Germany Works To Break Russian Control Of Critical Energy Assets

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After years of acclimating to Russian oil and gas interests, Germany is now scrambling to loosen their grip and regain control of its critical energy infrastructure.

Berlin is considering forcing Kremlin-backed Gazprom to sell critical gas storage facilities across Germany, effectively expropriating those sites, said a government official and two other people briefed on the plans.

And Germany’s economy ministry says it is “working hard” to reduce the influence of another state-controlled Russian energy company, Rosneft, which owns a refinery in the eastern city of Schwedt that processes around a quarter of the country’s oil supplies.

The government’s sudden focus on the deposits and refinery shows how Russia’s influence over Germany in the energy sector goes far beyond its large role in supplying oil and gas to Europe’s largest economy.

The war in Ukraine was a wake-up call for Germany’s political establishment, where there has long been a consensus that cheap gas from Moscow is not only good for business but gives Russia an incentive to stay in the international circle.

Alarm bells started ringing even before Russian President Vladimir Putin launched his all-out invasion of Ukraine in February.

Ahead of the current winter, gas at three major storage sites in Germany owned by Gazprom – including one in the city of Rehden, one of the largest of its kind in Western Europe – fell to suspiciously low levels, raising concerns that Russia had supplied less gas than usual to artificially inflate energy prices and increase pressure on Germany and the EU ahead of the war in Ukraine.

“A situation like this winter must not be repeated. That’s why we’re doing everything we can to ensure that doesn’t happen,” said Andreas Rimkus, MP for Chancellor Olaf Scholz’s SPD, who specializes in energy policy.

“When it comes to anti-market behavior, it is right to carefully examine the possibility of state intervention,” he added.

Michael Kruse, energy policy spokesman for the FDP, which is in the Scholz coalition government with the Greens, supported this view.

“Russia has strategically invested in refineries and gas storage facilities for years and is now using them as a weapon against us. We cannot stand by as a sovereign state while an authoritarian regime puts thumbscrews on us and tries to blackmail us,” he said.

“Russian companies must give up their energy storage facilities in Germany as quickly as possible,” said Kruse, pointing out that 55 percent of Germany’s gas requirements came from Russia.

“Russia abused this supremacy and drained the gas storage facilities before the winter,” he continued. “The federal government must therefore act now and classify the gas storage facilities as critical infrastructure that can be ordered to be sold from Russian property.”

Apparently in connection with the government’s deliberations, Gazprom announced on Friday that it had “terminated its stake in the German Gazprom Germania GmbH with all assets,” although it was not immediately clear who would become the new owner and what the consequences would be for them Gas supply and gas storage. Gazprom Germania owns trading and storage facilities.

No Kremlin concerns

For years, German politicians, including former German Chancellor Angela Merkel, have dismissed warnings from the US, Eastern European countries and experts that Germany is increasing its dependence on Russian energy imports. Berlin also allowed companies like Gazprom to purchase critical infrastructure such as gas storage facilities.

Foreign Minister Annalena Baerbock admitted earlier this week that this policy is “now taking revenge in the most brutal way.”

A spokesman for the Ministry of Economics did not initially comment on plans to force Gazprom to sell its storage sites. However, the spokesman confirmed that work is being done to reduce Rosneft’s influence in the energy sector.

German daily Handelsblatt also reported on Friday about government plans to potentially expropriate assets of Gazprom and Rosneft in Germany.

In the case of gas storage, a legislative proposal presented by the European Commission last month paves the way for such government intervention. The proposal calls on countries to “identify gas storage facilities as critical infrastructure and introduce regulations to address property risks for gas infrastructure,” meaning authorities “certify that ownership by a third-country person or persons does not endanger the safety of deliver.”

In an unusual move that underscores the seriousness of the situation, the Commission’s text says that while the proposal awaits legal approval – a move that could take months – EU countries should “act as if the Legislation would already be in place and measures should be taken to ensure that the store is replenished in time for next winter.”

Germany also passed legislation last week requiring gas storage providers to fill their facilities 65 percent by August 1, 80 percent by October 1, and 90 percent by December 1.

This law combined with the EU proposal would allow Germany to significantly increase pressure on Gazprom and possibly expropriate its gas storage facilities, said Claudia Kemfert, head of the energy department at the German Institute for Economic Research (DIW Berlin).

“If it is determined that Russian operators are not filling the storage facilities accordingly – and there is a clear first deadline with the fill level target of 65 percent by August 1 – the government can intervene here,” she said.

Thekla von Bülow of consulting firm Aurora Energy Research said the forced sale of Gazprom-owned storage sites involving German investment bank KfW or a federally-owned company could be done quite quickly, meaning Berlin would not have to wait until an interested buyer could be found.

However, she stressed that “such sovereign interference with company property” could potentially force the government to move to the third stage of its gas supply contingency plan (Berlin activated the first stage this week) and seek the approval of the German Bundestag.

Kruse downplayed the danger of Russian lawsuits against such actions and said that if gas storage facilities were classified as critical infrastructure, “the legal position would be clear”.

Regarding Rosneft-owned refinery in Schwedt, the Economy Ministry said it was determined to take action.

“We are well aware of the problem,” said a spokesman. “The federal government is working hard to solve this complex problem.”