Russian Gas and Germany's Nuclear Gamble

By Stratfor

German Economy Minister Philipp Roesler arrived in Russia on Tuesday to discuss energy with Russian officials, one day after Germany decided that it will phase out nuclear energy by 2022. The planned phase-out means that Berlin needs to find an alternative source for a little less than a quarter of its electricity generation - the amount nuclear power currently contributes. Berlin is aiming for greater efficiency and reliance on renewable energy, but it is clear that in the short term - by which we mean within this decade - it will turn to Russian natural gas.

Germany relies on Russian exports for around 40 percent of its consumption of natural gas. How much more it needs will depend on how fast Germany can increase its output of renewable energy and achieve greater overall electricity efficiency. If any one country can accomplish those two tasks quickly, it is Germany. Furthermore, the nuclear phase-out will not take all reactors off-line at once, meaning Berlin has time to adapt to the situation. Roesler and Chancellor Angela Merkel stressed immediately after announcing the phase-out that Germany will not look to substantially increase natural gas imports from Russia.

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Germany may not, however, have any other choice, at least for the next five years. There are no plans for large-scale energy infrastructure projects, such as major non-Russian-sourced trunk line pipelines or facilities importing liquefied natural gas. Efficiency, renewable energy and domestic production of shale natural gas will not develop overnight or without a massive capital injection. Meanwhile, the 55 billion cubic-meter Nord Stream underwater pipeline, shipping Russian natural gas directly to Germany via the Baltic Sea, will come online by the end of 2011, with full capacity in place by 2012.

The logic behind Nord Stream for Germany was never about increasing imports of Russian natural gas. Berlin is not looking to become more dependent on Russia for natural gas. In fact, Nord Stream can be considered a coup for Germany and somewhat of a liability for Russia, which can no longer hide behind Ukraine and Belarus as causes of energy disruptions to Germany. Playing energy politics was a useful strategy for Moscow because it allowed the Kremlin to starkly illustrate to Berlin and other EU countries the negative consequences of a pro-Western Ukraine, for instance during a series of energy cutoffs following the 2005 Orange Revolution. A direct line between Russia and Germany, Berlin reasons, means that Moscow no longer has plausible deniability when it plays energy politics.

The problem is that Merkel and her government did not expect to have to replace 24 percent of electricity generation within the next 10 years. As such, Nord Stream is no longer a strategic investment that decouples Russian power politics from energy exports to Germany. It now becomes the only option available in the next five years as Germany moves away from nuclear power. It could also potentially become a dangerous gateway toward an addiction to Russian natural gas, especially if the Kremlin plays its cards correctly and makes its natural gas too tempting - that is, cheap - to pass up, which remains to be seen.

The most interesting aspect of the current situation, however, is that Berlin is well aware of these strategic considerations. Simple arithmetic dictates that Germany will have to increase natural gas imports from Russia once 24 percent of Germany's electricity generation is off-line. It's a calculation that German decision-makers are capable of executing. This means Berlin is consciously placing a domestic political issue (opposition to nuclear power) over a considerable geopolitical strategic concern (increased dependency on Russian natural gas.)

This is going to be a problem for Berlin's neighbors in Central Europe. It shows that Germany takes its domestic political logic more seriously than regional geopolitics, at least right now. If Berlin is so easily swayed by popular discontent with nuclear power that it will embrace an increase in Russian energy imports, how long, as an example, will it continue to support bailouts of peripheral eurozone states in the face of mounting domestic political anger? Credibility and trust between allies are built when decisions favoring one's ally are costly. For Germany's Central European neighbors, a Berlin that is increasing its natural gas dependency on Russia is not an ally they can count on to counter Moscow.

In the long run, Berlin understands the dangers of dependency on Russian energy exports. It is unlikely that Germany will fail to develop renewable alternatives given time, technological know-how and capital. However, Germany's neighbors may find it hard to think of the long term in this case. Central Europe may very well become a geopolitical hot zone within the next five years. U.S. ballistic-missile defense installations are expected to be in place in Romania by 2015 and Poland by 2018. The United States is attempting to extricate itself from Afghanistan and Iraq, and by the middle of the decade may be ready to assert itself in Central Europe. If this occurs, and Berlin's dependency on Russian natural gas is at that point still increasing, its response to these strategic moves in its neighborhood could put Germany at odds with NATO allies.

A Stratfor Intelligence Report.
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