Matthias Warnig. If you don’t know the name, he is a German natural gas executive. And a friend of Russian President Vladimir Putin's. The czar's loyal courier. Or the dark Rasputin of German gas policy. Whichever you like.
Warnig, CEO of Nord Stream AG, the company behind the Nord Stream natural gas pipeline that leads from Russia to Germany, is sitting in the lobby of a Berlin hotel in early May. He has the self-confidence of a man who has his own initials stitched onto his shirts. Or, should we say, Warnig had that self-confidence? Was a friend of Putin’s? Thought that he knew Russia?
It almost certainly isn't good for your self-confidence when you end up on an American sanctions list and can no longer withdraw money from the cash machine as a result – and even the online shop where you used to order your coffee capsules has cut ties with you. But even more than self-confidence, say those close to him, Warnig has lost his self-conviction.
Just a week prior to Putin's invasion of Ukraine, Warnig was in Moscow. Even at that late date, he still thought that Putin wouldn’t simply throw away all that Warnig had been working toward for half his life: The Baltic Sea pipeline Nord Stream 2. Investments adding up to over 9.5 billion euros. The German-Russian energy partnership that also played a significant role in Germany's reunification – at least in Warnig's view. Now, he is faced with digesting his radical misjudgment of his friend Vladimir.
Peter Altmaier is also intimately familiar with Germany's natural gas imports and the reliance on Russia that expanded year after year. The mutual dependence – money for gas. Altmaier, sitting in a Berlin beer garden on a recent afternoon, approaches it with the sobriety of the historian he always wanted to be. But instead of pursuing his academic inclinations, he became former Chancellor Angela Merkel's environment minister, her chief of staff and, in his last cabinet position, economics minister, a post he held until the end of 2021.
No, Altmaier says, he wasn't wrong about Putin, insisting he had long suspected the Russian president might be dangerous. He says that when Putin marched into Georgia in 2008, he jettisoned any illusions that he might still have held about what the Russian president was capable of: pure brute force. But Altmaier erred nonetheless, not believing that it would ever be possible for Germany to come up with the idea of withdrawing from Russian gas on its own accord. He wasn't prepared for it, and neither was the country he helped lead. In a sense, he is the personification of the German-Russian schizophrenia – political opponents but natural gas allies – which was to guarantee cheap natural gas as a bridge to a new era. Gas was seen as the buffer for Germany's shift to renewable energies, a shift that only made halting progress during Altmaier's tenure as economics minister. Today, he finds himself forced to admit that he miscalculated regarding the time Germany had at its disposal to make the shift.
Jürgen Hambrecht also knows plenty about natural gas, in the way a junkie knows all about the drug he yearns for and knows precisely how to obtain it. Hambrecht was a natural gas addict. Or rather, the company that he led for many years was addicted: BASF, the multinational chemicals conglomerate based in Ludwigshafen, one of the largest consumers of natural gas and energy in the republic. Hambrecht receives his guest in the BASF restaurant, where the pairing of a glass of Riesling with the fish is no mistake – just as Hambrecht fails to see where his company might otherwise have committed errors. BASF was a main driver of Germany's gas romance with Russia, and actively helped bring the gas into the country through its subsidiary Wintershall. Good, cheap tonic, mainlined through a pipeline and transformed into chemicals by BASF and used as energy for the country.
Russian President Vladimir Putin inaugurating a pipeline in the city of Khabarovsk in 2009.Foto: Ria Novosti / REUTERS
It's just that Germany's political leaders, Hambrecht believes, went down the wrong path. First, the phaseout of nuclear energy, and then the phaseout of coal, amounting to an overreliance on natural gas from Russia. What should be done now? Hambrecht doesn't see liquefied natural gas and green hydrogen, both of which won't really be available within the decade, as real alternatives. "We can't just turn off the gas," Hambrecht warns, and he is also opposed to a natural gas embargo. At BASF alone, the jobs of some 40,000 people depend on reliable natural gas inflows. What Hambrecht has trouble understanding, though, is how Germany could have made such huge mistakes in its energy policy.
Fifty Years of German Delusions
Three men, one country and a whole slew of misjudgments. February 24 didn't just mark the beginning of the Russian invasion of Ukraine, it has also triggered an era of reckoning with German fallacies: that Russia is a reliable partner, that natural gas could never become a political weapon and that business and politics can be neatly divided. German delusions.
Now, though, it seems that Putin has chosen to use his natural gas deliveries to Germany as a weapon. Last week, Russia cut the amount of gas being sent to Germany through the Baltic Sea pipeline Nord Stream 1. The dubious justification: Repair work. Economics Minister Robert Habeck announced an increase to the natural gas alert level and called the move from Moscow an "economic attack" and a "serious situation." His emergency plan calls for Germans to cut their energy consumption and for companies to save on gas and sell their unneeded capacity at special auctions. And his top priority is filling Germany's natural gas storage facilities with help from billions in loans from the state-owned KfW development bank. No matter what the cost – even if it involves sacrificing fundamental convictions held by the environmentalist Green Party, to which he belongs. Habeck is even willing to bring phased-out coal-fired power plants back online if need be – plants that emit twice as much CO2 as their gas-fired counterparts.
