German-Russian natural gas relations in the context of a common European energy policy

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Graduate School of Social Sciences (GSSS)

German-Russian natural gas relations in the context

of a common European energy policy

Thesis

to obtain the academic title of

Master of Science (MS)

in the program

Political Science (International Relations)

Academic year 2018/2019

Date of submission: June 21st₂₀₁₉

Author: Caspar M. Henke (12299804) Supervisor: Dr. Mehdi P. Amineh

Second Reader: Dr. Henk W. Houweling

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Abstract

This thesis analyses the interwoven commercial and political fabric of German-Russian natural gas relations. A theoretical lens that combines liberalist interdependence theory and the critical theoretical concepts of the state-society complex and social networks against the background of selected energy security dimensions will be employed. It will be argued that in order to assess the prospects for a common European Union energy policy, it is crucial to understand the importance of social forces and external relations shaping the energy policy of EU member states vis-á-vis the Russian Federation. It will be highlighted how the different perceptions of Russian natural gas as a political tool and a commercial commodity have resulted in different actors taking the lead in the natural gas strategies of the European Commission, the Central and Eastern European member states, and Germany. Portraying the Russian state-society complex of natural gas, it will be concluded that the German commercial-led approach is not compatible with a European Union energy policy that responds to the geopolitical threats of Russian gas perceived by other member states.

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Acknowledgements

I would like to express my sincere gratitude to my thesis supervisor Dr. Mehdi P. Amineh for his valuable guidance in the writing process of this thesis. I would also like to thank the entire research project for their comments on the research proposal and their companionship throughout the final block of the Master’s programme. Enduring the stress of writing this thesis would not have been possible without the moral support of Karolina, my family, and my friends and colleagues at the University of Amsterdam.

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Maps

Map I: Political Map of Central and Eastern Europe

Source: United Nations Department of Field Support, Cartographic Section Linz Graz Pécs Rijeka Trieste Perugia Florence Bologna Verona Venice

Osijek Novi Sad Banja Luka Tuzla Innsbruck Szeged Split Dubrovnik Mostar Foggia Bari Naples Miskolc Debrecen Nyíregyháza Pescara Thessaloníki Nis Pleven Plovdiv Cluj Napoca Arad Sibiu Baia Mare Craiova Pitesti Ploiesti Timisoara Opole

Wroclaw Lódz Radom_Lublin Kielce Kraków _Rzeszów Leipzig Dresden München (Munich) Plzen (Pilsen) Ceské Budejovice Brno Karlovy Vary Kosice Zilina Nürnberg Poznan Szczecin Gdansk ´ Hamburg Hannover Bremen Rostock Torun Bydgoszcz Elblag Ålborg Göteborg Jönköping Århus Malmö Tartu Pskov Novgorod St. Petersburg Turku (Åbo) Petrozavodsk Tampere Kryvyy Rih Dnipropetrovs'k Poltava Kharkiv Mykolayiv Rostov na Donu Shakhty Lugansk Donets'k Mariupol' Stara Zagora Varna Burgas Istanbul Bacau Ivano-Frankivs'k Chernivtsi Vinnytsya Balti Constanta Galati Sevastopol' Kerch Novorossiysk Krasnodar Izmir Bursa Balikesir Bialystok Olsztyn Pinsk Liepaja

Klaipeda Siauliai Panevezys Kaunas Brest Baranavicy Umeå Trondheim Bergen Homel' Nizhniy Novgorod O de sa Kalinin_gra d Daugavpils Oulu Arkhangel'sk (Archangel) Bryansk Vologda Tver' Yaroslavl' Orel Kursk Voronezh Tula Ryazan' Barysau Babrujsk Vicebsk Mahilëu Smolensk L'viv Ternopil' Luts'k Rovno Zhytomyr Konosha Warsaw Bratislava Budapest Kyiv Minsk Vilnius Riga Tallinn Moscow Helsinki Stockholm Copenhagen Prague Ljubljana Zagreb Oslo Berlin Rome Sarajevo Belgrade Skopje Tirana Sofia Bucharest Ankara Chisinau Vienna Podgorica GU LF OF BO TH NIA Gulf of Finland B L A C K S E A Sea of Azov Sea of Marmara AEGEAN SEA IONIAN SEA TYRRHENIAN SEA WHITE SEA Gulf of Riga Lake Ladoga Lake Peipus Rybinsk Reservoir L. Il'men L. Pskov L. Beloye B A L T I C SE A Lake Onega A D R I A_T I C _S E A Gotland Saaremaa Hiiumaa Åland Is. Crimea DENMARK GERMANY POLAND CZECHIA AUSTRIA SLOVENIA CROATIA ALBANIA GREECE ITALY BELARUS UKRAINE LITHUANIA LATVIA SLOVAKIA HUNGARY ROMANIA BULGARIA BOSNIA AND HERZEGOVINA FINLAND NORWAY RUSSIAN FEDERATION ESTONIA TURKEY SWEDEN SERBIA THE FORMER YUGOSLAV REP. OF MACEDONIA SAN MARINO RUSSIAN FEDERATION MONTENEGRO REP. OF MOLDOVA

CENTRAL AND EASTERN EUROPE

Map No. 3877 Rev. 8 UNITED NATIONS

August 2016 Geospatial Information Section (formerly Cartographic Section)Department of Field Support

The boundaries and names shown and the designations used on this map do not imply official endorsement or

acceptance by the United Nations. 0 200

0 200 400 400 mi 600 km 50° 40° 60° 50_° 60_° 40_° 50° 40° 30_° 20_°

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7 Map II: EU member states

Source: BBC, online at:

https://ichef.bbci.co.uk/news/1024/media/images/70233000/gif/_70233868_eunames.gif, accessed 18.06.2019.

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Map III: Political Map of the Federal Republic of Germany Source: Encylopædia Britannica

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9 Map IV: Political Map of the Russian Federation

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List of Tables, Figures and Maps

Tables

Table 2.6. Gross Inland Consumption and overall Import Dependency of the Visegrád states and the EU28 in 2017

37 Table 2.8. Gross Inland Consumption and overall Import Dependency of the

Baltic States and the EU28 in 2017

45 Table 4.9. Operators and Shareholders of major gas pipelines in Germany 111 Table 4.10. Imports and Exports between Russia and Germany 2018 112

Figures

Figure 2.1. EU28 Total Energy Supply 2017 30

Figure 2.2. Gross Domestic consumption of Natural Gas of EU28 in mtoe/ Russian imports in percent 2006-2016

31 Figure 2.3. Primary energy consumption and GDP of the EU since 1995 32

Figure 2.5. Total Energy Supply of Germany 2017 34

Figure 2.7. Cross-border natural gas volumes in Central and Eastern Europe 2010-2015 in bcm

