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Analysis & Opinion
28.09.09 Europe’s Natural Partner
By Graham Stack

If, as is likely, Germany’s September 27 national elections result in a new governing coalition between incumbent chancellor Angela Merkel’s Christian Democratic Union (CDU) and the small liberal Free Democratic Party (FDP), the planned phase-out of nuclear power in Germany will be slowed indefinitely, ostensibly to reduce dependency on Russian gas. However, analysts say the shift will make no significant long-term impact on German demand for Russian gas.

Guido Westerwelle did not mince his words when drawing conclusions from the Russian-Ukrainian “gas war” in January of 2009, which saw supplies to Europe halted for a number of days. “We Europeans have to do everything to free ourselves from dependency on a single supplier of energy,” he told Poland’s Gazeta Wyborcza daily in March, referring to Russia. “In Germany the government has made the mistake of phasing out nuclear power for ideological reasons. That makes us vulnerable to foreign energy suppliers. Germany should do what most of our European neighbors are already doing: achieve a reasonable energy mix, with renewable energy such as solar and wind power, fossil fuels such as oil, coal and gas, but also nuclear power.”

Westerwelle’s call to postpone the nuclear power phase-out to reduce dependency on Russian gas found an echo in one of the minor scandals that livened up an otherwise lethargic election campaign in September: a detailed election-campaign PR strategy apparently commissioned by Germany’s large energy concern E.ON, subsequently leaked to the press, advised lobbyists to actively harp on the population’s “historically rooted fears of Russia.” “E.ON can draw on these fears for its own benefit,” read the leaked PR plan.

With Chancellor Angela Merkel’s CDU also in favor of slowing the nuclear power phase-out, this coming shift in German energy policy might seem to be one of the immediate implications for Russia to come out of yesterday’s elections.

Russia currently supplies 37 percent of German gas imports. Germany relies on gas for 12 percent of its electricity production and around 25 percent of its total energy needs. Nuclear power, originally to be phased out by 2022 and replaced by renewable sources, accounts for around 25 percent of power generation and 12 percent of total energy requirements. These figures have given rise to fears that “renewables” will not be able to fill the void left by decommissioned nuclear plants, leading to even greater reliance on Russian gas.

However, analysts claim that much of the anti-Russian rhetoric is merely a political strategy to make slowing the phase-out more acceptable to voters, while it will in fact hardly impact on projected Russian gas deliveries to Germany. “I do not think that a possible postponement of the envisaged nuclear phase-out is related to fears of increasing dependency on Russian gas,” said Marcel Vi?tor, the head of the Foreign Energy Policy Program at the German Council on Foreign Relations. “Rather, this fear is being developed by the atomic lobby to argue for the postponement. Fear of dependency on Russian gas imports is rhetorical but not factual, since the Russian companies are mutually dependent on European gas markets,” he added.

Pierre Noel of the European Council on Foreign Relations also argues that the real reasons behind the coming policy shift is lobbying from German energy companies, who earn good money with nuclear power, together with growing electricity demand in Germany and carbon emission reduction goals.

Furthermore, Russian analysts doubt that the move will even impact significantly on the projected volume of gas supplied to Germany from Russia. According to VTB Capital’s gas analyst Lev Snykov, “such a move would not impact my long-term forecasts for Gazprom's exports to Germany. Long-term Russian gas exports to Germany will grow at a low single-digit rate, although the market share may deteriorate due to a strong push toward LNG.” Similarly, the energy analyst at Renaissance Capital, Alexander Burgansky, believes that “now German demand for gas may not grow as fast as some people had expected, but Gazprom's supplies are anyway protected by the minimum off-take commitments under the long-term contracts.”

Analysts also point out that Germany’s largest energy companies such as E.ON, although lobbying domestically for a suspension of nuclear power phase-out, are also heavily involved in Russia’s gas sector. E.ON’s CEO Wulf Bernotat is in fact a member of Gazprom’s Board of Directors, as the company holds a 6.5 percent stake in the gas giant. E.ON and the German chemicals titan BASF are also taking stakes in the major Siberian Yuzhno-Russkoe gas field.

Thus it was logical that on Thursday September 24, E.ON was among a group of the world’s largest energy companies addressed by Russia’s Prime Minister Vladimir Putin in the town of Salekhard on Russia’s Yamal peninsula. Putin called on the international companies to invest in gas production in the region, destined to become Russia's main production region in the long term, as older fields decline. Gazprom estimates total investment needed at $100 billion.

Germany has particular interest in the massive Yamal development, according to UralSib energy analyst Viktor Mishnyakov. “Yamal is of strategic importance for the Russian government and for Gazprom, as this gas will be the source for the NordStream pipeline project,” he said. The NordStream pipeline is a controversial Gazprom-led project to bring Russian gas directly to Germany via the Baltic Sea, bypassing transit countries such as the Baltic countries and Poland.

There has been vociferous opposition from Poland and the Baltic states to the pipeline. But, according to Marcel Vi?tor, this is one energy policy that definitely won’t be changed under a CDU-FDP coalition. “The CDU has shown different, more critical rhetoric on Russian domestic issues than SPD did - but it has supported NordStream and German companies cooperating with Russian companies, investing in Russia, just like SPD did,” he said. “In a CDU-FDP coalition, this attitude is most likely to be continued.”

Apart from adjusting energy policy, the new German government’s Russia policy is likely to remain pragmatic and constructive, including disavowing Ukraine and Georgia’s bid to join NATO. With Westerwelle almost certain to become the new foreign minister, the influence of SPD elder statesman Gerhard Schroeder in shaping Germany’s Russia policy will cede to the influence of FDP elder statesman Hans-Dieter Genscher, the Federal Republic of Germany’s legendary foreign minister from 1974 to 1992.

With 20 years marked since the fall of the Berlin Wall this autumn, events in which Genscher played a crucial role, an FDP-led foreign ministry will be especially minded to take a pragmatic and measured policy toward Russia, considering Moscow’s support for German reunification in 1989 to 1990. Awareness of the Kremlin’s constructive role toward unification 20 years ago has even been heightened in the recent weeks by archival revelations of how bitterly European leaders such as then British Prime Minister Margaret Thatcher and French President Francois Mitterand were initially opposed to the idea.

Outside of energy policy, the FDP regards Russia, in Genscher’s words, as “Europe’s natural ally, not natural enemy.” Added to this is the generational factor: 47-year-old Westerwelle sees himself as one of a new generation of politicians that includes U.S. President Barack Obama and Russian President Dmitry Medvedev. Westerwell is thus an enthusiastic supporter of Obama’s “reset” policy of improving relations and cooperation with Russia. “If president Medvedev emphasizes that he is a moderate politician and wants to reform his country and pursue disarmament, we should take him at his word,” he told Gazeta Wyborcza. “He is a young politician, and together with the U.S. president, who is also young, he will have the chance to go down in history in a positive fashion.”
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