German companies strengthen their cooperation with Russian gas suppliers

Abstract:

Germany’s decision to give up the use of nuclear energy will force it to find a conventional low-carbon energy source as a replacement; in the short term, in addition to coal, this is likely to be gas. Due to their continued high debt and the losses associated with the end of atomic power, German companies will not be able to spend large funds on investing in conventional energy.

First of all, they will aim to raise capital and repay their debts. The money for this will come from selling off their less profitable assets; this will include sales on the gas market. This will create opportunities for natural gas exporters and extraction companies such as Gazprom to buy back some of the German companies’ assets (electricity companies, for example).

The German companies will probably continue to seek to recover the costs incurred in the investment projects already underway, such as Nord Stream, the importance of which will grow after Russian gas imports increase. At the same time, because of their debts, the German companies will seek to minimise their investment costs by selling some shares on the conventional energy market, to Russian corporations among others; the latter would thus be able to increase their stake in the gas market in both Western (Germany, Great Britain, the Benelux countries) and Central Europe (Poland, the Czech Republic).

It is possible that while establishing the details of cooperation between the Russian and German companies, Russia will try to put pressure on Germany to give up competing projects such as Nabucco. However, a well-diversified German energy market should be able to defend itself against attempts to increase German dependence on Russian gas supplies and the dictates of high prices.