Germany works to cut Russian control of critical energy facilities

Having spent years cozying up to Russian oil and gas interests, Germany is now scrambling to loosen their grip and take back control of its critical energy infrastructure.

Berlin is looking into forcing Kremlin-backed Gazprom to sell critical gas storage facilities across Germany, effectively meaning an expropriation of those sites, a government official and two additional people briefed on the plans said.

And Germany’s Economy Ministry says it “is working intensively” to reduce the influence of another Russian state-controlled energy firm, Rosneft, which owns a refinery in the eastern town of Schwedt that processes around a quarter of the country’s oil supplies.

The government’s sudden focus on the storage sites and the refinery highlight how Russia’s leverage over Germany in the energy sector goes far beyond its large role in supplying Europe’s biggest economy with oil and gas.

The war in Ukraine has acted as a wake-up call to Germany’s political establishment, where the consensus had long been that cheap gas from Moscow was not only good for business but gave Russia an incentive to remain in the international fold.

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 town of Rehden, among the biggest of its kind in Western Europe — dropped to suspiciously low levels, raising concerns that Russia had delivered less gas than usual to artificially push up energy prices and increase pressure on Germany and the EU ahead of the war in Ukraine.

“A situation like the one we had this winter must not repeat itself. That’s why we’re doing everything we can to make sure this doesn’t happen,” said Andreas Rimkus, a lawmaker from Chancellor Olaf Scholz’s Social Democrats (SPD) who specializes in energy policy.

“In the case of behavior that goes against the market, it’s right to look closely at the possibility of government intervention,” he added.

Michael Kruse, the energy policy spokesperson of the Free Democratic Party (FDP), which is part of Scholz’s governing coalition together with the Green party, backed that 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 the thumbscrews on us and tries to blackmail us,” he said.

“Russian companies must hand over energy storage facilities in Germany as soon as possible,” Kruse said, pointing out that 55 percent of Germany’s gas supply was coming from Russia.

“Russia abused this dominant position and let the gas storage facilities run dry before winter,” he continued. “The German government must therefore act now and classify the gas storage facilities as critical infrastructure, which would make it possible to order a sale from Russian ownership.”

In a move that appears to be related to the government’s considerations, Gazprom announced Friday that it had “terminated its participation in the German company Gazprom Germania GmbH and all its assets,” although it was not immediately clear who would be the new owner and which consequences this would have for gas supply and gas storage. Gazprom Germania owns trading and storage assets.

No Kremlin concerns

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

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

A spokesperson for the Economy Ministry had no immediate comment on plans to force Gazprom to sell its storage sites. However, the spokesperson confirmed that work was underway to reduce Rosneft’s influence in the energy sector.

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

When it comes to gas storage, a European Commission legislative proposal presented last month opens the way for such state intervention. The proposal calls on countries to “identify gas storage as a critical infrastructure and introduce provisions to tackle ownership risks for gas infrastructure,” meaning that authorities “certify that ownership by a person or persons from a third country does not put at risk the security of supply.”

In an unusual step that highlights the gravity of the situation, the Commission text says that while the proposal is still awaiting legislative approval — a step that could still take months — EU countries “should act as if the legislation was already in place and take measures to ensure refilling of storage in time for next winter.”

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

This legislation, in combination with the EU proposal, allows Germany to significantly increase pressure on Gazprom and potentially expropriate its gas storage facilities, said Claudia Kemfert, head of the energy department at the German Institute of Economic Research (DIW Berlin).

“If Russian operators are found to be not filling up the storage facilities accordingly — and there is a clear first deadline with the filling level requirement of 65 percent by August 1 — the government can intervene here,” she said.

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

Yet she stressed that “such sovereign intervention in corporate ownership” might require the government to move to the third level of its gas supply emergency plan (Berlin activated the first level this week) and to secure the approval of the German parliament.

Kruse played down the risk of Russian lawsuits against such actions, saying that if gas storage sites are classified as critical infrastructure, “the legal situation is clear.”

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

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