.

Cutting Germany’s reliance on Russian gas is also a major challenge, partly due to a lack of the necessary infrastructure like liquefied natural gas terminals, Habeck said.

He has held talks recently with officials in Norway and the Middle East in a bid to diversify supplies, while the U.S. and the European Union said Friday they will push to boost supplies of LNG to European countries by the end of 2022.

A paper by Habeck’s ministry entitled “Progress Report Energy Security” published Friday said that gas independence from Russia can be “largely achieved by the summer of 2024” with a “big joint effort” that would cut the share in Germany’s import mix down to 10 per cent.

Analysts expressed skepticism about the feasibility of those plans.

“Sounds pretty unlikely and probably impossible,” said Niall Trimble, managing director of consultants Energy Contract Co. “The main alternative is LNG, but this market is very tight with few surplus cargoes available,” Trimble said. “For Germany there may also be issues with access to LNG import capacity.”

Germany’s energy pivot

  • Plan in motion for KfW, Gasunie and RWE to construct LNG terminal on north coast
  • Options on three floating LNG terminals in cooperation with RWE and Uniper
  • Government looking at potential locations on the North Sea and Baltic Sea
  • Facilities can be come online at short notice -- in some cases as early as next winter
  • Ramping up oil imports via truck, rail, sea; talks ongoing with Poland on using Danzig port

An expansion of renewables, a broad reduction in demand, diversification of suppliers and ramping up production of clean hydrogen are also essential elements for Germany’s energy shift, Habeck said.

“Even if we become less dependent on Russian imports, it is too early for an energy embargo at this point in time,” he said. “The economic and social consequences would still be too serious. But every supply contract that is terminated harms Putin.”

© 2022 Bloomberg L.P.

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