Who ever could have imagined such a thing?
But misjudgments aren't all. Plenty of bad decisions were made as well. The war in Ukraine has mercilessly shown how Europe's largest industrialized country badly erred on energy policy and delivered itself into Putin's arms. There were plenty of promises and announcements, but never a clear plan – at least not one that was quickly implemented to rapidly and securely enter the age of renewable energies.
Instead, the government simply allowed itself to be cast about on the waves of world events like the Fukushima nuclear disaster and be pushed around by wind turbine opponents and climate activists. And it adhered slavishly to its balanced budget ideology, potentially sacrificing security along the way in the form of a stable natural gas reserve. Most of all, though, the government surrendered itself to industry, essentially transferring the public task of energy supply security to the private sector. Erecting high-voltage lines as the backbone of the energy grid? Building wind parks? Importing raw materials and establishing a sufficient cushion? The government apparently trusted the market to take care of all that. But the market doesn't take care of anything that doesn't produce a profit.
Anyone could have recognized that energy shortfalls were a distinct possibility. Instead, though, Germany's political parties forged ahead and set about abandoning technologies to save the climate. The nuclear phase-out was accelerated in 2011, followed by decision to phase-out of coal in 2018. And along the way, Germany decided not to access its own natural gas, since it involved fracking, and shunned natural gas from the United States for the same reason.
But the great energy transition failed to materialize, or at least it hasn't taken shape quickly enough. "We elevated our climate goals, but even today, we still don't know how we are going to achieve them," says a leading economic policymaker from the center-left Social Democrats, the party of Chancellor Olaf Sholz. Altmaier also speaks of how surprised he was when he became environment minister in 2012 and found no master plan waiting for him for how the country planned to secure its energy supply while also phasing out all fossil fuels by 2050.
Time Has Run Out
As a result, desires have transformed into a reality in which the approval process for a wind turbine can sometimes take as long as six years. And in the meantime, political and business leaders elected to rely on what was left, and which was the most profitable for companies anyway: cheap Russian natural gas. And nothing changed even when Putin demonstrated in 2014 that he would pursue his dream of great Russian power even across international borders and into the Crimea. And a bit later in the Donbas and Syria. And that a few dead bodies wouldn't stop him.
It was only the large-scale invasion of Ukraine that has now led to a radical rethink. And the fracture could not be deeper, nor the shock. Hopes for the shift to renewables have yielded to fears that Germany may face an energy shortage – that apartments will go unheated and factories might have to shut down . It is the comeuppance for a six-decade-long era that started with a political belief that autocracies could be opened up through trade and dialogue – so-called Wandel durch Handel. The end result was that until recently, Germany imported fully 55 percent of its natural gas needs from Russia, a dependency that is now to be reduced as rapidly as possible – "to zero, forever," as German Foreign Minister Annalena Baerbock promised in Kyiv. And once again, the government is making a dangerous bet.
How did Germany get here? DER SPIEGEL spent months poring over files and speaking with business and political leaders. The result: Mistakes were made and some illusions proved to be misguided. But it is also the case that the inadvisability of some decisions only became clear once Putin invaded.
"The energy dependency on Russia was rational, everyone profited," says Rolf Martin Schmitz, until last year the CEO of German energy company RWE. "Just that the plan didn't foresee a despot like Putin. That wasn't part of the equation."
In contrast to the risks potentially posed by nuclear power, the potential dangers associated with Russia always seemed manageable. It was just one of many variables that Germany had accepted in the globalized world. Just like the dependence on China for manganese, rare earths and computer chips – or grain from Ukraine. "Nobody," says Altmaier, was prepared at the time to pay billions in costs for more safeguards. Not us politicians, not the executives and not the taxpayers." The prosperity dividend for the country was simply too attractive. Until the Ukraine disaster.
The Early Years
The headquarters of Nord Stream 2 in Zug, Switzerland, have largely been vacated, according to someone who recently dropped by. Matthias Warnig used to employ 200 people at the site, and former German Chancellor Gerhard Schröder, the chairman of Nord Stream, would occasionally drop by. They were just about to open Nord Stream 2, the second double pipeline beneath the Baltic Sea. But then came February 24. Now, the telephones are dead, the internet has been shut off, there is no longer a mailing address for the company, no homepage and the most important accounts have been blocked. Salaries can no longer be paid. Not even the cleaning crew comes by any longer, and the last remaining staff members have to buy toilet paper themselves. It is all the result of U.S. sanctions.
