August 2022
In the midst of the Energiewende (energy transition), Germany still relies heavily on imports of fossil fuels as its domestic resources are largely depleted or their extraction is too costly.

AME’s 2022 full year forecast for Germany’s natural gas demand is 248MMcmpd, flat year on year. Natural gas demand from Germany, the largest consumer of gas in Europe, is expected to decrease in the September quarter if the Nord Stream 1 pipeline does not resume operations at full capacity of 160MMcmpd. 

Germany, which has managed to reduce its reliance on imported Russian gas from 55% to about 35% of its demand since the start of the Ukraine war, is still heavily reliant on the Nord Stream 1 pipeline, which closed down in July due to scheduled maintenance works. The two other pipelines (Mallow and Waidhaus) that usually carry Russian gas to Germany are also currently not servicing the country. 

Half of Germany's 41.5 million households use natural gas for heating while industry accounts for roughly a third of national demand. In 2021 natural gas sources accounted for 89TWh or 15.3% of Germany’s gross power production. 

Power utilities such as Uniper and RWE are driving gas demand.  Uniper’s power plants delivered about 10GW in 2021, of which 3.3GW was natural gas generated. RWE has about 41GW of installed capacity which includes 14GW of natural gas.

 

 

Germany’s crude oil import volumes rose 14.6% in the first four months of 2022 year-on-year as the economy recovered from the impact of the COVID-19. Russia remained top supplier, holding a 35% share of Germany's oil imports in the period. Oil imports in January through April from all origins increased to 0.62MMbpd from 0.54MMbpd in the same months of 2021. 

The impacts of Russia's invasion of Ukraine in February, which has led to economic sanctions on Russia and counter actions in energy flows, will begin to show gradually in the September quarter. AME’s full year 2022 forecast for oil demand is 2.15MMbpd.and this will decline by 0.3% to 2.14MMbpd in 2023.

 

Short to Medium Term

Germany’s demand for natural gas is expected to grow slowly at a CAGR of 0.2% to 251MMcmpd in 2027 on the back of a strengthening manufacturing sector, which is expected to become more efficient given the strong momentum towards electrification.

Germany has also accelerated plans to build two LNG terminals in the country a strategic step to help reduce dependence on Russian gas imports. This helps sustain the upward trend in the country's gas demand over the medium term.

During the same period, oil demand is forecast to decline slowly at a CAGR of 0.3% to 2.11MMbpd. Transport accounts for most of Germany’s oil consumption, so the transition to renewables, which has largely been focused on electricity, has had little impact so far.

Still, the energy transition has reduced the already minor role of oil in power generation (0.8% share in 2021 gross power production), because cheap renewable energy has crowded out oil-based generation.

Germany’s Climate Action Law stipulates that the transport sector must almost halve emissions by 2030 compared to 1990, which means oil use will decrease significantly.

 

Long Term

Germany’s demand for natural gas is expected to grow slowly at a CAGR of 0.3% to 260MMcmpd in 2040 as the fight against climate change and meeting long term emission targets fuel growing natural gas consumption.

Germany’s liquid hydrocarbons demand is forecast to decline over the same period at a CAGR of 0.3% to 2.03MMbpd. This reflects the German governments aims to reduce final energy consumption in transport to 60% by 2050 with the help of more efficient engines.

Germany aims to have 15 million electric vehicles on its roads by 2030; renewables will be able to supply more of the energy required for transport, reducing Germany’s dependence on liquid hydrocarbons. However, for certain modes of transport – such as freight trucks – imports of synthetic fuels could become necessary.

Germany recently sealed a long-term agreement with Qatar for the supply of LNG. Germany does not plan to end its reliance on Russian natural gas until mid-2024. Europe’s largest economy is fast-tracking construction of two LNG import terminals, a proposal that was previously dismissed as being too costly but now underpins Germany’s long term natural gas demand trend.

Germany is spending US$1.7 billion to import more LNG from the US and Qatar after blocking the completed Nord Stream 2 gas pipeline from Russia to Europe. EU countries are also working on setting up a strategic gas reserve and establishing storage requirements to share natural gas in emergencies.

