Threats to security of supply prompt government action
Russia’s invasion of Ukraine has resulted in a significant acceleration of changes to the German energy system, including an increased focus on green hydrogen as a key to future energy security. This article provides a concise overview of the most important recent developments in Germany as we prepare to enter the third month of the conflict.
On March 23, 2022, the Russian government announced its intention to accept gas purchase payments from Germany (and other client states it described as “unfriendly”) in rubles only, threatening to suspend supply to those who do not. Affected states immediately announced that they would not comply.
On March 30, 2022, the German Federal Ministry for Economic Affairs and Climate Action (FMECA) triggered “early warning” measures under pre-existing gas supply contingency plans .
In accordance with these measures, a “crisis team” has been formed to analyze and assess threats to Germany‘s security of supply, with a view to preparing possible additional measures necessary to support the energy system.
On April 4, 2022, FMECA temporarily appointed the Federal Network Agency as trustee of Gazprom Germania GmbH (GG). GG is the holding company for Gazprom’s commercial activities in Germany and, according to the FMECA, “operates critical infrastructure in Germany and is therefore of considerable importance for gas supply”. The decision was made in the context of GG’s corporate reorganization activity, which FMECA described as giving rise to “an unclear legal relationship and … breaches of its reporting obligations under regulations German Foreign Trade”.
On April 6, 2022, Robert Habeck, German Minister for Economic Affairs and Climate Action, announced a so-called “Easter package”. At the heart of this new spending commitment program is the proposition that increasing the role of renewables in the German energy system is in the overriding public interest and serves public safety. The package, which must be read in conjunction with an existing government commitment to spend 220 billion euros by 2026 on climate protection and the transformation of the German economy, aims to ensure that 80% of gross consumption of German electricity will come from renewables by 2030.
On April 8, 2022, the government announced a €100 billion financing program for risky energy companies facing liquidity problems due to the need to deposit high security deposits for their purchases of raw materials. Criteria are being developed by KfW, the public bank, to grant short-term lines of credit backed by a federal guarantee. Uniper, Germany’s largest energy trader, has extended an ongoing €2 billion loan deal with KfW until April 30, 2023, and East German energy company LEAG has received financial backing from €5.5 billion from KfW, under a deal that would be the largest individual aid package awarded by KfW since the Greek financial crisis.
In the medium term, more LNG is needed to replace Russian gas
Following recent diplomatic talks between the German government and the UAE, Qatar and other countries, German utility companies are in the process of signing additional LNG contracts. The ambition is to import up to 1 billion m3 of new LNG supplies immediately, an additional 7.5 billion m3 during the winter of 2022/2023 and, by leasing three floating LNG terminals (FSRU), 27 billion additional m3 by summer 2024.
Several new import terminals, such as the Brunsbüttel terminal with an LNG import capacity of 8 billion m3/year, are being planned and will be ready for supply from 2026. KfW will take a stake of 50% at the Brunsbüttel import terminal.
In particular, new import terminals and transport infrastructure should be ready for hydrogen, and German importers are increasingly interested in the possibility of using the new form of energy. On March 29, 2022, E.ON, Germany’s largest energy supplier with over 50 million customers, announced a memorandum of understanding with Fortescue Future Industries of Australia (FFI) to import up to five million tonnes of green hydrogen every year by 2030. amount of hydrogen corresponds to the energy value of about one third of Russian gas imports from Germany. FFI will produce the green hydrogen and organize its delivery to Germany, while E.ON will take care of its distribution in Europe. The first imports could take place as early as 2024.
Shearman & Sterling’s global hydrogen industry team, led by Dan Feldman (Partner, UAE) and Patrick Wolff (Of Counsel, Munich), is advising FFI on the partnership.
Other German energy companies also see hydrogen as an essential part of the energy mix in the medium term. Uniper has signed a cooperation agreement with the HYPORT Duqm project to export green hydrogen from Oman. As part of this collaboration, Uniper will join the project team to provide technical services and negotiate a green ammonia removal agreement.
Shearman & Sterling’s global hydrogen industry team, led by Dan Feldman, is advising Uniper on the transaction.