Tackling the energy crisis

This week we focus on how Norway and Germany are coping with the energy crisis exacerbated by Russia’s invasion of Ukraine. While Oslo is subsidising household energy use, Berlin is reaching far and wide for alternatives to Russian gas.

Listen to a discussion about their tough challenges and why they might succeed.

Guests: 

• Andreas Lochner, Editor Germany, Montel, 
• Gert Ove Mollestad, Editor Norway, Montel

Transcript

Richard Sverrisson, Editor-in-Chief, Montel: 0:05

Hello listeners and welcome to the Montel Weekly Podcast, bring You Energy Matters in an informal setting. This week we look at how two countries have tackled the ongoing energy crisis. Norway, in a move reminiscent of Venezuela many years ago, has chosen to provide financial support to household power consumers. While many in the country have also urged limits to exports through its electricity cables. Germany, on the other hand, is rapidly looking to find new sources for its gas to lessen the country's dependency on Russia, and is also looking to expedite its energy transition. Joining me to discuss these issues are my colleagues, Gert Ove Mollestad, editor Norway. Andreas Lochner, editor Germany. A warm welcome to you both guys. Let's start with Germany. Andreas, the country signed a gas supply contract with Qatar. Why? Why is that significant?

Andreas Lochner, Editor Germany, Montel: 0:52

Qatar is one of the biggest LNG producers in the world, and. If you look where to find new gas sources, obviously you turn towards Qatar. So far, Germany has bought more than 55% or roughly 55% of its gas in Russia and also one alone. The pipeline through the Baltic Sea from Russia directly to Germany. Currently covers more than 60% of German gas demand, roughly 60%. So you can see the size of the task, let's say. And then obviously Qatar is a country to look at. We don't know yet how many volumes they, they can actually provide. But what the Minister said robot Hark, he said they will provide something in the short term. So we don't know how much it is, how much it will be. At least it's a first step.

Richard Sverrisson, Editor-in-Chief, Montel: 1:43

Absolutely. But the country has no LNG terminals as such, does it? So so where's this gas gonna come into the country?

Andreas Lochner, Editor Germany, Montel: 1:48

If you look at the neighboring countries especially the Netherlands with the gate terminal and Belgium with the Sea Brugge terminal last year, they haven't been fully used over the summer. And if that changes this year. There are potential capacities there to import gas to Germany via LG deliveries, and obviously Germany doesn't have its own terminal yet, but they're working with it. There are two projects in the pipeline that are really being. Pushed by the government now, the Williams Haren terminal and the Brus bill terminal. Where the state has even took over 50 per 50% of the shares via the KFW bank.

Richard Sverrisson, Editor-in-Chief, Montel: 2:26

But how quickly under can the gonna government build these, it. It's not gonna be, they're not gonna be replaced by the end of this year when like the EC wants to, wants to reduce its dependence massively on, on Russian gas.

Andreas Lochner, Editor Germany, Montel: 2:36

Yeah. I think this year, as I said Belgium and the Netherlands might need to help us. I don't expect them to go online this year, obviously. They're really pushing for it, but I can't imagine to be them, to be online. This year. Maybe by the following winter. Let's hope for that. But it won't help next winter.

Richard Sverrisson, Editor-in-Chief, Montel: 2:54

No, absolutely. And you mentioned the two sites. There's one pun, which is on the El River near Hamburg, isn't it? Yeah. And the other is EMS Halfen. Yeah. Also in Northern Germany. Los Axon. Yeah. Yeah. Los Axon. So over to Norway. Gert There's talk of Norway boosting its gas exports by up to 20%. Is that possible?

Gert Ove Mollestad, Editor Norway, Montel: 3:12

Feasibly? I don't know, but they it's been they have the exports from Norway has been on a steady level. Just above 10 billion cubic meters a month for four months in a row. But it fell just above 10 billion meters in February. And also the Equin EOR and also the state. They announced that they will postpone maintenance during summer to keep exports high and now in the coming months. So Norway is pushing to, to deliver as much gas as possible. But there, there are. More or less at max capacity. So there's not that much more to, to get, but but no, we will at least stay on a high level.

Richard Sverrisson, Editor-in-Chief, Montel: 3:53

And then there's also talk of. The ware in the north country that's been, it's been offline for year, two years.