A few weeks ago, auditors from the regional court reported Nord Stream II's insolvency, essentially a declaration of bankruptcy. The company is still protected from its creditors by a grace period, but the screens that were supposed to show real-time operational pipeline data are black, and the gas that is already in the pipeline – sufficient to cover the consumption of 100,000 single-family homes for a year – will remain on the seafloor.
The scene in Zug marks the end of a story that began way back in the 1950s, under postwar Germany's first leader, Chancellor Konrad Adenauer. And even back then, all the elements then have characterized the complicated Russo-German gas partnership over the years were in place. A mixture of business and geopolitics, of industrial profit-seeking and political convenience. Driven by hope, poisoned by distrust and observed from abroad with a fair degree of suspicion. The USSR, which had plenty of gas but very little technical know-how, needed steel pipe for its gas, and German steel companies were happy to deliver it. But under pressure from the Americans, who even developed a NATO resolution opposing the arrangement following the construction of the Berlin Wall, Adenauer implemented an embargo in 1962.
All Governments Saw Greater Benefits than Dangers
The embargo wasn't in place for long. The Germans and the Russians didn't want to allow others to ruin their gas cooperation – an attitude that would also characterize the ensuing decades. Each subsequent German government saw more opportunity than danger when it came to Russian gas – no matter who criticized the cooperation, and no matter why.
In the late 1960s, Leonid Brezhnev was the Soviet leader, a dyed-in-the-wool communist. But he was also an engineer by training and knew what the class enemy could do. "To be honest, we need the cooperation for rearmament," read the once-classified minutes from a German-Soviet consultation. Furthermore, the Kremlin head intoned, such cooperation would "solidify our friendship." Or rather, ease the enmity. The climate at the time between Bonn and Moscow was toxic, with the main points of contention being the recognition of East Germany and the status of Berlin.
That was the moment when Egon Bahr, then a strategist on the staff of Foreign Minister Willy Brandt, came up with the concept of Ostpolitik, or opening up to the Soviet Union – an approach that would become policy once Brandt ascended to the Chancellery in the late 1960s. The concept was driven by a desire for reconciliation and the hope that closer ties could effect change. Essentially Wandel durch Handel, a bon mot that was only coined later.
Brandt was hoping for political detente. Mannesmann, a German industrial conglomerate at the time, had its gaze firmly on the multibillion deal for a pipeline stretching from Siberia to Bavaria, which also made leading politicians in the German state happy. The deal foresaw Mannesmann delivering the pipeline, funded by a consortium led by Deutsche Bank. And the Russians would pay it back with natural gas.
The recipient of that natural gas in Germany, though, still needed a bit of convincing: Ruhrgas, which owned the largest German gas network with access to millions of heaters in the country. That job is one that Klaus von Dohnanyi, as state secretary in the Economics Ministry took on. He told Ruhrgas executives: "A large deal of this kind is in the nation’s interest."
Pipes Instead of Missiles
By 1970, everyone was onboard. As a sign of friendship, the first sections of pipe delivered to the Soviet Union were encased in wreaths and christened "Ludmilla." Additional pipe deals would follow, with the last one coming in 1981 under Chancellor Helmut Schmidt.
Whereas Brandt was primarily interested in the potential political dividends, Schmidt and all subsequent German governments were mostly focused on the economic benefits. The economy had to be kept going, and it needed energy to do so. And the oil crisis of 1973 left Schmidt with the impression that the sheikhs could not be trusted, but the Russians just kept delivering – cheaply and in sufficient quantities.
In 1981, the German Foreign Ministry noted that the energy partnership with Moscow "primarily serves the reduction of our dependency on oil." Which doesn't mean that Schmidt ignored the political benefits. The new Ostpolitik was popular and brought him votes. Large energy deals "greatly benefit the prestige of both sides," Schmidt told the deputy head of the Soviet government, Vladimir Novikov, at the time.
It was during this time that two dogmas became established in the gas business with Russia, which held sway until Feb. 24. Doctrines that were never seriously questioned, despite all the warning signs. The first: The flow of Russian gas is interrupted by nothing. It continued when Kremlin troops marched into Afghanistan in 1979, in 2008 when the Russian military crossed into Georgia, in 2014 when it was Crimea's turn. It continued flowing when West Germany boycotted the Olympics in Moscow, when NATO expanded right to the Russian border in 1999 and when the EU imposed sanctions on Russia because of Crimea. Russia never turned off the spigot, and never did the Germans consider not accepting the gas.
The second dogma: Germany doesn't have a dependency problem when it comes to Russian natural gas. On the contrary, it is Russia that is dependent on German money. "We aren't susceptible to blackmail," German Chancellor Helmut Kohl intoned in 1983. There was, recalls Kohl's sherpa Horst Teltschik, never a threat to do so from Moscow. And at the time, the Germans still had plenty of options. Natural gas from the Netherlands, and then later from Norway and Britain – and those sources would remain active for a long time. Swedish historian Per Högselius, one of the foremost experts on the Soviet archives on the issue, has likewise never found an indication that the USSR ever considered using a natural gas boycott as a weapon against the West.