43 Figure 2.9. Flow map of gas interconnections in Europe 46 Figure 2.10. Primary Energy consumption of the Baltic states 2006-2016 in

mtoe

48 Figure 3.5. Architecture of targets and objectives in Germany’s energy

concept

74 Figure 3.6. Power Generation from different resources in Germany in TWh 75 Figure 4.1. Development of Soviet natural gas exports to (Western) Germany

until reunification as supplied volume in bcm and share (%) of German natural gas imports

88

Figure 4.2. Development of Soviet natural gas exports to Europe between 1973 and 1990

88 Figure 4.3. German Natural Gas Imports in TJ by country of origin 2000-2015 99 Figure 4.4. Natural Gas imports in TJ and average annual import price at the

German border in €/TJ

100 Figure 4.5. German Natural Gas Imports and Exports in TWh 106 Figure 4.7. Gas distributors in the German market by length of pipeline

network in km

108 Figure 4.11. German Exports to Russia: Six most valuable groups of goods in

Thousands of US$

114 Figure 4.12. German Imports from Russia: Five most valuable groups of goods

in Thousands of US$

115 Figure 4.13. Shareholder structure of Gazprom OAO 2019 123

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11 Figure 4.14. Model of Gazprom and the Russian state in the Russian

state-society complex

127

Maps

Map 2.4. Major Gas infrastructure in Europe 2018 33

Map 3.1. Projects of Common Interest: BEMIP Gas 65

Map 3.2. Projects of Common Interest: NSI East Gas 67

Map 3.3. Projects of Common Interest: Southern Gas Corridor 68 Map 3.4. Pipelines in the Greek section of the Southern Gas Corridor 69

Map 4.6. Natural Gas Market Areas in Germany 107

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List of Abbreviations

ACER Agency for the Cooperation of Energy Regulators

AHK Deutsch-Russische Aussenhandelskammer (German-Russian Chamber of Foreign Trade)

APERC Asia Pacific Energy Research Centre bcm (unit) Billion Cubic Meters

BASF Badische Anilin und Soda Fabrik

BEMIP Baltic Energy Market Interconnection Plan BKarA Bundeskartellamt (Federal Competition Agency)

BMWi Bundesministerium für Wirtschaft und Energie (Federal Ministry for Economic Affairs and Energy)

BMU Bundesministerium für Umwelt, Naturschutz und nukleare Sicherheit

(Federal Ministry for Environment, Nature Conservation and Nuclear Safety)

bn Billion

BNetzA Bundesnetzagentur (Federal Network Agency) BP British Petroleum

CEE Central- and Eastern Europe

CESEC Central and South-Eastern European Gas Connectivity High Group CEZ České Energetické Závody

CDU Christ-Demokratische Union Deutschlands (Christian Democratic Union of Germany)

CSU Christlich-Soziale Union in Bayern (Christian-Social Union in Bavaria) Destatis Statistisches Bundesamt (Federal Statistical Ageny)

DG Department General

DIW Deutsches Institut für Wirtschaftsforschung EC European Commission

ECSC European Coal and Steel Community EDF Energie de France

EEA European Economic Area

EEC European Economic Community

EEG Erneuerbare Energien Gesetz (Renewable Energy Act) EESS European Energy Security Strategy

EEZ Exclusive Economic Zone

EFSI European Fund for Strategic Investment

ENTSO-G European Network of Transmission System Operators Gas ETS European Union Emission Trading System

EU European Union

FDP Freie Demokratische Partei (Free Democratic Party) FNG Fernleitungsnetzbetreiber Gas

FRG Federal Republic of Germany

FRSU Floating Regasification and Storage Unit GDR German Democratic Republic

GHG Greenhouse Gas Ibid. Ibidem

IGA Inter-Governmental Agreement

iNECP integrated National Energy and Climate Plan IEA International Energy Agency

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13 MKM Ministry of Economic Affairs and Communication of the Republic of Estonia mtoe (unit) Million tons of oil equivalent

MVM Magyar Villamos Művek (Hungarian Electrical Works) NATO North Atlantic Treaty Organisation

NCECP National Commission for Energy control and prices of the Republic of Lithuania

NSI North-South Interconnection

OAOEV Ostausschuss/Osteuropaverein der Deutschen Wirtschaft OIES Oxford Institute for Energy Studies

PCI Projects of Common Interest

PGNiG Polskie Górnictwo Naftowe i Gazownictwo SA (Polish Mining and Gas Extraction Company) SNA Social Network Analysis

SOCAR State Oil Company of Azerbaijan Republic SPD Sozialdemokratische Partei Deutschlands

(Social-Democratic Party of Germany) TANAP Trans-Anatolian Natural Gas Pipeline TAP Trans-Adriatic Pipeline

TEN-E Trans-European Networks Energy TEP Third Internal Energy Market Package

TFEU Treaty on the Functioning of the European Union TJ (unit) Terra Joule

TPA Third Party Access

TSO Transmission System Operator TWh (unit) Terrawatt hours

UGS Underground Gas Storage UN United Nations

V4 Visegrád group (Czech Republic, Hungary, Poland, Slovakia) VNG Verbundnetz Gas

WEC World Energy Council

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CHAPTER 1:

INTRODUCTION

In the process of European policy integration, energy policy has emerged as a particularly contentious policy field. Over the last six decades the European Community became the European Union, the membership increased from six to 28 and the European institutions have become supranational actors with wide-ranging competencies. And as much as energy policy has been at the core of European integration from the beginning, the discussion about a common European energy policy is as heated and unresolved as ever. The geographic juxtaposition and the distribution of fossil fuels across the European continent and beyond have created differences in national energy policy approaches that have proven difficult to overcome. The most divisive and geopolitically charged issue in this context is the dependency on natural gas and other fossil fuels from the Russian Federation. Being that the EU generally depends on energy imports due to its low domestic resources and a high demand, Russia as a resource-rich neighbour in direct geographic proximity has emerged as the main supplier of oil, natural gas and coal. In the last two decades, the Russian federation has established its natural gas exports and Gazprom as explicit tools of its foreign policy, the power of which it demonstrated during the gas supply disruptions in 2006 and 2009 and at the onset of the Ukraine crisis in 2014. For many EU member states, the disruptions highlighted the perils of being dependent on Russian natural gas. Without the ability to flexibly adjust their natural gas imports, member states in Central- and Eastern Europe were most vulnerable. This has sparked a new process of European energy policy integration that put the aspects of supply diversification and market liberalisation on top of the European Commission (EC)’s agenda. Because Brussels, as well as many member states perceive Russian gas import dependency as a threat, they have developed different policies and energy strategies to respond to the dominance of Gazprom and to reduce it. The largest importer of Russian gas and biggest EU member state, Germany, however, seemingly has not. Germany’s continued cooperation with Russia on natural gas, which is especially tangible in the construction of the Nord Stream pipelines, prevents the EU form speaking with one voice and increases the amount of Russian natural gas on the European market. While Brussels and the member states criticise Germany’s engagement with Russia for its political and security implications, Germany continues to stress the commercial nature of their relations. The divergent perceptions of Russia’s natural gas exports as a political threat and a purely commercial good uncover the larger problem for European energy policy: To unionise