Gert Ove Mollestad, Editor Norway, Montel: 4:00

What a disaster that was. Yeah. With the fire in the facility. But they're bringing that online in the middle of May 17th of May, if I'm not mistaken,

Richard Sverrisson, Editor-in-Chief, Montel: 4:08

on the national day. Let's celebrate day of celebration for many. That Gert

Gert Ove Mollestad, Editor Norway, Montel: 4:12

yeah. So that will also help, of course. But besides that's not much more to get from Norway compared to what you have today.

Richard Sverrisson, Editor-in-Chief, Montel: 4:19

I'd like to just talk about the sort of the energy crisis generally, which obviously triggered by drop off in gas coming to Europe from the end of last summer, and obviously have been exacerbated by Russia's invasion into Ukraine and the massive increase in gas prices we saw. Has there been political consensus in Norway in how to deal with the crisis?

Gert Ove Mollestad, Editor Norway, Montel: 4:39

I would say before the war there was a lot more opposition and people were talking about curtailing exports also of power to, because you have seen prices in Norway are high, but they're much higher on the continent. But compared to. Now we are talking about 200 euros, a megawatt hour. A nor normal price in Norway is like 30 or 40. So it's, the level is just unprecedented. So there has been quite a lot of politicians calling for a curb in the power exports to keep prices lower. But after the war you haven't heard that much of it, and it's much more. I think it's much tougher now to be in that nationalistic approach. And you have to, I think, yeah, there, there are, there. It is much more difficult to say that we won't export to Europe now.

Richard Sverrisson, Editor-in-Chief, Montel: 5:27

Exactly. Because now you know, the feeling of solidarity is coming in, isn't it? With Precisely. Yeah. Yeah.

Gert Ove Mollestad, Editor Norway, Montel: 5:32

And I think also that people are, they they value more than the system we have now because they see it works. And we still have power also in a way. And and the restaurants are not empty. And we will get to spring and then the snow will melt and the situation will stabilize. But it's been, it is been quite tough for for the energy minister in her role. She left her position recently but she really had a hard time. But now there's not that much pressure on on the oil and to curtail exports.

Richard Sverrisson, Editor-in-Chief, Montel: 6:02

In a way, the war has eased the position of the men minister because there's much more consensus about how to deal with it. Before it was kind a lot of opposition. Yeah, I would say that. Yeah. Yeah. Absolutely. So it was a real baptism of fire, but things have come down in a sense. Yeah, it has. And how about Germany and the rest? How is there political concerns? There's a lot of. Talk of a tight vendor, that complete change of policy given the Ukraine crisis, but what does it mean for energy in the country?

Andreas Lochner, Editor Germany, Montel: 6:26

I'd say for energy it's, as far as we can see, it's not really. A big change in the direction of the policies because we have had the new government coming into power in December and they already had a coalition agreement saying, look, we want to reach 80% renewable share in the power mix by 2030. And now they're saying, we look, we have to do everything to reach that and do it even quicker. Get rid of fossil fuels because as I said before, they mainly come from Russia and Germany so far. So they're doing everything to speed that up. So it's not a policy change, but it's definitely also an enormous stress test for the system. When we talk about the coal exit, for example we have plans to exit coal fire power generation by 2030. And but there are also like units going offline this year already. What to do with them? Should we keep them online? Should we put them in a reserve or the usual plan would be to just switch them off, but that's for the moment off the table.

Richard Sverrisson, Editor-in-Chief, Montel: 7:23

Also, I've heard some talk of environmentalist environmentalists arguing it's better to burn coal than to burn Russian gas. Is that also the feeling in Germany?

Andreas Lochner, Editor Germany, Montel: 7:33

Haven't heard much about that. At the moment the geopolitical. Arguments are much stronger, obviously you can ease more, more easily source coal from elsewhere, from South Africa, Columbia, the US maybe. So you can easier replace coal and gas in Germany because we have that strong pipeline system. I mentioned North Stream one earlier. So obviously coal will play a bigger role next winter, but we mustn't forget that also this winter, like coal fired units are running at full capacity because coal is cheaper than gas already.

Richard Sverrisson, Editor-in-Chief, Montel: 8:04

Exactly, so that's like what Gareth was saying about, Norway's exporting. At maximum capacity. Germany's also firing these power stations. They're all at max capacity. I've heard also talk about extending the lifetimes of nuclear power plants or even restarting some of the ones that have been decommissioned to how feasible is this? This is, that's seems to me quite a tricky thing to do.

