Germany’s energy risks fading, for now

WORLD  28 January 2023 - 08:35

Oilprice.com has published an article saying that Germany's Economic Ministry warns that though the country is reducing dependence on Russian gas, there are risks later in 2023 that storage could sink to dangerously low levels. Caliber.Az reprints the article.

Some European politicians and economists are breathing a sigh of relief after mild temperatures, increasing liquefied natural gas shipments, and above-average natural gas stockpiles have so far averted a worsening energy crisis this winter. Other politicians believe the energy crunch won't be over for many years. 

"Gas storage is up and gas prices are down. Inflation is falling and uncertainty is declining," Deutsche Bank AG wrote in a note this week, adding, "We can afford to be more optimistic." 

As of late, Europe's biggest economy, Germany, has seen an improvement in business outlook as recession fears recede, according to data from the Ifo Institute, a Munich-based economic researcher. 

Ifo President Clemens Fuest told Bloomberg TV:

"The most important risk for the German economy was a gas-rationing scenario ... and that risk is off the table now."

There's a lot to be happy about in Europe: Dutch front-month NatGas, the continent's benchmark, slid as much as 5 per cent to 55 euros a megawatt-hour today, the lowest level since late 2021. Prices have collapsed by more than 83 per cent since peaking at 311 euros a megawatt-hour last August. 

However, the optimism could be short-lived because Germany is years from entirely substituting Russian NatGas flows with LNG shipments. 

Last week, Chancellor Olaf Scholz told Bloomberg that German learned a hard lesson in its addiction for cheap Russian NatGas. He said the country is now rejiggering supply chains that will increase capacity for LNG imports at major ports. 

A new report via the country's Economy Ministry shows Germany will install 56 billion cubic meters of domestic LNG import capacity by 2026. By 2030, capacities will increase to 76.5 billion cubic meters or about 80 per cent of total German NatGas consumption in 2021. 

The ministry pointed out that even though current NatGas storage facilities are above normal levels, there are mounting risks later this year that storage could sink to dangerously low levels and result in shortages. 

"The truth is, there won't be enough in the next three to four years of LNG production capacity in the world to meet the growing demand. So the unspoken strategy is that Germany will continue to pay crazy prices and other, less rich countries go empty-handed," Christian Leye, a Bundestag Left Party representative, told Bloomberg.

Germany has reduced its dependence on Russian NatGas by importing LNG from other EU countries and increasing NatGas pipeline flows from Norway and the Netherlands. Germany didn't have a choice after explosions rocked Nord Stream last year. An issue we see is that Germany's NatGas storage was filled last summer when Russian NatGas was still flowing -- not so much anymore. 

Deutsche Bank expects EU NatGas prices to fluctuate between 50 and 100 euros a megawatt-hour this year. It's only a matter of time before the temporary relief evaporates and the energy crisis resurfaces.

Caliber.Az