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15 fundamentally different energy strategies towards- and perceptions of Russia as an exporter of natural gas borne from historical experiences of political and economic exchange. In the light of Germany’s central role in the EU, both politically and geographically, it seems clear that it will not be possible for the EU to adopt an effective common energy policy toward Russia, without Germany’s support. In order to better assess the prospects of a European energy policy, it is therefore vital to understand the complex nature of German-Russian natural gas relations. Thus, this thesis aims to assess German-Russian natural gas relations within the context of a common European energy policy approach and pays particular attention to the involved actors and social forces that have shaped their relationship. Its objective will be to shed light onto transnational actors like special interest groups, commercial actors and networks of politicians and societal actors influencing German-Russian natural gas relations. The research question this thesis seeks to answer is two-fold:

“How do social and political actors co-shape Germany’s natural gas strategy towards Russia and what are the prospects for German-Russian natural gas relations within a common European Union energy policy?

The research question has two parts and investigates the interplay between the commercial and political spheres in German-Russian energy relations. The time frame in consideration spans from the origins of German-Russian natural gas relations and Germany’s

Ostpolitik (the doctrine of West-East rapprochement during the 1960s and 1970s) until today.

The objective is to determine Germany’s interests and prospective role working towards and within a European policy framework, namely the Energy Union. For the analysis of German-Russian natural gas relations this means that Germany will not be treated as a unitary actor, but instead the business ties between the German energy companies and Gazprom, as well as the political relations between Berlin and Moscow will be considered. In order to understand the European Commission’s energy strategy, the natural gas challenges in the EU and the policy responding to them will be analysed. The influence of Russian natural gas import dependency as a factor for the development of the EC’s energy policy and its strategies for natural gas supply security will be considered. The concrete measures to reduce the EU’s vulnerability to Russian natural gas import dependency will be examined from an infrastructural, market-regulative and political dimension. Lastly, the interconnected relationship between Gazprom and the Russian state will be examined under the prism of the concept of the state-society

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complex. Unveiling the personal links, mutually benefiting structured and economic relationship between both spheres will benefit a more thorough understanding of how Russia utilises its natural gas exports abroad. Synthesising the insights gained, this thesis will finally attempt to locate the German position in the future of the EU’s energy policy integration.

1.1. Theoretical Framework

The theoretical framework of this thesis rests upon contributions from different schools of thought in International Relations and International Political Economy. From the liberalist school, the expectations of interdependence theory will be reviewed. There is a broad stream of literature on interdependence theoretical discussions of the German-Russian energy relationship because Germany’s famous Ostpolitik concept arguably quite explicitly applied the promises of this theory to German engagement with the East. Drawing from scholars of Critical Geopolitics, the concept of the state-society complex as a unit of analysis and social networks will be used to amend the liberalist framework. Combining both concepts, the theoretical framework of this thesis argues for a differentiated unit of analysis, which treats authoritarian type state-society complexes as unitarian actors on the international stage, while the range of different, even conflicting interests within a liberal type state-society complex make the unitary actor notion implausible. Lastly, three principal dimensions of energy security will be discussed in order to be able to relate the energy policy of the European Commission to the issue of Russian import dependency.

1.1.1. Interdependence Theory

Nye and Keohane have been amongst the most influential scholars contributing to the liberalist discourse. In their book ‘Power and Independence’ (first published 1989) they present their ideas on different states of interdependence. Central distinctions when assessing the state of interdependence between actors and the likelihood of a conflict onset have to be made regarding the complexity and symmetry of the interdependence. Nye and Keohane attest symmetrical dependence to work as an insurance against political manipulation, because asymmetrical interdependence constitutes an important source of hard power for the less vulnerable (Keohane/ Nye 2012: 216). This is contested by Barbieri (2002) who argues that symmetric interdependence too can lead to conflict. She proposes that rather than focussing on

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17 symmetry alone, analyses should pay attention to the individual significance of the trade relationship for the involved parties, i.e. how large a share of the GDP depends on it (2002: 44). Similarly, Armstrong (1981) notes that relative issue importance of the interdependent field for both states determines the onset of (economic) conflict. Dealing with the question about the political consequences an interdependent or symmetrically dependent economic relationship can have, Armstrong argues that interdependence does not lead to political concessions from the less dominant state per se. Rather, there are facilitating conditions which allow for more political influence of the dominant state. Accordingly, Armstrong suggests that political influence can be exercised, if (i) the less dominant state is not in control over the dominant state’s investments, (ii) alternative supplies are not available to the less dominant state, and (iii) there exists an intense demand for the good in question and the dominant state can convey its desires for a certain political effect without threatening the dominated state (Armstrong 1981: 404). Reviewing Armstrong’s conditions, Wagner (1988) argues that political concessions can only be expected, when they are compensated for economically or politically (1988: 472). This is opposed by Harsem and Claes (2013), who find that the scarcity and economic importance of a commodity are sufficient conditions for political compliance or concessions (2013: 786). Lee (2017) echoes this argument and claims that rather than the onset of conflict, issue importance determines the political compliance to demands made from either side (2017: 207). In this sense, Harsem and Claes and Lee both view that reciprocal concessions are not necessary, because the threat of a supply disruption itself provides enough incentive for the dominated state to allow political influence. Furthermore, Harsem and Claes make a distinction between different forms of political coercion. They argue that political concessions that lead to policy changes or adjustments are more likely to be made by less powerful states. This however does not mean that more powerful states do not make concessions, it means that their concessions are more likely to take subtle forms like ‘gas-for-silence’, a policy they claim has been observable during the German Schröder administration, when Germany hesitated to condemn Russia’s role in the conflict in Chechnya after signing the declaration of intent on the first Nord Stream pipeline (Harsem/ Claes 2013: 786).

Liberalist scholars lend the image of the security dilemma from realism. This is not to suggest that the security concept that constitutes the dilemma is the same. The realist security dilemma is grounded on military defence capabilities and the principal actors are self-help driven states, whereas in liberalism the transnational social context and social purposes make for the state’s strategic calculation. But like is the case with the realist security dilemma, in the

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liberal version both interdependent actors are unable to increase their relative capabilities without decreasing the other’s relative security- although here in an economic sense. In the context of energy trade between the EU and Russia this means that both partners cannot reduce their dependence on the other without threatening the other’s economic or political interests. Russia’s and the EU’s more recent policies to reduce their mutual dependence highlight the dilemma. Both the EU’s strategy to liberalise its downstream energy market, as well as Russia’s strategy to diversify its exports by investing into the exploration of Eastern Siberian gas fields in order to be able to supply Chinas have been perceived as a threat by the other party.