Andreas Lochner, Editor Germany, Montel: 8:25

It is apparently that's where we see the biggest split, I think, between the opposition parties and the government because. The government, the environmental minister, and the economy minister, they may, they're both from the green, so they have their sort of long-term opposition against nuclear in the, in their minds. But they, examined the problem and it wouldn't help that much to keep the units online. That's what they said, at least. We have three units online, still around four gigawatts of capacity, but Germany mostly burns its gas for household heating and industrial use. So it wouldn't reduce the gas demand. That much if like we replaced or we kept the units online for another few years and yeah, burned less gas and power generation. So that's one reason why they proposal seems to be off the table. The other reason is that it would take the operators around 1.5 years. That's what they said, to, to source the fuel, so the fuel rods. And obviously then it's too late for next winter and next winter is probably the most Yeah. Crucial thing to have something online.

Richard Sverrisson, Editor-in-Chief, Montel: 9:29

Absolutely. The country has also looked to. To increase its gas storage. I know there's plans, the EY plans, but Germany has quite ambitious plans itself to have 90% of the gas storage filled by the 1st of December. Is that correct? Yeah. Yeah. And do you think that's feasible?

Andreas Lochner, Editor Germany, Montel: 9:43

In normal years, we've always reached that. The only reason or the major reason, let's say why we haven't reached that last year, where like storage is under Russian control. Like for gas pro. We're not being filled up that much. Otherwise I don't see why we wouldn't have reached that. Now, obviously, the laws in Parliament at the moment, they, they discuss it. They will decide on it over the next few weeks, but obviously it's a problem. Where to source the gas. That's why the minister, the an economy minister has been to Norway already, to Qatar, to the United Arab Emirates. So he's basically trying to get gas everywhere in the world.

Richard Sverrisson, Editor-in-Chief, Montel: 10:21

It's a desperate search to get to the gas.

Andreas Lochner, Editor Germany, Montel: 10:23

Yeah. Yeah, and the problem is one thing is getting the gas. The other thing is obviously the price and the market prices currently don't show any incentive to, to store gas over the summer because the winter prices are. The price for next winter are lower than the summer prices. In the end, obviously the state will have to pay for that. If they really want to reach those levels, there are like instruments in that draft law options that will Yeah. Where the hub operator will probably pay for that. And then the state will give the money in the end or the consumers like, like me.

Richard Sverrisson, Editor-in-Chief, Montel: 10:57

Absolutely. Yeah. Yeah. We'll have to pay. I know gas is not your specialist subject, but there has been some talk of opening up new fields or fields that were canceled. I know maybe there's some potential gas fields in the North Sea in Denmark. What's the thinking here?

Gert Ove Mollestad, Editor Norway, Montel: 11:10

We hear from Denmark. There was a, there's a large field there, but it's, it is very deep and so it's very hot and our pressure is very high, so it's very expensive and very difficult to exploit it. So it was called off again, it was brought up and as a possibility, but then. The state, it's, it is a bit too difficult actually. So it, I, there wasn't. They're having one field coming online next year, I believe the, which is being refurbished and they're building a new platform there. And to

Richard Sverrisson, Editor-in-Chief, Montel: 11:37

this in Denmark, right?

Gert Ove Mollestad, Editor Norway, Montel: 11:38

Yes, in Denmark. And they, and also the Baltic pipe connecting the Norwegian gas grid with Denmark and Poland. That will be online. At the end of this year. It has been delayed for environmental reasons. But now there are, they just got the green light to go, to start the billing again in there. Conflicting areas. So that will help the situation eventually. But the volume from Norway still, they won't be larger. They will float to Poland. Yes, but there is not much more

Richard Sverrisson, Editor-in-Chief, Montel: 12:06

so there be less maybe flow to Germany and more to Poland directly from of Norwegian gas that is, there's no talk of. Reopening older fields in Norway or?

Gert Ove Mollestad, Editor Norway, Montel: 12:15

No, but They're such, they just had a new round, a licensing round from the Norwegian government. So they're still, they are exploiting and exploring new fields. But that is obviously a years ahead before that.

Richard Sverrisson, Editor-in-Chief, Montel: 12:27

Exactly. It's not gonna alleviate the situation in the coming winter as Andreas Has mentioned there. No. How about the activities of Russian energy firms in Germany. Andreas what's the status here? Have there been sanctioned? Are they lowering, there, there's some involvement in the German energy markets. Some of these firms, are they being fully sanctioned or?