Germany Should Have Known Better
Beyond that, during Helmut Schmidt's tenure, the Germany's Federal Security Council set a limit pertaining to natural gas consumption which held that more than 30 percent of the total could not come from a single country. That limit was violated by Germany in 1991 under Kohl’s leadership, when 33 percent of the country's natural gas came from the Soviet Union. But was it really that big of a deal?
The feeling of security was deceptive. Indeed, it was the West's darling, Mikhail Gorbachev, who demonstrated that Moscow would not shy away from using gas as a political weapon, even if it wasn't aimed at the Germans. When Lithuania began seeking independence in 1990, Gorbachev suspended 80 percent of deliveries to the country. Two years later, Kohl's sauna buddy Boris Yeltsin briefly shut off flows to the Estonians. "Russia has always used gas as a political lever," says a Western intelligence official. "Gazprom is the long arm of the Kremlin."
Indeed, the loyal Belarusians in 2013 received their gas for less than 200 euros per 1,000 cubic meters, while the recalcitrant Ukrainians had to pay over 400 euros. In both 2006 and 2009, Russia suspended gas deliveries to Ukraine in the middle of winter to up the pressure. A close confidant of Merkel even says that in the final months of her tenure, she successfully intervened in Moscow on behalf of Moldova, supplies to which Putin had apparently been thinking about suspending. That may have been the last time that Putin listened to a voice from the West.
And what about Russia's alleged inability to blackmail Germany? Gas may not have played much of a role when it comes to power plants for many years, since coal was far cheaper. But it was a different story when it came to heating, with households across the country making the shift from oil to compact, cleaner and more efficient natural gas units. And by 2008, the Russian share of Germany's natural gas imports had climbed to just short of 44 percent.
None of that, though, triggered anything in the way of fear of Germany's powerful energy partner. Merkel's longtime foreign policy adviser Christoph Heusgen can't remember ever having seen figures pertaining to Germany's natural gas reliance on Russia. As far as he knows, they simply didn't play a role in Merkel's Chancellery. Was he too careless? Yes, Heusgen admits today, he has to accept such criticism.
On the other hand, didn't the new man in power in the Kremlin, Vladimir Putin, stand before Germany's federal parliament, the Bundestag, in 2001 and "open the Russian heart" for a partnership of equals? Didn't he explicitly reject a "noxious occupation ideology"? The minutes of his speech before German parliamentarians note: "Sustained applause – the representatives stand."
Put simply, it is easy to believe those things that benefit you. Particularly since the Russians weren't nearly as evil then as they appear today. And the Ukrainians not nearly as innocent as they appear today.
Prior to the fall of the Berlin Wall, Matthias Warnig spied in the West on behalf of East Germany's Stasi intelligence agency. One of his targets was Dresdner Bank, and after the fall of the Wall, that same Dresdner Bank sent Warnig to Russia to establish business contacts. To do so, he needed an appointment with the city administration in St. Petersburg – with a certain Vladimir Putin. But he wasn't given one. So, one morning at 9 a.m., Warnig took a seat in Putin's antechamber, where Putin's secretary, who would later marry Gazprom CEO Alexei Miller, and Putin's assistant, today the powerful boss of Rosneft, had their desks.
Warnig had brought along a thermos and a few sandwiches, and at 5 p.m., the door opened and Putin said a few words to him, in German, and told Warnig to come later that evening to a German pub named Chaika, or "Seagull." It was there, over Jever pils and sausage, that their friendship began. When Putin's then wife was sent to Bad Homburg for rehabilitation following an automobile accident, Warnig took in Putin's children for several weeks and sent them to school with his own.
When it came to natural gas deals with Germany, Warnig was initially the only person Putin had, and then he was the best person Putin had too look after his projects. In 2005, the state-owned company Gazprom asked Warnig if he would be willing to take over leadership of a pipeline through the Baltic Sea from Russia to Germany – a project for which Putin had given his personal stamp of approval.
Warnig continues to tell confidants even today that whenever he spoke with Putin, the head of the Kremlin never brought up geopolitics when discussing Nord Stream. It was always just about the business and revenues. About the importance to Russia of the transfer of technology. And when Nord Stream 1 went into service in 2011, Warnig's message sounded correspondingly harmless. He promised "a secure, modern and reliable route" for natural gas to Europe. It was, he insisted, merely a "supplement" to the existing pipelines through Ukraine. Not a replacement. It was certainly not a detour around an insubordinate neighboring state. And certainly not an instrument of political blackmail.