Regarding the interdependence security dilemma Deudney and Ilkenberry (1999) maintain that only complex interdependence that includes multiple economic sectors and even societal and political spheres can credibly reduce the significance of individual issues and thus eliminate the security dilemma. Analysing the energy relations between Russia and the EU, Krickovic (2015) finds that Germany’s behaviour vis-à-vis Russia can be explained by the fact that Germany is the only member state which further developed its interdependence with Russia beyond the energy sector (2015: 8). Proedrou (2007) negates the assumption that deeper integration will inevitably serve as a means to avoid conflict. He argues that the higher

sensitivity, which is a natural result of economic integration and dependency, forces both parties

to explore measures to reduce their sensitivity in the long term. Both parties will only seek to resume cooperation at the cost of high sensitivity, as long as there are no available alternatives (Proedrou 2007: 347). In an interdependent relationship, sensitivity interdependence describes a state of liability to costs imposed from the outside before policies have been adjusted.

Vulnerability interdependence in turn describes the liability to costs imposed from the outside

that persists even after policies have been adjusted (Esakova 2012: 54). Copeland’s (1996) perspective on the question about interdependence and conflict is that the most important factor for the onset of conflict is the states’ expectations of future trade as both are threatened by the end of their trading relationships. Fusing liberalist and realist assumptions about cost benefits from continued trade and war, Copeland argues that the likelihood of either of the two camps correctly predicting the dominated state’s behaviour largely depends on that state’s assessment of the future of their mutual trade relations. This means that high interdependence only has a peace-inducing effect as long as the more dependent state can expect relations to remain largely positive, because it will assign a higher value to the continuation of trade, making war an unappealing option (Copeland 1996: 17). Consequently, this has the effect that as soon as the more depended state assigns a lower or negative value to the continuation of their mutual trade,

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19 war could become a more cost-effective and appealing option, because a negative value of continuation will result in a loss in power.

Most of the contributions discussed above relate interdependence theory directly to the energy relationship between the EU and Russia or between Germany and Russia respectively. A reoccurring theme is that there exist different levels of (inter)dependence between the EU and Russia on the one hand and between Germany and Russia on the other. Interdependence theory certainly holds promising approaches for a thesis examining Germany and Russia in energy relations, but the theory has drawbacks as well. While Esakova (2012) lauds that interdependence theory invites non-state and transnational actors such as banks and multinationals into the analytical framework (2012: 24), more can be done to assess the connections between economic actors and political decision-makers within the state of interdependence. Here approaches from the critical theory school could be beneficial could provide additional insights to fully understand the relationship.

1.1.2. The concept of the State-Society Complex and Social Networks

Scholars of the critical theory school focus on the interwoven connections and relationships between the political, economic and societal spheres in order to analyse the international system. Critical theorists consider the political and social complex as a whole, rather than sperate units. Critical Theory questions existing institutions and power relations by analysing the social process from which they originated and investigating the change they might be undergoing (Cox 1981: 129). Coined by Amineh and Yang (2018), the state-society complex as unit of analysis offers a conceptual framework to understanding the relationship and interactions between state actors, market actors, and civil society actors. The state-society complex determines how the energy market is regulated (Amineh/ Yang 2018:10). Two ideal types have been identified: The authoritarian and the liberal state-society complex. In an authoritarian or centralised state-society complex, the state has vast possibilities to exercise influence on the market, which allows for decisive strategic action to be taken. One indicator for an authoritarian type state-society complex is the strong role of state-owned enterprises in the field of energy policy (Ibid.:12). Another indicator for an authoritarian type state-society complex is the relative differentiation between the government and other social spheres. The nationalisation of important industries in an authoritarian state-society complex therefore only allows for limited independent business activities, because social forces like economic actors

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are incorporated into a centralised governance system. In the interaction of these social forces in the transnational space, their capacity to act on their own interest is constrained by the primacy of interests of the political leadership (Ibid.: 12). The liberal type state-society complex on the other hand is characterised by a stronger civil society and related autonomous business class. The business class in a liberal state-society complex not only has the ability to influence policy making, it is also considered to provide the dominant input in this process. This in turn reduces the possibilities for the state to act in the market (Ibid.:11-12). Amineh and Yang (2018) theorise that in centralised governance systems, political, economic and civil forces are subsumed under one central source of power (2017: 13). When actors that are part of a state-society complex engage in any kind of activity that transcends their territorial borders, in doing so they inevitably connect the institutions and society of their domestic realm with the external realm. Amineh/ Houweling (2003) refer to this as power projection (Amineh/ Houweling 2003: 325). This has important implications for the governance of energy security and commodity supply strategies. In a system that exhibits indicators of an authoritarian state-society complex, state-owned energy companies would necessarily act as an extension of the state. This has the effect that the state’s capacity to intervene into the market in order to achieve political and strategic objectives is greatly increased, particularly relative to liberal governance systems. It is important to note, that the distinction between authoritarian or centralised and liberal state-society complexes is not to imply that states are necessarily to be allocated within this dichotomy in a binary fashion. Purely liberal or authoritarian state-society complexes are theoretical ideal types and an ordinal concept. In reality, state-society complexes exhibit liberal and authoritarian qualities alongside each other.

The literature stream of power structure research has investigated the transnational elite networks that exert their influence in the realm between the economic and political spheres. In what is referred to as corporate elite networks, members from both spheres interact, engage in ideational exchange and influence each other, which has effects on both policy-making and corporate strategies (de Graaf 2017: 49). Scholars have identified two types of networks, borne from their juxtaposition of professionals from different backgrounds and implicit or explicit position in the governance structure of different entities. The first type is a network that is formed through interlocking directorates. This means that members of the board of directors hold multiple board positions with different companies at the same time, which fosters their exchange and allows for mutual influence to converge interests and strategies (Ibid.). The effect of their exchange is emphasised by the fact that the board of directors is the principal explicit

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21 decision-making organ in the governance structure of corporations. The second type are so called policy-planning networks, in which commercial actors, policy-makers, intellectuals and other civil actors meet to exchange ideas about corporate strategies or political and societal ideas (de Graaf 2017: 50). Policy-planning networks usually do not have an explicit position in the governance structure of corporations or in the policy-making process, which is why their influence is implicit. Both types of networks share that they provide platforms for intra-elite cohesion, which creates shared interests that go beyond the confines of individual corporations (Ibid.).

Approaches from critical theorists are particularly valuable to explain the behaviour of state-owned energy companies like Gazprom in Russia. The benefit of employing the concept of the state-society complex as a unit of analysis for Gazprom and Russia will be highlighted through the following brief literature review.

