On October 23, 1980, during dinner at the Germany embassy in London, German Chancellor Helmut Schmidt assured British Prime Minister Margaret Thatcher that Russia was a dependable trade partner. “My dear Margaret, the Russians have always been the most reliable suppliers. They need us as much as we need them. There is no danger at all.” Whilst this overly optimistic assessment remained accurate for almost 40 years, with Berlin’s dependence on Moscow for its energy only heightening in recent years, the Russian invasion of Ukraine has uprooted the European continent in conflict and threatened to destabilise Germany’s national energy security. With Germany’s historic aversion to nuclear power only making it more susceptible to Russia’s exploitation – or rather weaponization - of energy interdependence, Berlin must look to diversify both its short-term and long-term energy supplies. But is energy cooperation with the Gulf States, most notably the OPEC heavy hitters of Qatar, the UAE and Saudi Arabia a viable option going forward?
Qatar
Qatar’s recent decision to expand its output of liquified natural gas, coupled with its reputation of being a highly dependable energy supplier that keeps geopolitics apart from its energy supply commitments, has thrust itself into the international spotlight. German Chancellor Olaf Scholz, as a part of his recent diplomatic blitz run of the Middle East, visited Doha in September and has warmly welcomed a new LNG deal. QatarEnergy and ConocoPhillips have penned two sales and purchase agreements to export approximately 2 million tonnes of LNG per year to Germany for a minimum of 15 years starting from 2026. The LNG is set to be delivered to a planned terminal located in Brunsbuettel, with several other floating terminal projects also emerging across Germany to bring spot cargoes ashore more quickly and efficiently until fixed, land-based terminals are developed and functional. Saad Sherida-al Kaabi, Energy Minister and QatarEnergy CEO said of the deal that Qatar aims to “contribute to efforts and to support energy security in Germany and Europe.”
The UAE
During a stopover in the UAE capital of Abu Dhabi, Scholz penned a contract for the delivery of 137,000 cubic metres of LNG to the German market via the floating LNG import terminal at Brunsbüttel. The partnership, between Germany energy provider RWE and Abu Dhabi National Oil Company (ADNOC), will reportedly come at a fixed price. The gas deal comes under a broader ‘Energy Security and Industry Accelerator Agreement’’ between Germany and the UAE, which Scholz claims “will look to enable the swift implementation of strategic lighthouse projects on the focus areas of renewable energies, hydrogen, LNG and climate action.” Whilst the Qatari’s are fully committed to fossil fuels, the UAE positions themselves as an antithesis to their neighbour, presenting valuable opportunities for markets wanting to invest within the renewable energy space. UAE Climate Minister Mariam Almheiri asserts that the Gulf state is looking to become a technological leader in terms of the extraction, storage and transportation of hydrogen energy. Whilst bold in nature, she believes these ambitions will be more tangibly visible when the first shipments of ammonia are scheduled to arrive in Germany at the port of Wilhelmshaven next month.
Saudi Arabia
Whilst they are the dominant global oil exporter, Saudi Arabia has also set its sight on diversifying its energy-mix. A key green hydrogen project was signed earlier this year, with the German government enlisting the help of the private sector to construct an important terminal for green hydrogen imports in the city of Hamburg. The terminal will import green ammonia from Saudi Arabia starting from 2026. Whilst these bilateral energy agreements promise to provide Germany with a steady flow of energy, several concerns over the infrastructural, contractual and political feasibility of these deals remain.
Infrastructure Capacity Issues
Although there are currently 26 operational LNG terminals spread across EU member states, Germany’s historic reliance on Russia’s gas pipelines for energy has meant that the country currently has none. With the German government’s initial plans of developing three to four floating storage and regasification units (FSRUs) by the end of 2022 proving to be unrealistic, with only one LNG import terminal located in Wilhelmshaven set to be fully operational by January 2023, there are concerns that Germany will not have the capacity to import adequate amounts.
Long-term Contractual Obligations
Questions over whether Qatar, the UAE and Saudi Arabia can divert their energy supplies also loom. Although Saudi Arabia and the UAE have the lion’s den of OPEC’s spare capacity supply, estimated at approximately 2.5 million bpd, they remain adamant on honouring their long-term contractual obligations to their non-OPEC buyers. Given that these Gulf states have continued to dismiss US requests to increase short-term output, it is unlikely that Germany and the EU can too. Analysts believe that whilst Gulf energy shipments could potentially be diverted from Asia to Europe, it would come at the cost of endangering the growing strategic partnership between the region and their main Asian buyers – most notably China. Given that over the last few decades, China has become the primary source of Foreign Direct Investment in the Middle East, as well as an influential economic partner for several Gulf states, relations between Beijing and the GCC look to remain concrete. With Xi Jinping’s visit to Riyadh last month only further strengthening energy and security investments within the region, it is unlikely that Germany currently has the economic or political clout to enact the diversion of short-term oil and gas supplies.
Human Rights Concerns
Although Germany has tried to steer clear of placing undue emphasis on human rights issues during its search for new energy options, Scholz’s recent tour of the Middle East has garnered significant international criticism and has been portrayed as a ‘softening’ of Germany and the EU’s attitudes towards international human rights. Of these human rights abuses, the reported role of Saudi Prince bin Salman in approving the assassination of Jamal Khashoggi, an outspoken Saudi dissident and prominent Washington Post journalist, is perhaps the most controversial. Various other human rights issues remain within the region, including a lack of freedom of speech, suppression of political representation and the status of women and migrant worker rights. Hence, the German government’s decision to approve new arms exports to Saudi Arabia and the UAE, and to overturn its 2018 ban over their involvement in the Yemen war just before the German chancellor visited the region, has further complicated Scholz’s ‘diplomatic balancing’ act. Renata Alt, the Chairwoman of the German parliament’s human rights committee said that “as important as it is to secure energy supplies to Germany, it is equally important to respect human rights worldwide. You cannot negotiate about one without addressing the other.” Although there are substantial challenges that lay ahead for Germany in its bid to diversify its energy supply, the Gulf is in fact Berlin’s best bet in decoupling its energy interdependence from Russia. Whilst Qatar, the UAE and Saudi Arabia have traditionally dominated the fossil fuel sector as OPEC’s largest energy exporters, it is evident that they too are looking to invest in emerging sustainable technologies to diversify their energy-mix. Therefore, although these Middle Eastern states cannot come to Germany’s short-term rescue, the Russia-Ukraine conflict has provided a conversely perfect window of opportunity for Berlin to not only strengthen its diplomatic relations with the Gulf, but to secure their long-term energy security in a sustainable and responsible fashion.
Follow the comments: |