This first of three articles on how Gazprom is attempting to revamp its natural gas export strategy in Europe reviews Germany’s central role in this endeavor with specific focus on the traditional role of underground gas storage facilities.
Germany is the second largest natural gas consumer in the EU, closely trailing the United Kingdom. Moreover, with a relatively small rate of domestic production in relation to its consumption, Germany has to import the majority of its gas supplies via pipelines from Russia, Norway, and the Netherlands, as IEA data show. According to a 2013 Congressional Research Service (CRS) report on “Europe’s Energy Security,” Germany negotiated a long-term deal with Russia to lock in future natural gas supplies. Nonetheless, due to its high dependence on imports and, in this respect, Russia’s role as the dominant energy supplier in Europe, Germany not only had to assign high priority to fostering good relations with Moscow, but also had to build the largest natural gas storage capacity of 21.3 billion cubic meters (bcm) in the European Union.
E.ON Gas Storage (EGS), which is a subsidiary of Germany’s power and gas company E.ON Group, quotes a German total working natural gas storage capacity of 21.3 bcm. This is a little higher than the 20.9 bcm figure given by the IEA. In general, two types of underground storage facilities are used to secure natural gas supplies: salt caverns and porous rock (i.e. aquifers or depleted fields) storage facilities. In addition to the current 47 storage facilities located in Germany – compared to 414 underground gas storage facilities in the U.S. (2012 EIA numbers) with a total working capacity of 4,576,356 million cubic feet (MMcf) – German companies also have access to a gas storage facility in Haidach (Austria) with an additional capacity of 2.6 bcm. EGS itself has 8.5 bcm of working gas capacity while operating 16 underground gas storage facilities located across Germany. It is important to note that – according to the IEA – “there are no compulsory natural gas storage requirements in Germany, and no state-owned storage facilities.” The following table shows that the United States, followed by Russia, the Ukraine and Germany are dominant in this space according to the number of underground gas storage facilities and working capacity.
Natural Gas Storage in the World
From an importing country’s perspective, the rationale for maintaining natural gas storage seems relatively straightforward; namely, given that demand for natural gas is not constant and is exposed to daily, as well as seasonal, variations and other economic impacts, storage operators are necessary to smooth out such variations in demand in order to make natural gas available at all times (‘security of supplies’) and remain competitive in a dynamic market.
At the current stage, natural gas storage capacity is almost indispensable for Germany due to its pursuit of the ‘Energiewende’ (‘energy transition’) policy toward renewables and simultaneous nuclear phase-out by 2022. Other factors that come into play are the increasing demand for natural gas in Europe and, at the same time, the decreasing production of natural gas in Western Europe. A genuine U.S.-style shale gas revolution in Germany could dramatically alter the situation. However, fracking plans – seemingly incompatible with the drive toward renewables – have set off a backlash from the German population, which seems far more concerned about the technique than most Americans, as the Washington Post has reported in the past. Some German politicians point to the difference in population density vis-à-vis the U.S. as one impeding factor. This argument is debatable given that German shale deposits appear to be confined to Northern Germany, where the population is more spread out.
Time as well as economic necessity will tell.
The State of Shale in Europe