Daniel Gross’ Russian Gas Cuts Won’t Kill German Economy

Expensive energy, especially natural gas, poses difficult economic and political challenges for all industrial countries that import energy. But data suggests Germany is better positioned than most of its major competitors to weather the current crisis caused by declining Russian deliveries.

BRUSSELS – Much of the conventional wisdom about Europe’s current natural gas crisis, triggered by declining supplies from Russia, is based on two assumptions: that the German economy is dependent on cheap Russian gas, and that this The gamble failed spectacularly. But while German industry is strong and imports a lot of natural gas from Russia, a closer look at the numbers and economies involved does not support the general narrative. do not have.

First of all, natural gas is not doing enough to drive the industrial economy. In 2019, Germany cost her $30 billion in gas imports via pipelines, or just 0.75% of GDP, making the overall value of the country’s gas consumption less than 2% of GDP. These modest ratios are similar across advanced economies, suggesting that cheap gas imports are very unlikely to be the main growth factor. Moreover, over the past two decades, the economy has grown, albeit slowly, despite stagnant gas consumption in Germany and most of Western Europe.

The argument that cheaper Russian gas might have favored Germany over other countries is also not supported by the numbers. In 2019, Germany accounted for only about 2.3% of global natural gas consumption, but her 4.5% of global GDP. Germany’s gas intensity per unit of GDP is about half the world average and much lower than the United States and many other developed countries, including Japan and South Korea.

European economies tend to be more thrifty in their use of energy than other parts of the world. However, even within Europe, Germany is doing well, with gas consumption per unit of GDP lower than other large European economies such as Italy and Spain. This is surprising because in these two Mediterranean countries, heating needs are much lower in the winter (and cooling in the summer requires orders of magnitude less electricity than heating). Only France, which has a large nuclear sector, is less dependent on gas.

A similar picture emerges from relevant indicators such as the value of energy imports as a percentage of GDP or gas use for industrial purposes as a percentage of industrial value added. All these indicators show that the German economy is less energy intensive than most other economies.

The idea that German industry profited from access to cheap Russian gas ignores the reality that a European gas market exists, and so far wholesale price differences between countries have been negligible. is. Of course, some would argue that Russia sold its energy to Germany cheaply, making the country dependent. However, the data challenges the common perception that Germany receives cheap gas.

Subscribe to Project Syndication


Subscribe to Project Syndication

Unlimited access to the ideas and opinions of the world’s leading thinkers, including long-form articles, book reviews, topical collections, short-form analysis and predictions, exclusive interviews, and more.all new issues of PS Quarterly magazines (print and digital); complete PS records; and more. subscribe now PS premium.


Over the past decade, German industry has paid around 10%. more For natural gas than competitors in other major European economies. Supply from the North Sea oilfields has allowed British industrial companies to pay even less than their continental peers, but this doesn’t seem to help them much.

This meant that Russia obtained a non-economic gain (Germany’s dependence on gas supplies) at almost no cost. Germany, on the contrary, lost its energy independence without gaining any significant economic advantage.

The largest energy-intensive country with cheap natural gas is the United States. The average US citizen uses more than twice as much natural gas as the European does. 25 megawatt hours per year in the US compared to about 10 MWh in European countries. Moreover, U.S. natural gas prices have been somewhat lower than those in Germany and her EU for most of the last 20 years, and are now only a fraction of European prices, as European prices have risen five times his. I’m sorry. A little strange. However, despite this cost advantage, manufacturing in the US and UK has not grown particularly strongly.

Adapting to a world without gas in Russia is of course a big problem for Europe. Still, Germany previously received most of its gas from Russia, which makes it appear more vulnerable, but this could change soon. Germany is building new regasification capacity in record time. , allowing it to import the amount of liquefied natural gas it needs to fill the gap between Russia’s declining supply and domestic demand.

Once this import capacity is built, Germany will be in the same situation as its European neighbors and will have to bid for LNG as well. Prices may remain high for some time. But with energy intensity below her EU average, Germany should be slightly more bearable than Italy, Spain and some Eastern European countries. Of course, if at least French reactors could resume full production, the impact on France would be much less.

Also, we must not forget the global situation. Bottling most of Russia’s gas (which is what would happen if Europe stopped buying from Russia) would raise global gas prices and Asian countries would also be affected as they compete with Europe on LNG. and Japan are more energy intensive than Europe, and even China imports large amounts of LNG at prices similar to European countries.

Expensive energy, especially natural gas, poses difficult economic and political challenges for all industrial countries that import energy. Only the United States and other smaller energy producers such as Norway, Canada and Australia will benefit from this situation. But data suggests Germany is better suited to weather this crisis than most of its major competitors.

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *