Merkel wary of Russian gas

While German Chancellor Angela Merkel restrained from committing to Russian offers of “unlimited gas supplies” at a meeting in Germany this week, Germany’s largest utilities were eying up Russian energy giants for potential deals.

Germany’s main power producer RWE last week announced that it has begun talks with Russian energy giant Gazprom on gas and power joint ventures and media reports on Thursday said that state-owned Energie Baden-Wuerttemberg was in talks with Russian natural gas producer Novatek on the sale of a stake in VNG, east Germany’s largest gas supplier.

Deputy Prime Minister Viktor Zubkov, who chairs the board of Gazprom, said at the bilateral meeting in Hanover that the energy monopoly is hoping for an increase in demand from Germany of 30-35 percent following the country’s decision this year to shut down all of its nuclear reactors by 2022. Russia already supplies Germany with 40 percent of its gas needs.

The German delegation was characteristically stand-offish on the issue, with Merkel committing only to “wait and see what happens.” But analysts say Germany has backed itself into a corner by deciding to phase out all of its nuclear plants and has little other choice than to significantly bump up Russian gas imports.

“There is room to increase supplies of biogas and renewable gas, but these will produce rather small percentage outputs,” said Marcel Viëtor, Program Officer for Energy and Climate at the German Council on Foreign Relations. “To obtain larger supplies, Germany needs additional natural gas imports.” The antics of big German power producers go against the grain of European Commission aims to reduce EU dependence on Russian gas. RWE is a key partner in the European Commissionbacked Nabucco pipeline, which aims to bring gas to Europe from the Middle East via the Caspian Sea.

Merkel told reporters Tuesday that pricing issues were the main obstacle standing in the way of increased Russian gas supplies to Germany. Several European utilities have been negotiating with Gazprom over the past year to cut its fuel prices in long-term contracts, which have become loss-making.“Germany wants to leave room for a lowered price so it will wait until the situation is more settled, probably until 2012,” said Elena Savchik, Oil and Gas Analyst at Moscow-based Aton investment bank. “A 30-35 percent increase is fully realistic in the longrun.”