The Kremlin's First Offer to Schröder
Was Warnig just naive? Or Gerhard Schröder, the other German whom Putin also wanted to have at his side? One source who is familiar with events, tells the story as follows: Shortly after Schröder's 2005 election defeat, Gazprom CEO Miller asked if the former chancellor would be interested in taking over the chief supervisor post at Nord Stream. And Schröder apparently said no. On the day that the first seam was to be symbolically welded in Babayevo in northern Russia at the end of 2005, Putin called Schröder personally. This time, the former chancellor couldn't refuse, an agreement that Gazprom boss Miller announced at the celebration.
The outrage in Germany was considerable. It was directed at Schröder, who had stood side-by-side with Putin at the signing of the Nord Stream contracts only 10 days before he was voted out of office. But hardly anyone was bothered by the project itself. The European Union saw Nord Stream 1 as a "project of European interest." And Chancellor Angela Merkel would later celebrate it as the "largest energy infrastructure project of our time" and referred to Russia as an outstanding EU partner in energy supply.
At the welding of the first seam in Babayevo, BASF CEO Jürgen Hambrecht even symbolically scribbled his autograph on the pipe. BASF subsidiary Wintershall had entered into the gas business in the 1990s to break Ruhrgas AG's monopoly. "We would have had to shut down plants in Ludwigshafen at the prices Ruhrgas wanted to dictate to us," Hambrecht says. As such, Wintershall decided to participate in the Nord Stream pipeline project.
Hambrecht saw himself not only as a representative of BASF's interests, but also of Germany's position as a global business center and of the market economy as such. His analysis at the time: Germany needed more gas, not less. And it needed to be cheap – thus pipeline gas rather than liquefied gas, which is transported by ship and is much more expensive. Moreover, the main country of pipeline transit, Ukraine, was unreliable in his view.
The Ukrainians had barely maintained their pipelines for decades and there were frequent leaks and technical problems. Meanwhile, Ukraine collected billions in transit fees from Russia. But instead of mending the pipes, politicians and oligarchs pocketed the revenues.
130 Points for Siphoning Off Russian Gas
Cables from American diplomats published by WikiLeaks cited confidential conversations between German government officials and their U.S. counterparts stating that Ukraine, with its "corruption" and "lack of transparency," was itself to blame for the ongoing gas dispute with Russia. They noted that there were 130 separate points where gas could be siphoned off. And it was apparently a common problem, as indicated by frequent sudden drops in pressure.
Hambrecht says the Baltic pipeline was needed to secure supplies – 55 billion cubic meters of gas a year that would not flow through Ukraine. Like Warnig, Hambrecht says that Gazprom never indicated it wanted to eliminate Ukraine from the equation. "The Russians wanted both routes," he says.
The former Warsaw Pact states, which had broken away from Russia, saw this early on as a typical attitude of the West: driven by money and oblivious to history. Former Estonian Defense Minister Sven Mikser warned that the Russians were trying to divide the EU, according to an American cable from the WikiLeaks trove, and he noted that they are particularly successful in doing so whenever they use their gas and oil. In 2006, then Polish Defense Minister Radosław Sikorski even compared the Nord Stream deal with the Hitler-Stalin Pact, which partitioned Poland in 1939 ahead of World War II.
For Putin, It's about Power, Not the Economy
Even Western intelligence officials cautioned that Putin was more interested in power than the economy. If he had to choose between Ukraine and the second Baltic Sea pipeline, they warned, he would sacrifice the pipeline without a second thought. And that's ultimately what happened.
The Germans also ignored the many warnings from the Americans not to become dependent on Russia. Most recently, this stubbornness was due in no small part to the brute insistence of U.S. President Donald Trump that Germany must instead buy its gas in America – gas extracted through the environmentally harmful process of fracking.
Kremlin boss Putin at a celebration for a new gas pipeline in 2009 in Khabarovsk, RussiaFoto: RIA Novosti / REUTERS
But Berlin even brushed aside the concerns of the EU. Brussels began opposing the second pipeline beneath the Baltic Sea after Russia halted supplies to Ukraine in the winter of 2009.
The fact that the Germans remained stubborn is often blamed today on the network of Putin fan boys in the SPD, including Schröder, current German President Frank-Walter Steinmeier, former Economics Minister Sigmar Gabriel and Erwin Sellering, a former governor of the eastern state of Mecklenburg-Western Pomerania, where the Nord Stream pipeline makes landfall in Germany.
They certainly promoted Germany's addiction to gas. Gabriel, in particular, did all he could for Nord Stream 2, Merkel's adviser Heusgen recalls. The big picture over the decades, though, is that politicians had too little, rather than too much, influence over gas policy.
During the 1990s, policymakers relinquished energy security to corporations like utility giants E.on and RWE and the chemical giant BASF. The energy market was essentially unleashed, and the state withdrew.
Even in the case of Nord Stream 2, the German government insisted it was purely an economic project. Angela Merkel is said to have made that a condition to Putin from day one, according to pipeline company sources. A commercial project, a matter for the corporations – and a source of good jobs for the state of Mecklenburg-Western Pomerania, which otherwise struggles in that department.
