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German government seizes Russian energy assets

Aafter a heat and the dry summer, rain and cold of September brought some relief to thirsty Germans, but also a reminder of the winter to come. On September 16 Klaus Müller, head of the Federal Network Agency (bna), Germany’s energy regulator, admitted that if it gets too cold “we will have a problem.” He could not rule out rationing of natural gas, which Germany’s biggest supplier, Russia, has withheld as part of its war in Ukraine.

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German Chancellor Olaf Scholz is doing his best to prevent this eventuality. Last week, his administration unveiled two sweeping measures as part of that effort. On September 21, the Ministry of Economy announced the complete nationalization of Uniper, Europe’s largest and most gas-consuming electricity company. More controversially, five days earlier the government said it was taking control of stakes in three German refineries from Rosneft, Russia’s state oil giant. assets package, meterYored and Bayernoil, were placed under the tutelage of the bna.

This is not the first time since Vladimir Putin’s tanks entered Ukraine in February that Germany has expropriated Russian assets. In April it did the same with gas storage facilities operated in the country by Gazprom Germania, a subsidiary of Russia’s national gas giant. The seizure of Rosneft’s assets, in particular packageof which the Russian company owned 54%, has turned out to be a bit trickier.

Thousands of jobs depend directly or indirectly on package in Schwedt, the largest city in one of the poorest regions of the country, the Uckermark. That and the fact that package supplies 90% of Berlin’s oil, diesel and jet fuel were the main reasons Germany was hesitant to sign the EU embargo on Russian oil when it was first proposed at the end of May The embargo, due to come into effect at the end of the year, would mean the refinery will no longer be able to accept Russian crude. In addition, providers, insurers and banks, fearful of being inadvertently caught in the web of sanctions, refused to do business with Rosneft as long as Rosneft remained a co-owner.

Rosneft is, unsurprisingly, furious. He called the German government’s actions “illegal.” More surprising still, the decision to place package under guardianship was also not well received at Schwedt. The city of about 30,000 people sits atop Druzhba (Russian for “friendship”), the world’s longest pipeline, which began pumping crude oil from central Russia to “fraternal socialist peoples,” including Poland, Hungary and the then Czechoslovakia in the 1960s. Druzhba That is why many families moved to Schwedt, a city almost completely destroyed during World War II by advancing Soviet troops.

Jens Koeppen, in opposition deputy who represents Schwedt, says the government is “knowingly sacrificing” a successful business in Schwedt. He argues that it is absurd to pretend that the German energy supply in the next five years will be secure and affordable without imports from Russia.

The government, for its part, insists that package it doesn’t need Russian crude to prosper. He has promised a 400 million euro ($395 million) upgrade to the pipeline from Rostock, a port on the Baltic Sea, to Schwedt. It wants to invest another 825 million euros over the next 15 years in and around package. That, he says, will keep it going until it can be sold to a new owner. Poland’s state-owned energy company, Orlen, has already expressed interest in acquiring Rosneft’s seized stake. Meanwhile, the Scholz ministers are in talks with their Polish counterparts to obtain supplies for package through the Polish port of Gdansk.

Koeppen, however, isn’t crazy to worry about. packageThe short-term prospects for . The Rostock pipeline can currently only supply 60% of packagecrude needs. Even the promised update will bump that up to just 75%, and only two years from now, if all goes well. Getting oil from Gdansk is expensive, as the material is shipped to Poland from Saudi Arabia. Another option is to import oil from Kazakhstan through Druzhba, but an increasingly belligerent Russia will almost certainly not allow it.

All this means that package it will run well below capacity as soon as Russian oil stops flowing, says Florian Thaler of OilX, a consultancy. Given Russia’s recent setbacks in Ukraine and its heightened war footing, that could happen at any time.

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