The strategic benefits close ties between the state and Gazprom have for the manoeuvrability of Russian energy policy, have been noted Finon and Locatelli (2008) and other scholars, who argue that ever since Putin’s move to advance Gazprom to an unrivalled national champion with very close ties to the Kremlin, Gazprom’s strategy abroad has to be treated as an integral part of Russia’s foreign policy (2008: 426). Bilgin (2011) analysed the relationship between the Russian state and Gazprom and found that through a variety of political moves, Gazprom retained a position as a natural monopoly and was excluded from liberalisation processes. It is argued that despite of assertions by officials from the state and Gazprom that the two are fully independent and there are no formal mechanisms for either of the two to control the other, an analysis of the structure of shareholders and proxies pointed to the fact that the state’s influence on Gazprom’s strategy is nothing short of significant (Bilgin 2011: 124-125). Therefore, a purely economic exchange with Gazprom is not possible in the nearest future, because its business strategy and corporate expansions mirror the states geopolitical ambitions (Idem: 126). Stressing the close relationships between Gazprom’s managers and the Russian state, Goldman (2008) referred to Gazprom’s managers as “agents of the state”, who adhere “strictly to the goals set out by senior state officials as if they were wholly owned by the state” (Goldmann 2008: 173). Vatansever’s (2017) assessment of the Russian oil and gas export strategies comes to a similar conclusion. However, his analysis highlights the importance of infrastructure (pipeline) ownership, arguing that the pipeline politics of the Russian state leave little doubt that the Nord Stream pipelines and others cannot be purely economic, as is often claimed by both the Russian and German sides (Vatansever

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2017: 6). Orttung and Overland (2011) point to constraints on the Russian state’s ability to influence Gazprom and find that the state has lost one of its most important policy tools over the past decade, subsidies. The state has been able to use subsidies to other post-soviet states in the past as a political tool, for which it used Gazprom’s vast resources. Ever since Ukraine stopped paying subsidised prices for its gas, Russia’s political toolbox has been weakened (Orttung/ Overland 2011: 84). Henderson (2016) provides another perspective on the way Gazprom’s exports act as a policy tool to the Russian state. He argues that Gazprom’s supply contracts itself are often designed in a way that anticipates conflict or even facilitates it. By remaining vague on conditions for debt and allowing for demands of repayment to be made at an opportune time, concessions like debt extensions and reductions on high prices can be made in exchange for political favours to the Russian Federation (Henderson 2016: 481). Gazprom’s price politics have also been subject of analysis by other scholars (e.g. Godzimirski 2013) and a reoccurring observation is that Gazprom offers lower prices to countries that have alternative sources for natural gas or LNG ports at their disposal and higher prices to those that solely depend on Gazprom’s delivery. This too, has to be seen as not only an economic, but also a political decision.

This brief review of contributions on interdependence theory and the concept of the state-society complex in the context of relations between the EU and Russia and Germany and Russia shows that it is warranted to attempt a combination of both theoretical avenues when analysing the topic of Russian natural gas import dependency. So rather than merely analysing the interdependence between states, the interdependence and interconnectedness between state-society complexes should be considered.

1.1.3. Energy Security and Diversification

There is no universally accepted definition for energy security, because different actors perceive of energy security in different terms, often laden with ideology or political agenda. What can be agreed upon is that the security of something necessarily entails a discussion of its insecurity. Risks and threats to the security of energy are multifaceted and can stem from human, geographical, (geo)political or technical sources. In effect, energy is often regarded as being secure, when it is available. The definition of the International Energy Agency (IEA) underscores this by defining energy security as “the uninterrupted availability of energy sources

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23 at an affordable price” (IEA 2019). The latter part of this definition points to another necessary condition for the security of energy: Its affordability. The Asia Pacific Energy Research Centre (APERC) coined the concept of energy security described by the ‘Four As’. Accordingly, energy security is “the ability of an economy to guarantee the availability of energy resource supply in a sustainable and timely manner with the energy price being at a level that will not adversely affect the economic performance of the economy” (APERC 2007: 6). The ‘Four As’ following from this are Availability, Accessibility, Affordability and Acceptability. The APERC’s concept has been well-received in the scholarly community, but Cherp and Jewell (2014) note that it fails to identify a referent object for the security concern and therefore provide a more simplistic and flexible definition, arguing that energy security is the “low vulnerability of vital energy systems” (Cherp/ Jewell 2014: 418).

Risks and threats to the security of energy can be summarised in different dimensions. In the context of this thesis, the dimensions of diversification and geopolitics are of elevated relevance. The diversification and geopolitical dimensions of energy security are particularly important to understand the ability of a country to mitigate the effects of a supply disruption. Relying on a single supplier for energy resources, a single route for imports, or a single source for energy generation poses a risk to the availability of energy. Geopolitical issues critically affect the energy security of a country. Reasons for supply disruptions can be outbreaking wars, destabilising regimes or failing states, regional tensions or embargoes (Ang et al. 2015: 1081). Even sudden trade wars can make it energy resources or other important imports unfeasible or unaffordable. Thus, good political relations to suppliers are one way of protection against interruptions. But because threats and political tensions are often unforeseeable, diversification is indispensable. Diversification can take many forms. A diverse energy mix means to generate energy from different resources using different methods. Source diversification means to import necessary resources form different suppliers. This is especially relevant in the field of natural gas imports. While most diversification focuses on cases of supply disruption of energy imports, meaning non-indigenous, fossil resources, in the case of intermittent renewables it is important to diversify technologies. If a country heavily relies on wind or solar energy, the development of hydropower or geothermal energy technologies can help mitigate disruptions and reduce intermittency (Sovacool/ Mukherjee 2011: 5345). Another diversification measure is to evenly distribute vital energy infrastructure across the available territory. This kind of diversification is called ‘spatial diversification’. This reduces the vulnerability of an energy system and reduces transmission losses (Li 2005: 2241). According to Yergin (2006) the energy security of natural

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gas and oil will continue to rely on the principle of diversification. Reflecting on the geopolitical dimension of energy security and its larger context, he adds that “in a world of increasing interdependence, energy security will depend much on how countries manage their relations with one another, whether bilaterally or within multilateral frameworks” (2006: 82). This contribution points to another crucial aspect of increasing energy security that will be highlighted in this thesis: Multilateralism. Correljé/ Van der Linde (2006) compare a multilateral ‘storyline’ of markets and institutions with a noncooperative ‘storyline’ of regions

and empires in the context of international energy security. They find “that the security of oil

and gas supply will be the greatest in a Markets and Institutions world, as a consequence of the multilateral approach and the strength of the collective policies in the context of a functional market” (Correljé/ Van der Linde 2006: 549). The main contribution of multilateralism to increasing energy security is that its preventive policy tools are a highly effective means to mitigate effects of import dependence (Ibid.). To conclude, the theoretical framework of this thesis will employ the dimensions of diversification, geopolitics and multilateralism as beneficial to energy security. In this thesis, energy policies will be analysed against the background of these three dimensions to determine their effects on energy security.