Merkel never really believed in the political idea of Wandel durch Handel, as she recently admitted during a talk with DER SPIEGEL reporter Alexander Osang at a public event in Berlin. At least not when it comes to Russia. But where the government no longer felt responsible, the corporations grabbed the reigns.
The Corporations Take Over
The idea that energy should simply be a commodity, just like cars or televisions, was the result of a revolution that swept across Europe in the mid-1990s. Until then, the German state had protected electrical utilities from any kind of competition. It issued numerous regulations, but guaranteed them advantages in return – including territorial monopolies and high electricity prices. The main thing was supply security, and if consumers had to dig deep into their wallets, so be it.
Under pressure from industry, which complained of high electricity prices, and the EU, which insisted on free competition, the Kohl government overturned this pact in 1998, opening up the energy sector to the law of supply and demand. Even though it wasn't part of the plan, the subsequent mergers and acquisitions created an oligopoly, with the utility companies RWE, E.on, Vattenfall and EnBW dividing up the spoils.
From that point on, everything revolved around costs and earnings – power plants were shut down and investments postponed. Gerhard Schröder, often nicknamed the "bosses' comrade," for his ties to business that many observers considered to be too close, did nothing to stop these moves, so long as they were of benefit to competition. When E.on sought to acquire Ruhrgas, Germany's largest gas supplier, in 2001, Economy Minister Werner Müller overruled the Cartel Office's veto on the basis of flimsy arguments.
The development worried antitrust watchdogs at the time. They feared that the merger of E.on, with its money, and Ruhrgas, with its established relations with Russia and 6.4-percent stake in Gazprom, would put Germany on the road to excessive dependence on Russian gas.
But it was other things that mattered. First, the positive image of gas. "It was more climate-friendly than other fossil fuels, and it also allowed power plants to be ramped up and down more quickly, which was a perfect fit for fluctuating renewable energies," recalls Rainer Baake, a former state secretary in the Environment Ministry. On the other hand, profits also counted – for the corporations and their shareholders.
And gas was nothing if not profitable. In the 1960s, energy companies had pegged the price of gas to the price of oil, even though oil and gas exploitation have nothing to do with each other and the purchase price for gas was far lower. The bogus reasoning: Gas competes with heating oil on the heating market and must therefore be comparable in terms of price.
There was far less money to be earned with renewables. All appeals from politicians for the major utilities to invest part of their billions on the restructuring of the energy system fell on deaf ears.
It was the beginning of an era that is today considered to be wasted years of climate policy. After Merkel became chancellor in 2005 under the "grand coalition" between her conservative Christian Democrats and the center-left Social democrats, her government set about breaking the market power of the multinationals, and the oil price peg thus began to crumble. But that campaign, supported by consumer protection groups and the EU, actually exacerbated the dependency in the end.
This is because the gas price was based primarily on the spot market, meaning the daily prices on the international commodity exchanges. As long as gas was abundant, they fell, and Russia provided discounts even on current long-term contracts. The drop in prices ensured that gas became increasingly attractive not only for heating and basic industries, but also for producers of electricity.
An open-cast excavators in the a lignite mining region in the state of North Rhine-WestphaliaFoto: Barbara Dombrowski / laif
That led to an even heavier reliance on pipeline gas, and politicians looked on benevolently. Gas was cheap, it wasn't as damaging to the climate as coal and oil – and,"as far as I know, there has never been a security policy discussion about dangerous dependence on Russia and exposure to blackmail in the event of war," says Baake, the former state secretary. In hindsight, he says that was a mistake.
And not the only one. In a well-intentioned move to boost competition, the EU decided in 2009 that power plants and grids could no longer be operated by a single company. In 2012, with little government attention paid to the sale, E-on sold the Ruhrgas network it had built up over decades to a financial consortium in which Australian investment bank Macquarie and a sovereign wealth fund from Abu Dhabi called the shots. When the subsidiary Uniper was sold, all E.on power plants went to the Finnish state-owned company Fortum; and again, nobody seemed to care. This only seeped into people's minds when the Finns refused to go along with the coal phase-out and German taxpayers had to fork out a lot of money to get Fortum to burn less coal in Germany.
The Sell-Out of German Energy Production
There was also recklessness when it came to the power grid. The federal government waved away the proposal made by many experts to transfer the important extra-high voltage grids to a kind of nationalized German network corporation. Instead, Merkel's cabinet looked on as E.on sold off thousands of kilometers of Lower Saxony's windy coast to the Tennet Group in the Netherlands. Years later, during his term as German Economy Minister, Altmaier sought to correct this error because the Dutch were reluctant to put enough money into the conversions needed for Germany's transition to clean energy. By then, though, it was too late – the net had already been lost.
