Cold Turkey: How Germany Could End Russian Gas Dependency
Part 2: Expanding Pipelines
The region surrounding the Caspian Sea, which is believed to have immense natural gas reserves, is a logical first place to look in the attempt to reduce dependency on Russia. Several gas fields are already being developed, including Shah Deniz, located around 70 kilometers (43 miles) southeast of Baku. Countries like Azerbaijan are indeed very willing to deliver gas to Europe. The only problem at the moment is that there's not a single pipeline in the area that isn't controlled by the Russians.
It's a problem a consortium of international energy companies now says it wants to tackle. The investors include German energy utility company E.on, Norway's Statoil and Britain's BP. The project foresees the expansion of an existing pipeline from the Caspian Sea through Azerbaijan and Georgia, the construction of a pipeline across Turkey and another that would then carry gas through Albania and Greece to Italy. The project, known as the Trans-Adriatic Pipeline, is targeted for completion by 2019 and envisions around 10 billion cubic meters of gas being transported to Europe each year. But with banks proving hesitant, it remains uncertain whether the project will ever be carried out.
Indeed, a similar project, the Nabucco pipeline, collapsed in 2013, despite the participation of major energy companies like Germany's RWE. Even the European Commission had offered its backing for the project. But in the end, the consortium threw in the towel in frustration after years of planning.
One factor in the failure was interference by Gazprom CEO Miller, who felt the undertaking threatened his lucrative business model. Gazprom is able to sell its gas in Europe at comparably inexpensive prices due to decades of significant investment in a pipeline system stretching over thousands of kilometers. Nord Stream, the pipeline directly connecting Russia with Germany and completed in 2011, even makes it possible for Miller to circumvent countries he views as politically unreliable, including Poland and Ukraine.
An alternative pipeline from Azerbaijan has the potential to challenge his entire system. In fact, Miller is now pressing ahead with the construction of his company's own pipeline for Caspian Sea gas. When completed, the South Stream pipeline will traverse the Black Sea through Bulgaria and into Austria. Last Tuesday, Miller and Austrian oil and gas producer OMV reached an agreement to extend the planned pipeline into Austria.
Miller isn't just planning to use the pipeline to transport Russian gas to Europe. He also wants to pass along natural gas purchased by Gazprom in the Caspian region -- from the same areas where the Western Europeans are currently seeking to exploit reserves.
The Biogas Option
Given that gas isn't found exclusively beneath the ground, other alternatives are also available. For example, plants rich in pulp like corn or sorghum can also be used to produce natural gas. Around 40 kilometers northwest of Berlin, in the city of Oranienburg, KTG Energie operates one of its 21 biogas plants.
At the plant, a shovel loader dumps slightly sulfuric smelling organic compounds into a steel tank at regular intervals. A spiral conveyor belt then transports the mass up into the fermenter. "The way we feed the plant is like fattening geese," company CEO Thomas Berger says, grinning.
KTG Energie is majority owned by KTG Agrar which, with around 40,000 hectares (98,842 acres) of farmland, is one of Europe's largest agricultural companies. The company uses grass and other low-value grains to produce energy around the clock. Two combined heat and power units transform some of the biogas into electricity, producing enough to provide the needs of around 4,000 homes. But a much larger share of the biogas is purified in order to make it compatible with natural gas and is then fed at high pressure into the network of the local gas supplier.
Currently, the volume of biogas being produced in Germany is equivalent to about 20 percent of what the country is importing from Russia. Berger estimates that modern technology could be used to double that figure in a very short time. "Only a few months would be required to increase production," he says.
An expansion like that also wouldn't automatically have to mean that plant operators would suddenly have to increase the tonnage of corn they use, one of the important points of criticism in biogas production, since it puts gas in competition with food production. KTG Energie works primarily with so-called catch crops like grass or sorghum that are seldom used in food production, Berger explains. "We're creating a solution for the gas tank and the dinner plate." He says that organic waste can even be used to produce biogas.
He argues that there's only one hitch: Plans by German Economics Minister Sigmar Gabriel to phase out federal subsidies for biogas. The latest amendment to the country's Renewable Energy Law (EEG) already introduces reductions to the current feed-in tariff -- particularly for highly efficient plants. With it, Gabriel is seeking to set an upper ceiling for subsidies. "It punishes performance," Berger says.
Though this change may help to contain the escalating costs of Germany's subsidies for renewable energies, it is unlikely to do much to reduce its dependence on Russian gas.
Alternatives Possible, But More Expensive
Nevertheless, reducing independence is a goal that would still be entirely possible with the help of modest efforts, including increased biogas production, additional LNG imports, the exploitation of domestic reserves and the prospect of importing gas from the Caspian Sea region. Of course, none of these alternatives will be available overnight. Most importantly, higher costs are an inevitability.
There's also another alternative that could be put into place relatively quickly. Germany could establish a strategic natural gas reserve. The country has plenty of gas storage facilities, and the German Economics Ministry also has plans ready which would enable it to order the operators to maintain minimum reserves of gas.
The question is who would pay for this storage. Would the costs be picked up by the natural gas companies or passed on to consumers or taxpayers?
The German government already made this decision years ago in regard to another important energy source. Following the price crisis of 1973, it required national suppliers to create reserves in their storage facilities for crude oil and oil products to ensure a minimum of a 90-day supply in the event of an emergency. Since then, the costs have been passed on to consumers, who are required to pay 0.27 cents per liter of gasoline for the service. That's the price of a little more independence.
Translated from the German by Charles Hawley and Daryl Lindsey
- Part 1: How Germany Could End Russian Gas Dependency
- Part 2: Expanding Pipelines
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