1.2. Argumentation and Hypothesis

The research question will be approached through a number of sub-questions. The first sub-questions concern the political context for European energy policy in the EU. Considering the energy situations of EU member states in the Visegrád group and the Baltic republics, as well as Germany, the challenges to gas supply security in the EU will be explored. The first set of sub-questions therefore is: “What is the energy situation in the European Union and in Germany?” and “What are the challenges to EU member states in Central- and Eastern Europe and the Balticum and gas supply security and through which strategies have they been approached?” This will provide important information about the individual energy policy priorities of the member states that are arguably most directly affected by German-Russian gas relations. It will be argued that the external relations of member states and their perception of Russia significantly contributes to the strategy they employ to meet the challenge of a lack of resources. The diversity of energy strategies and the influence of external relations will illustrate the challenges towards defining a common energy policy. The next set of sub-questions explores the development of policy measures undertaken by the European

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25 Commission to manage the dependency of the EU on Russian natural gas imports. This sub-question is two-fold and reads “How has the EC’s energy policy been influenced by the threat of a Russian supply disruption of natural gas and which policy tools and strategies have been developed to reduce the EU’s vulnerability?” By analysing the energy policy development of the EC against the background of Russian natural gas import dependency and the dimensions of energy security discussed in the theoretical framework, it will be shown that the EC’s strategy to engage Russia and reduce the vulnerability to a Russian supply disruption primarily rests on two pillars: An integrated liberalised energy market, and supply diversification. This frame will be applied to the research question. This means that the German natural gas strategy would be complementary to the EC’s natural gas strategy if (i) it furthered the liberalisation and integration of the European energy market and if (ii) it contributed to the diversification of natural gas supplies on the European energy market. The third step of the argumentation will foster an understanding of the involved actors, social and political forces in German-Russian natural gas relations. The sub-questions that will be investigated in this step are “How have commercial and political interests been linked in German-Russian natural gas relations?” and “Are Germany and Russia symmetrically dependent?”. By analysing the interactions between the different spheres and comparing them to Germany’s natural gas import strategy over time, as well as political developments on a national and international scale, their impact on German energy policy will be highlighted. In order to illustrate the close ties between commercial and political spheres in German-Russian gas relations, it will be argued that Russia’s foreign energy policy is organised in an authoritarian type state-society complex. Elaborating on personal connections between Gazprom and the Russian state, the Russian state-society complex will be modelled. By highlighting the implicit and explicit functions of Gazprom for the Russian state, the argument will be made that Gazprom’s commercial activities are necessarily to be treated within the context of the geopolitical ambitions of the Russian state. In the synthesis of the above the following hypotheses will be discussed:

H1: Germany’s approach of letting commercial actors take the lead in German-Russian natural

gas relations ignores the geopolitical concerns of other EU member states and is therefore not compatible with the EC’s idea of a common energy policy.

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H2: The fundamental difficulty to establishing a common EU energy policy are the different

state-society complexes in energy within the EU, which complicate formulating a common approach to the relationship between the state and the energy market.

1.3. Data and Methods

The argumentation will primarily be grounded on qualitative research methods. A qualitative case-study will be performed on German-Russian natural gas relations and the Russian State-Society-complex. The relations between Germany and the Russian Federation have been shaped by a long-shared history of rivalry, conflict and cooperation. The natural gas relations between Germany and Russia have to be examined against the background of the specific historic conditions that formed them. In order to appropriately assess the trajectory of sequences of interaction, the qualitative case study as a methodological approach is deemed best to explain complex relations with inferred causality (Bennett/ Elman 2006: 264). Furthermore, because of Germany’s federal architecture and market-led energy strategy, there exists a plethora of relevant state, sub-state and private actors on the German side of German-Russian relations, making the notion of Germany as a unitary actor implausible. For cases like this one, in which the specific underlying conditions drastically limit the number of available

N, an in-depth study of “cases within the case” holds more benefits for sound explanations than

a cross-case comparison (Gerring 2004: 351). That is why German-Russian natural gas relations will be analysed using a qualitative exploratory case study. In the case study, business ties between the involved economic actors and companies, as well as their connections to the political class of the two countries will be considered. A social network analysis will be conducted about personal ties between Gazprom, the Kremlin and the German energy companies within the context of identifying relevant policy-planning network in German-Russian natural gas relations. One very insightful publication that helps foster a better understanding about Gazprom’s inner workings and its connections to the Kremlin is Vavilov’s (2015) book on Gazprom. The author has been a manager for Gazprom for many years, as well as an employee for Russian governmental bodies and has published the book together with an American and a Russian university. An assessment will be conducted about Gazprom’s market position in Germany. For this, primary sources form the German Federal Network Agency (Bundesnetzagentur), the German Federal Competition Agency (Bundeskartellamt) and information from the operators of pipelines in Germany will be used. For the analysis into the

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27 economic interdependence between Germany and Russia, primary data reported by the German Federal Authority for Foreign Trade (Bundesamt für Außenhandel) and the UN COMTRADE will be used. The European commission publishes the most recent general energy data of all member states twice a year in the form of Energy statistical data sheets. These will be used in order to determine the energy situations of Germany, the EU28, the Visegrád states (Hungary, Poland, Czech Republic and Slovakia), and the Baltic republics (Estonia, Latvia, Lithuania). Additionally, the annual World Energy Trilemma Index of the UN accredited World Energy Council will be consulted. Primary data on exported quantities will be taken from Gazprom and Gazprom Export, as well as the latest BP World Statistical Energy Review. A wide body of peer-reviewed scholarly contributions will provide insight into the academic debate about different aspects of the research topic.

1.4. Structure of the thesis

This thesis will address the research question by analysing three different dimensions: (i) Challenges to EU member states’ energy security and the role of Russian natural gas, (ii) EC energy policies aimed at reducing and managing the EU’s dependency on Russian natural gas and Germany’s role in energy policy integration, and (iii) Actors and interests in German-Russian natural gas relations.

The second Chapter will investigate the energy situations of Germany, the EU28, the Visegrád group (V4) and the Baltic states. Particular attention will be paid to the individual strategies for diversifying natural gas imports and their perception of Russia as an importer for natural gas. This way, it will be illustrated how different EU member states have employed various strategies to meet the challenge of a lack of resources. Considering the political realities in the EU, this will elucidate how challenging it is to find a common European energy policy. The third Chapter is devoted to an analysis of the proposed energy policy by the European Commission. In a first step, the development of European energy policy will be reviewed against the background of the threat of a Russian supply disruption. Close attention will be paid to the current policy proposal, the ‘Energy Union’. Two principal strategies to reduce the EU’s vulnerability vis-á-vis a dominant supplier for natural gas will be identified: Import diversification and market liberalisation. In two individual sub-chapters, both will be more closely examined as the EC’s market regulations for natural gas and the infrastructural

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‘Projects of Common Interest’ are explained. Lastly, the duality of the German position in the process of the Europeanisation of energy policy will be shown.