The most heavily criticized decision these days is a decision stemming from 2015. In a swap of company segments, BASF subsidiary Wingas, along with its natural gas storage facilities in Germany, went to Gazprom. Hambrecht, who served as chair of BASF's supervisory board at the time, remembers it all well. He was under immense pressure from his shareholders – Wingas was yielding just 6 percent and that was too little for them. They told him to unload it. And Hambrecht didn't resist.
It was at this point that the whole malaise of an energy policy freed of virtually anything in the way of state regulation was revealed for all to see. Of course the storage facilities were "critical infrastructure," Hambrecht says, vital for supply security. But: "You can't expect commercial enterprises to take on sovereign tasks." At least if it doesn't pay off. And not if they are beholden to their shareholders first and foremost. Sovereign tasks are the responsibility of the state.
"The government could easily have said, 'We're going to step in and buy it,'" Hambrecht says. "But it didn't do that." Instead, Economy Minister Gabriel decided that gas supply was a matter for business. Jürgen Trittin of the Green Party claims to remember a sentence to this regard from Gabriel: "The market will take care of it." So, BASF made the deal with Gazprom, trading the gas storage facilities for drilling rights in Siberia.
Politicians in Berlin also weren't blameless for the fact that there was no other interested party for the storage facilities. The tanks were there to store gas in the summer to bring the country safely through the winter – even if Putin suspended deliveries for a few weeks. Officials in Germany even discussed such a scenario after Ukraine was cut off in 2009, a discussion usually held in the winter, with a view to the meagerly filled storage facilities.
The fact that they weren't completely full had to do with the fact that the storage operators' business model was increasingly collapsing – that of buying cheaply in the summer and selling at more expensive prices in the winter. Deals on the spot market had largely leveled season fluctuations. As such, there should not only have been a law for a state gas reserve of the kind that individual politicians from many parties had been demanding. The federal government also should have been paying the storage operators a few million euros in margins per year that the market no longer provided. In the end, only Gazprom showed interest in the storage facilities – for strategic reasons, as is now known.
The Botched Transition to Clean Energies
All this happened even though it was clear that Germany would need more gas. Far more. In 2011, the chancellor dramatically accelerated the nuclear phase-out following the political impact of the Fukushima nuclear reactor disaster. Seven older reactors were immediately taken off the grid, almost overnight. Germany 's final three nuclear power plants are slated to be shut down by the end of this year.
The government reassured the public that the huge electricity shortfall would be closed with renewable energies and that the pace of expansion would be stepped up. The bridge to cover the gap until enough wind turbines, solar panels and green hydrogen would power Germany should be natural gas. "At the time, we planned to build 50 to 80 new gas-fired plants to generate electricity to replace the nuclear power plants," reveals Hambrecht, who sat on a government commission on the issue.
The installation of a wind turbine in Feldheim in the state of BrandenburgFoto: Paul Langrock / laif
The planned offensive to produce electricity using gas was also an "important reason to build the Nord Stream 2 pipeline," Hambrecht says. That would even have guaranteed sufficient natural gas, he says, if the shift to renewables took longer than planned. "Gas is sexy," Economy Minister Altmaier cheered as recently as 2019, when he presented his "Gas 2030" strategy. He said demand would definitely remain high until then.
A 'Virtual Energy Transition'
Even the Greens made friends with the fossil fuel, seeing it as a lesser evil to coal. They also took comfort in a plan that Trittin presented to the German parliament in 2014 on how to get away from gas by 2028, despite the nuclear phase-out. He said gas would only continue to play a dominant role in heating, so more buildings needed to be better insulated to drastically reduce consumption. Under the plan, 2 percent of buildings in Germany needed to be retrofitted with improved insulation each year. Trittin says people wrote him off as a hopeless idealist at the time. And not entirely without reason. The 2 percent building insulation goal, which also found its way into documents from the Economy Ministry under Altmaier, was never achieved.
The story is the same with other targets set as part of the energy transition. In fact, the massive project increasingly descended into a farce. A pattern developed: Climate activists drove governments from one climate protocol to the next and the goals therein became ever-more ambitious - which only served to widen the gap between fantasy and reality. One SPD economist refers to it as a "virtual energy transition." Meanwhile, former State Secretary Baake complains in retrospect: "If so many in politics and business hadn't put the brakes on the energy transition, our dependence on Putin would be much smaller."
The first example: Extra-high voltage power masts. Without them, wind power from the stormy north is unable to be transported to the industrial centers in southern Germany. But because Germany's federal states disagreed, construction of the power masts progressed only slowly. Thousands of kilometers still haven't been built today.
The second example: wind turbines. The question of the required distance between a wind turbine and the nearest house divided the German states and became a bargaining chip for other conflicts with Merkel's grand coalition government. Bavaria insisted the minimum distance be 10 times the height, meaning that few wind turbines were approved in the state. The situation was hardly any better in the Green Party-governed state of Baden-Württemberg.