Andreas Lochner, Editor Germany, Montel: 12:46

I haven't seen much here so far. As I mentioned before a large chunk of the German gas storage is owned by Russian gas from subsidiaries. And also, for Germany. The minister has said that this many times already. For him it's crucial for now to keep the flows ongoing. Because the dependency is so high that they can't get rid of it within a few weeks. And it will be extremely expensive. And also hit the economy quite a lot. So there will, would be long-term consequences if we were to cut the flows immediately or over the next weeks or month. So there hasn't been much talk about that, but we don't know how long this war will be ongoing. We have one month of war already and obviously at some point there could be energy sanctions on the table, much stronger than now,

Richard Sverrisson, Editor-in-Chief, Montel: 13:36

but has that approach been criticized within Germany or is there also a general agreement that's the most sensible approach to have?

Andreas Lochner, Editor Germany, Montel: 13:44

The biggest opposition party, the C-D-U-C-S-U, they, last week in parliament, they tabled a draft to at least to at least. Check if there was any possibility to stop the Russian gas flows where Stream won. It hasn't come through because they don't have a majority in parliament. But, so there, there is criticism, but I think in general, like the industry the industrial players, they all say, look, let's not do this. It's going to be way too expensive. I just read analysis today that will also, like inflation will go up. If we do that. And you don't like inflation in Germany, do you? Not since 19, 23 years.

Richard Sverrisson, Editor-in-Chief, Montel: 14:17

No. Exactly. Yeah. No. Yeah. You've seen, I've just seen the figures from the, coming from the UK that 6% rise in inflation. It's quite worrying. And obviously that's Germany doesn't want to hit its industry very hard, does it? That's, this is the. The backbone, not just of German, but also of European industry. And I think if you cut the sanction, cut the gas flows immediately, of course that will have a massive effect. But in, in Norway, gat is there talk of, sanctions or is there, on, on energy firms? I dunno that where there's many dealings with Russia, is there.

Gert Ove Mollestad, Editor Norway, Montel: 14:44

You have a small direct line from Russia to Norway, but, and that they actually cut that power. Power line. Power, yeah. But that's, it's only 50 megawatts or something, so it's very, but there is some imports to Finland. Yeah. And also the Baltic states, but they have a curb there. The flow power flows. Yeah, the power flow. Yes. From Russia to, to the Baltic states, they're, Norway's just following the eu so we, it's outside, but following it. Yeah. At the same time as usual. So it's. So they yeah, they follow the European rules, but there hasn't been any specific sanction sanctions except maybe that the small power line, which is out, out of operation now.

Richard Sverrisson, Editor-in-Chief, Montel: 15:21

It's also, I mentioned in the intro about Norway subsidizing its power consumers. Has that been broadly welcomed?

Gert Ove Mollestad, Editor Norway, Montel: 15:27

Yeah. And I would say, yeah. And they prolonged, they had the Norwegian state subsidized 80% when the price hit hits above 70 euro. That arrangement was prolonged for a year. So well into next year, there will be a state more or less cap on the price. The money will be dealt afterwards, of course. So you don't know but you have a, the Norwegian government is just saying, okay, we are sponsoring this high prices. And that has called, that has of course calmed the situation very much.

Richard Sverrisson, Editor-in-Chief, Montel: 15:57

But politically and in the media spotlight is Yeah.

Gert Ove Mollestad, Editor Norway, Montel: 16:00

And the thing in Norway, you, with the ownership in the energy sector, more or less, everything is state owned, or at least publicly owned with their municipalities and the states. So the money from the consumers goes to the public sector and then just turning again the money back to the consumers. So that's and it seems like a fair deal,

Richard Sverrisson, Editor-in-Chief, Montel: 16:18

and you mentioned the amount of flows going to your, the gas flowing to Europe. And that's obviously quite a big owner at the moment for Norway.

Gert Ove Mollestad, Editor Norway, Montel: 16:26

Yeah, it's, it is almost embarrassing because Norway is just, we are earning so much money on this and there has been some. Some of the green parties, they said, no, we should just take all the money that the excess money they, we earn now and give to U Ukraine for instance. Which may be a fair point because it's just, yeah. Like I said, it's a bit, it's a bit embarrassing actually. Yeah.

Richard Sverrisson, Editor-in-Chief, Montel: 16:49

For sure. But what about for industry? Has there been, have there been any move to protect industry within Norway?