 

 

Crude oil and petroleum products account for close to half of energy consumption in the EU-3 (France, Germany and Italy). Most of this demand comes from the transport sector, particularly from road transport. Although domestic energy demand has fallen in recent years, crude oil extraction in Europe has fallen at a faster rate.

This has led to an increased dependency on liquid hydrocarbons imports. Europe relies on imports for almost all its liquid hydrocarbons demand, with imports coming predominantly from Russia, Iraq, Nigeria and Saudi Arabia.

 

Emissions and Energy Transition

Germany emitted 762Mt of CO2 in 2021, up 4.5% compared with the previous year. The increase in 2021 is particularly noticeable in the energy sector, with a rise of 27MtCO2e.

This is because more coal was used to generate electricity in response to an increased demand for electricity, lower electricity generation from renewable energies (down 7%) due to drop in wind generation and the higher price of gas—all factors which have worsened over 2022.

In the medium-term European policy measures to discourage the use of diesel cars, and ICE cars more generally in cities, should have a moderate but intensifying impact on diesel consumption and consequently on crude oil demand.

It’s estimated that the projected change in car fleet composition could reduce diesel demand in Europe by 150kbpd by 2027. Longer term, additional constraints on the sale and use of ICE cars are likely to significantly impact transport fuel demand.

Germany has committed to net-zero by 2045. It has not submitted its own nationally determined contribution (NDC) but is part of the EU’s targets. A 2021 constitutional court ruling found that Germany’s targets under the Paris Agreement were not strong enough.

A rapid amendment to the country’s climate law has seen Germany establish targets of a 65% reduction in emissions below 1990 levels by 2030, an interim target of 88% below 1990 levels by 2040, and   carbon neutrality by 2045.

Further, the amended law includes stricter binding sectoral emission budgets to 2030, with most of the additional reductions needed in the energy and industry sectors. Germany’s actions in response to Russia’s invasion of Ukraine and subsequent efforts to reduce dependence on energy Russian may make meeting its climate targets difficult.  

The German government has agreed to bring forward Germany’s exit from coal “ideally” to 2030, from a previous date of 2038. The government also said it would ensure that renewables accounted for 80% of Germany’s electricity by 2030 and 100% by 2035, up from 45% in the past year.

This would mean installing 200GW of solar and at least 30GW of offshore wind capacity by that year, with around 2% of Germany’s territory to be set aside for wind turbines. Germany will also aim for 10GW of electrolysis capacity by 2030.

Germany will continue to deliver the largest renewable capacity additions in Europe as projects awarded in previous large-scale auctions are commissioned. The country has provided support for the development of solar PV, wind, and bioenergy with higher auction volumes through Germany’s Renewable Energy Act 2021.

RWE and Northland Power have formed a new joint venture to co-develop more than 1.3GW of offshore wind capacity in the German North Sea. All three projects are due to be built north of the island of Juist and would be commissioned between 2026 and 2028.

Automakers in Germany have announced plans to ramp up production and expand their electric fleets. Tesla’s gigafactory outside Berlin marks Germany's first auto plant in two decades. 

 

 

Volkswagen’s Zwickau plant in eastern Germany has already produced its last-ever combustion engine vehicle, closing a 116-year chapter on fossil-fuelled cars in its switch to electric vehicle production.

Electrification of the Mercedes-Benz fleet has been progressing in leaps and bounds for some time. The aim is to achieve up to 50% share of plug-in hybrid and BEVs by 2025 on the way toward going all-electric by 2030 wherever market conditions allow.

 

Changing Circumstances

The Russian invasion of Ukraine has changed many perceptions and certainties in Europe with Germany at the forefront since it is most dependent on Russia for energy supplies, particularly natural gas.

Germany wants to be independent from Russian energy by mid-2024. In the meantime, because Russia wants European countries to buy its energy in roubles, which G7 countries will not honour, Germany has put together a rationing plan for natural gas, hitting industry first with disruptions and households and hospitals last.

Germany is also striking deals with Qatar for LNG and green hydrogen with UAE to get alternate supplies. It intends to receive its LNG from neighbouring countries until its two LNG receiving terminals are built over the next 5 years.

More actions may be needed as Russia just widened the list of export products priced in roubles to include: fertiliser, grain, food, oil, coal, metals, timber etc.  Because Russia is a major producer of all these commodities, disruptions and price volatility should be expected.