The third example: solar energy. To prevent it from becoming too expensive, the German government put a cap on its subsidy for solar energy in 2012. Subsidies were ordered to end once the country had 52 gigawatts of solar energy capacity. Once the subsidies stopped flowing, German solar manufacturers collapsed, one by one. The eventual raising of that cap came too late for many. You wouldn't let a carmaker like BMW go bankrupt, Thuringia's state economics minister grumbled in the federal parliament. So, why the solar industry? It didn't help. Today, the solar panels come from China – that is, if they arrive at all. Supply chain problems.
As this has all combined to make the gas bridge longer and longer.
Nor did this change when the bridge became invisible for a short time. The reason was the CO2 certificates with which producers of electricity had to buy their way out of the sins of CO2 emissions. Initially, the EU issued so many of them, also under German pressure, that prices collapsed and even the burning of extra harmful lignite continued to pay off. Another failure in the energy transition.
In January 2020, the coal bridge came to an end. Germany was in danger of falling short of the climate targets it had pledged in Paris in 2015, and the government decided to phase out coal by 2038. The pressure, including that from the Fridays for Future movement, had become too great. The coal fields in North Rhine-Westphalia and eastern Germany are now to receive up to 40 billion euros each in compensation. Money that, in the opinion of former REW boss Schmitz, who was involved in the negotiations, would have been better spent on a turbo expansion of renewable energies.
The Next Illusion
The Russians, says one source with good connections to Gazprom's top management, have always chuckled at the Germans. Just keep on believing you can keep an industrialized country running on green energy. But now, pay day has finally arrived.
In reaction to the Russian invasion of Ukraine, Berlin has set its next extremely ambitious goal: Cutting dependency on Russian natural gas right down to zero. And as usual, the timeline is tight. Trittin was laughed at because he wanted to phase out gas from 2014 to 2028. Habeck, by contrast, is cheered as a man of action. But how realistic is his plan to leave behind Russian gas well before 2028? Is this just the next pipe dream?
Trittin looks at it as follows: It has taken Germany 20 years to obtain just under half its electricity from renewable sources. If coal power is now to be eliminated as early as 2030, as planned, the electricity generated by wind and solar power will have to be doubled just to compensate. The problem is that today's energy isn't enough for tomorrow's needs. Cars are to become electric, and the production of green hydrogen for industry is going to swallow up a lot of electricity as well. "We're talking about a quadrupling because in 10 years, we're going to have to bring twice as much renewable energy online as we have in the last 20 years."
It sounds like mission impossible. SPD politician Machnig, who after his time in Thuringia, became one of then Economics Minister Gabriel's leading advisers, is disillusioned. He says he can't see "how we're going to meet the 80 percent renewables target by 2030." Gas will continue to be indispensable as an energy source in the future, if only because it can be burned and converted into electricity when the wind isn't blowing and the sun isn't shining.
As such, Economy Minister Habeck intends to open a liquefied natural gas terminal in the port city of Wilhelmshaven as quickly as possible. The idea has been around for decades, as have the reasons that it has not been pursued so far. His predecessor Altmaier still remembers well how he was attacked by the Greens in 2019 because liquefied natural gas is much more harmful to the climate than pipeline gas. Altmaier had rounded up 120 energy policy politicians and gas managers to Berlin. He wanted to finally get them serious about constructing an LNG terminal in Wilhelmshaven. For him, it was about buying liquefied gas from the United States in exchange for Washington dropping sanctions against the Nord Stream 2 pipeline. Independence from Russian gas wasn't the priority.
Either way, the federal government even would have paid for the spur lines from the LNG terminal to the country's major pipelines as well as topping up regional funding pots, Altmaier says. But no one booked capacity – neither the Qataris nor the Americans. A year later, the project died once again. The fact that the LNG terminals in Poland and the Netherlands were nowhere even near capacity didn't help.
When RWE asked the Chancellery again whether the federal government would contribute a significant sum to build the terminal, Berlin turned the company down. The reason being that LNG can't compete with pipeline gas in terms of price, which is a matter of production methods and delivery costs.
Now, there's no other choice. Qatar, Germany's hoped for new supplier of LNG, is demanding long-term contracts to ensure that making the investment in a liquefaction plant will be profitable for them. That, in turn, will cement high prices for a decade or more.
There are already voices predicting the end of competitiveness, the end of the road for companies in Germany that require a lot of gas, particularly the basic chemicals industry. Former RWE head Schmitz fears: "The industry that needs gas for basic production today will migrate" out of Germany. Even if gas consumption is greatly throttled, LNG is used for the rest and perhaps a few coal-fired plants are kept online longer, "this will not protect us from massive de-industrialization."
Germany had 60 good years with cheap Russian gas. It provided the basis for German prosperity, but was also the reason the country moved so slowly in energy policy.
Now the price is going up fast – for the energy of the future and for the mistakes of the past.