The fourth chapter analyses the influences of social and political actors on German-Russian natural gas relations and assesses the depth of their cooperation. This will be done through a detailed account of the historical development of natural gas trade between the Federal Republic of Germany and the Soviet Union and later the Russian Federation. The insights will be used to characterise the German commercial approach to natural gas security. The depth of cooperation and possible interdependence between Germany and Russia will be analysed on the German gas market and in the overall bilateral trade relations. The intersection of commercial and political actors will be shown by highlighting the representation of special interests of German energy companies, Gazprom and political actors in important

policy-planning networks, namely the Deutsch-Russisches Forum and the Ostausschuss/Ostverein der deutschen Wirtschaft (OAOEV). Finally, the functional and personal connections between

Gazprom and the Russian state will be analysed using the concept of the state-society complex as a unit of analysis.

In the fifth and final chapter, the results will be discussed and related to answer the research question and test the hypotheses. Furthermore, an outlook over trends that can be expected in the near future will be provided.

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CHAPTER 2:

The Energy Situations in the EU with a focus on Russian Natural Gas

imports

This chapter explores the multifaceted challenges related to energy supply and energy security in the European Union and its member states. In the context of this thesis, particularly the situation of natural gas in Germany, the Visegrád states (V4) in Central Eastern Europe (CEE) and the Baltic states is of elevated importance. The sub-questions this chapter seeks to answer is “What is the energy situation in the European Union and in Germany?” and “What are the challenges to EU member states’ gas supply security in Central- and Eastern Europe and the Balticum and how and by whom have they been approached?” Throughout the chapter and in the corresponding tables and charts reference will be made to Germany, the EU28 and Russia. The impact these external actors have on energy security in the Visegrád states and the Baltic states will be highlighted. Differences in energy security approaches between the states of these two groups are partly caused by their external relations, which is why the regional level analysis should not be neglected. The vastly different realities EU member states face when it comes to their energy supply security in general and their natural gas supplies in particular make the quest to finding widespread consensus in the European Council for a European energy policy a challenge. Ever since the industrial revolution and the motorisation of armed forces, energy security has become a top priority for national security agendas of import-dependent countries. For many Eastern European member states energy supply issues are securitised due to their traditionally critical perception of Russian influence and the dependence on Russian imports. At the same time, the origins of much of Eastern Europe’s energy infrastructure and the geographic proximity to the Russian Federation contribute to Russia’s strong position on their respective energy markets. In the following chapter, the energy security situation of the EU as a whole, Germany, the Visegrád states and the Baltic states will be highlighted in relation to Russia as the supplier.

2.1. The Energy Situation of the European Union

The energy situation of the EU is shaped by its high demand and low natural resources, making it the largest net-importer of energy in the world (Amineh/Crijns-Graus 2018: 150). The energy-resource-rich Russian Federation is a territorial neighbour of the EU and in direct

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proximity of many of the countries studied in this chapter. As shown in Figure 2.1., The EU’s total energy supply is dominated by fossil fuels (Oil/ Petroleum, Hard Coal, Lignite and Natural Gas), which account for 72,7%. The remaining share is fairly evenly split between renewable energy at 13,9% and nuclear energy at 12.6% (EC 2019a).

Figure 2.1.: EU28 Total Energy Supply 2017

Note: Oil sands, waste and peat account for approximately 1% combined and are excluded. Source: EC 2019a.

The EU produced 759 mtoe (million tonnes of oil equivalent) of energy in 2017, which covers roughly 45% of its demand. Almost 30% of the domestically produced energy is renewable and 27% is nuclear. Solid fuels and Natural gas combined amounted to 30% of production (EC2019a). The production output of fossil fuels in the EU will not increase in the future, because both geographic and political factors prevent this. To illustrate, the EU is believed to possibly have a significant potential for shale gas production, which is unlikely to ever be explored due to the strong environmental opposition against extraction methods like fracking (Amineh/ Crijns-Graus 2017: 34). Because the EU’s indigenous reserves of fossil fuels do not suffice to meet its demand, it depends on imports. For all fuels the EU28 currently has an import dependency rate of 55,1% and only one member state, Denmark, has been a net exporter of energy in the past decade (EC 2018a: 66). At 70.4% the natural gas import dependency of the EU28 is even higher. The Netherlands and Denmark are the only two member states that are currently net exporters of natural gas and only Romania comes

9% 5% 33% 25% 13% 15%

EU28 Total Energy Supply

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31 somewhat close to satisfying is domestic demand for natural gas from indigenous sources, but still falls short of it and thus depends on imports for 13% of its demand (Idem: 72). The largest individual importer of natural gas into the EU is Russia, which accounts for almost 40% of all EU natural gas imports (Idem: 26, see Figure 2.2.). As illustrated in Figure 2.2., Russia’s dominance as a supplier to the EU is rising despite of a slightly decreasing gross domestic consumption. Even though the EU has been able to decouple its economic growth from its primary energy consumption (see Figure 2.3.), European demand for natural gas is expected to remain stagnant and decrease only slightly over the next decades (Honoré 2014: 70). Against the background of an accelerated reduction of domestic production of natural gas from the Netherlands (IEA 2018: xiii) and the foreseeable depletion of Norwegian gas fields, the importance of Russian imports is set to increase in the future.

Figure 2.2.: Gross Domestic consumption of Natural Gas of EU28 in mtoe/ Russian imports in percent 2006-2016.

Source: EC 2019a, Eurostat 2018, Figure by author.

0,00% 5,00% 10,00% 15,00% 20,00% 25,00% 30,00% 35,00% 40,00% 45,00% 0,00 50,00 100,00 150,00 200,00 250,00 300,00 350,00 400,00 450,00 500,00 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Gross Domestic consumption of Natural Gas EU28 in mtoe/

Russian imports in percent

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Figure 2.3.: Primary energy consumption and GDP of the EU since 1995.

Source: European Commission (2019e): Fourth report on the state of the energy union, p.5.

Russia’s role as an importer is equally dominant for the other fossil fuels: 31,6% of the EU’s crude oil imports and 30,6% of the EU’s solid fuel imports are of Russian origin (EU2018a: 26). As illustrated in Figure 2.3., the EU has set itself targets to reduce its primary energy consumption by 20% by 2020 and by at least 32.5% by 2030 compared to the 1990 base scenario. The EU is generally believed to be on track to meet its 2020 target, but a rise of primary energy consumption over the past three years has made this more doubtful (Eurostat 2019). Additionally, the EU has committed itself to reducing greenhouse gas emissions by 20% by 2020 and increase the share of renewables to 20% by 2020. As will be partly explored in this chapter, the energy portfolios of the member states of the EU differs greatly. It needs to be stated that due to these vast differences, it is difficult to argue that a single energy situation for the entire EU can be identified. For the sake of providing a general orientation for the energy security in the EU, the general discrepancy between the EU’s high demand and low production necessarily points to the fact that the EU relies on energy imports. The security of these imports depends on a wide range of factors. Particularly natural gas imports are relevant to determine the energy situation and the security of energy supply in the EU, because unlike the global markets for oil and coal, the gas market is not liquefied and the overwhelming majority of the EU’s natural gas imports are delivered through inflexible pipelines (Esakova 2012: 161). Map 2.4. shows the most important gas pipelines in Europe and illustrates the limitations for the EU to adjust its natural gas imports.

