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Energy security: Germany updates its laws to face challenges emerging from Ukraine war

Polly BotsfordMonday 23 May 2022

In late May, the German parliament made amendments to a 1975 law that enables the state to temporarily assume control of an energy company to ensure supply in the face of a market failure. The legislative move follows rising concern, given the events in Ukraine, about Germany’s dependence on Russian-supplied fuel and amid pressure from within the EU to proceed with an embargo on Russian oil.

The changes to the German Energy Protection Statute, which derives from the 1970s oil crisis, are ‘extraordinary measures for extraordinary times’, says Ludger Schult, Vice-Chair of the IBA European Regional Forum and Founding Partner of GLNS law firm, based in Munich.

Under the changes, if Germany’s energy supply were suddenly faced with an ‘imminent threat’ – for example, an energy company making it very difficult or prohibitively expensive to supply fuel – that would result in a crisis in the market or, at worst, a total market failure, the German government could step in and temporarily take over the company under a ‘stewardship’ arrangement to ensure that market supply continued.

The law isn’t aimed at any particular company. But experts say the legislation was amended with a particular place in mind: the Schwedt oil refinery plant in eastern Germany, which processes around 12 million tonnes of crude oil per annum. The plant is operated by Rosneft, the Russian energy giant, and supplied by the Druzhba pipeline, also part-operated by Russia.

Since Russia invaded Ukraine in late February, the EU has been pushing for its Member States to agree to an embargo on Russian oil, partly as a form of sanction against Russian President Vladimir Putin’s regime but also to protect European countries from Russia being able to play fast and loose with energy supply.

But Germany is heavily reliant on oil. Although the country is shifting away from fossil fuels to address the climate crisis and its usage of oil and gas-based energy is therefore declining in the long-term, both are still significant sources of energy for Germany. .

This oil and gas is predominantly imported from Russia. According to 2020 figures from AG Energiebilanzen, an energy research group backed by German industry, Russia supplies 34 per cent of Germany’s crude oil and 45 per cent of its hard coal. Estimates from the German Economic Institute suggest that more than half of Germany’s natural gas comes from Russia. These proportions have stayed more-or-less the same over the past 25 years.

[The Ukraine war] has been a sudden wake-up call that Germany has become far too reliant on a foreign aggressor, someone who has now invaded another country

Ludger Schult
Vice-Chair, IBA European Regional Forum

Ukraine has criticised Germany for propping up Russian interests, whilst the European Commission has exerted its own pressure. In early May, the German government finally agreed to commit to the EU taking Russia out of its oil supply completely by the end of 2022. ‘This has been a sudden wake-up call that Germany has become far too reliant on a foreign aggressor, someone who has now invaded another country,’ says Schult.

Germany is now exploring alternative sources of energy. Simultaneously, it has amended the Energy Protection Statute.

The power to intervene in the market in the aforementioned way was established when the Statute was enacted in the 1970s, explains Dr Tim Stuchtey, Executive Director of the independent Brandenburg Institute for Society and Security. ‘The updated version of the law has just made exercising this power easier and the government can move more quickly.’

There’s no doubt that the powers derived from the legislation are drastic, amounting to expropriation. No wonder then that the German government had to accept pressure from within its cross-party coalition that any nationalisation would be a temporary measure only, and that the state commits to returning any company to private ownership once any threat has been removed.

The pressing issue of energy supply security comes at a pivotal moment for Germany’s overall energy policy. The three-party coalition governing Germany has promised to continue the policy of Energiewende,or ‘Energy Turnaround’ – a commitment to shift the economy away from fossil fuels.

Renewable energy was, as a result, the only card on the table – until the war in Ukraine. Suddenly, the state is giving its attention to its oil and gas supplies. ‘Now [the German Government] is having to look to other states that are not aligned on core values,’ says Schult.

Energy supply security is also contributing to a wider conversation over other concerns, both in Germany and beyond, which result from the globalised nature of supply chains. For instance, there was heightened awareness over the implications of 5G networks being built by Huawei or other Chinese entities for countries’ national security and technology dependency. During the worst of the Covid-19 pandemic in 2020-2021, concerns were raised by Western countries who felt reliant on imported healthcare products and equipment.

‘Energy security fits into this renewed emphasis on the fact that we have relied on international supply chains for too long and there is a desire to localise them and “Europeanise” them,’ says Stuchtey. ‘We don’t have the capacity here to make these things which makes us dependent on imports from some untrusted trade partners. A diverse set of suppliers and proper stock keeping can mitigate the risk.’

‘In the longer term, critical infrastructure will be monitored and treated in a different way to the globalisation model we have seen in the past generation,’ adds Stuchtey.

Image credit: Rosneft Deutschland, Berlin, 22 October 2021. Achim Wagner/AdobeStock

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