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33 Map 2.4.: Major Gas infrastructure in Europe 2018

Source: DIW 2018: 591.

The EU imports almost 80% of its natural gas from its three big external suppliers, Russia, Norway and Algeria, using more or less diversified import routes. Norwegian gas is imported through multiple pipelines in the North Sea connecting to Germany, the Netherlands, Belgium, France, the UK, and Denmark (the Danish pipeline is not shown on the map) without having to pass through transit countries. The largest share of Russian gas is imported through three principal pipelines: Yamal-Europe passing through Belarus and entering the EU in Poland, multiple pipelines including Brotherhood transiting Ukraine and primarily entering the EU in Slovakia, and Nord Stream directly linking Russia and Germany. Algerian gas enters the EU through Tunisia into Italy and through Morocco into Spain. As will be explored in detail, particularly the Russian gas import routes play a decisive role for the energy security of many EU member states.

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2.2. The Energy Situation of Germany

Figure 2.5.: Total Energy Supply of Germany 2017 Note: Waste accounts for approximately 1,4% and is excluded. Source: EC 2019a.

Germany accounts for almost a fifth of the EU’s total energy consumption. Three quarters of Germany’s energy supply are made up of fossil fuels, of which Germany is only self-sufficient for lignite. German domestic gas production was 7,2bcm in 2018 covering about 6-7% of demand and at the current rate of extraction is expected to last for 8 more years (BNetzA/BKarA 2019:330). Therefore, Germany has a high import dependency for fossil fuels: More than 98% of oil, 93,4% of hard coal, 91,4% of natural gas, and all of its nuclear fuel have to be imported. This results in an overall import dependency of more than 63,9%, which puts Germany above the EU28 dependency of 55,1% (EC 2019a). Benefitting from its central geographic location and high interconnectivity, Germany’s imports of hydrocarbons generally have a comparatively high degree of diversification, but Russia retained its position as the largest importer. In 2017, Germany imported roughly 40% of its oil, 30% of hard coal and 46% of natural gas from Russia (IEA 2018c). Germany is the largest market and most important customer for Gazprom in the world and the cooperation between the Germany energy companies and Gazprom are extensive (see Chapter 4.4.). Because of a policy change of the Federal Authority for Export Control in 2015, Germany no longer publishes the origins of its natural gas imports, which makes import statistics more difficult to obtain and less precise

11% 12% 33% 24% 6% 14%

Total Energy Supply of Germany 2017

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35 (Westphal 2019: 168). Westphal (2019) estimates that Germany imported roughly 40% of its natural gas from Russia, 31% from Norway and 31% from the Netherlands in 2016 (2019: 167). The latest import statistics published by BP attribute 48,5 bcm of Germany’s 94,8 bcm total gas imports to Russia, of which 7,1 bcm are re-exported to the East, making for 43,6% (BP 2019: 34). Germany has no LNG terminals and relies on pipelines for 100% of its natural gas imports. For the moment, Germany can be considered to be in a largely good energy situation. The World Energy Council attests Germany the 7th_{highest ‘Energy Trilemma Index’}1_{rank globally}

with a rating of ‘AAB’ (WEC 2019: 90).

Following its Energiewende policy, which will be explained in more detail in Chapter 3, Germany has increased its capacities of renewable energy and reduced nuclear energy production considerably. This is particularly visible in the country’s electricity mix, of which 22% consisted of nuclear energy and 17% consisted of renewable energy in 2010. In 2018, nuclear energy produced 11,8% and renewables 34,9% of electricity (EC 2019a, AG Energiebilanzen 2019). The energy situation in Germany will be determined by the

Energiewende policy phasing out nuclear energy by 2022 and plans to fully phase out coal by

2038. Considering national and EU targets for the reduction of greenhouse gas emissions, natural gas is almost inevitably going to grow in relative size in Germany’s energy consumption. Despite of these political targets, traditionally the German government has kept from interfering in the energy market and private companies have negotiated supply contracts free form state intervention. This has decoupled political and commercial interests and contributed to a high level of energy security in Germany (Szulecki et al. 2016: 554). There is no state-owned energy company or national champion in Germany. This means that the ability of the government to strategically steer the market, for example to realign energy policy with its foreign policy, is limited, making the attractiveness of the German market the vital aspect for energy security (Westphal 2019: 175). The transition of Germany’s energy supply and the accelerated increase of renewable energy has put additional stress on the electricity grid and the grids of neighbouring countries. Because of the extend and intermittency of renewable energy production, the largest part of which comes from wind turbines in the North of the country, the German grid struggles to handle demand fluctuations causing loop flows through Poland and

1_{The UN accredited World Energy Council publishes the annual World Energy Trilemma Index which measures}

the energy performance of countries according to Energy Security, Energy Equity, and Environmental Sustainability. Countries receive a grade ranging from A to F in each dimension. (WEC 2019: 9)

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the Czech Republic. This has led to neighbouring countries seeking to disconnect their national grids from the German one, effectively reducing the integration of the European energy markets (Schlandt 2015). The German approach towards energy security is generally driven by commercial actors and increasingly by the German climate and environmental policy. Concerning Russian natural gas imports, Germany’s approach collides with the geopolitical and security concerns of its Eastern neighbours and the European Commission. This has been particularly apparent in the ongoing debate about Nord Stream 2, in which the German government often did not engage its critics in the EU and beyond by simply maintaining that the project is a commercial undertaking and that due to the liberal energy market structure state’s influence is restricted to ensuring the adherence to legal obligations (Fischer 2016a: 2). An analysis of the Nord Stream 2 debate in the Bundestag has furthermore shown that if the supply security argument is engaged, German lawmakers tend to argue along the lines of Russia, saying that the crisis in Ukraine warrants a new pipeline, because of the risks of relying on transit countries. Poland and other CEE member states in turn see the crisis in Ukraine as an indicator for Russia’s geopolitical use of natural gas working towards the intention of increasing its dominance in the region (Heinrich 2018: 80). Nord Stream 2 would double the existing capacity of direct natural gas imports from Russia from 55bcm to 110bcm. Considering Heinrich’s analysis, it is not surprisingly then, there is no noticeable German effort to reduce Russian natural gas imports or the dependency on them. Because of the primacy of the liberal energy market in Germany, Russian natural gas import dependency is not perceived as a threat to energy security or national security.

German-Russian natural gas relations in the context of a common European energy policy

Graduate School of Social Sciences (GSSS)