Gert Ove Mollestad, Editor Norway, Montel: 16:55

The major power consumers are more or less hedged. They have long term contracts, PPAs so they have not felt it that much yet. You have seen some reductions mainly in the fertilizer business. Because they are exposed to gas prices. So the power prices are not hitting that hard yet. Give it a few years, if the level remains, that will be very challenging. Of course. When you have the aluminum power plants, consuming two or three Tet hours a year. But so far they're quite good. But you have seen Yara, for instance cutting down production when the gas prices really they're big fertilizer. Yeah, they are. And that has serious consequences long term for the food production in the world. And that is really serious. So you might actually see declining in food production. Yep. This is what reading, so yeah. This is really. Heavy stuff.

Richard Sverrisson, Editor-in-Chief, Montel: 17:44

It's a massive problem and a massive is issue potentially. But how about in Germany and Andreas? Is there the talk of subsidizing householders or industry to any extent at all?

Andreas Lochner, Editor Germany, Montel: 17:54

First of all, the situation, obviously, like with the industry it's similar to Norway 'cause we have Yeah. European prices. But the first step was to, and renewables levy by the 1st of July. This year's height is 7 37 euros roughly per megawatt hour. That's mainly for households and smaller companies because the large energy intensive companies, they. Don't have to pay it or have only to pay a small portion of that, but no, no direct subsidy.

Gert Ove Mollestad, Editor Norway, Montel: 18:23

Yeah, just the power exchange Now with from Allway to the continent, it is so lucrative that the TSO Starnet, they are skipping their tariff really for from the 1st of April. Through the year because they earn so much money on the power exchange through the sea cables. Okay. The, on the interconnectors to the UK and to the continent and yeah. And the Germany and Denmark. Have you done any looked at any of the figures there yet, or? Yeah, they the TSO national Grid and STA net, they are earning around 50 million euros a month on the NSL. Inter the North ceiling and Interconnector a month, and it's only been at half capacity and still it's around 50 million euros. So the cable will be paid it will be paid. They're already paid, like they earned 20% of the cost already. It's just it in operation and it started in in October. You can't believe the figures.

Richard Sverrisson, Editor-in-Chief, Montel: 19:20

Absolutely. But is there any talk of new cables then yet?

Gert Ove Mollestad, Editor Norway, Montel: 19:23

There is one project the, no the North Connect project, but that's on ice in the oil energy ministry. And it, given the situation with a extremely high process in southern Norway, I, it's very unlikely to see that will go now. They should launch it now because it would've been, you would've earned it in a year. But it's there's more talk about the hybrid cables connecting offshore wind power.

Richard Sverrisson, Editor-in-Chief, Montel: 19:47

What's a hybrid cable? Just for those listeners who are familiar with the term that's,

Gert Ove Mollestad, Editor Norway, Montel: 19:50

You build the offshore wind farm and then you have connections both to Norway and some other, or whatever country. But it is a connect, it's a wind farm with the. Several connect connections to different countries. And the first offshore project in Norway will only be, that will only be connected to Norway. But everybody think it would be more profitable to build a hybrid cable. But due to political reasons, it'll only be connected to Norway.

Richard Sverrisson, Editor-in-Chief, Montel: 20:17

So keep the power in Norway for Norwegian consumer.

Gert Ove Mollestad, Editor Norway, Montel: 20:19

Yes. And that, yes. And they're planning this, it will be 10 years ahead in the future. And they are, but they're looking at the project now with today's goggles. Yeah. But they should maybe be a bit more foreseeing, but,

Richard Sverrisson, Editor-in-Chief, Montel: 20:33

and a bit more ambitious. Absolutely. Absolutely. But how about in Germany, Andreas, is there, has there been much, there's talk of demand destruction in industry. Have you seen have you or the journalists in Monte, journalists in Germany seen any signs that the demand has been massively reduced due to the cri to the crisis and the prices?

Andreas Lochner, Editor Germany, Montel: 20:51

Yeah, we're looking at that, but so far what we see, many companies complain that they will have to shut down if the situation continues. So if it continues much longer, then we'll probably see yeah, massive reductions of industry use. But we also mustn't forget, it doesn't really help the German industry much, but power prices. Around Germany are even much higher than in Germany. We have, in France, for example, since the start of the war, the head prices have averaged like 50 euros higher than in Germany. With all their nuclear units offline. So the problem there might be even bigger,

Richard Sverrisson, Editor-in-Chief, Montel: 21:26

absolutely. I think that, that's something that we discussed in, in, in previous pods, but get as well. That seems to, the argument as well in Norway is, okay, power prices are high here, but they're much higher amongst the labors.

Gert Ove Mollestad, Editor Norway, Montel: 21:37

Yeah. So we are, and there, there's a, we have five price zones in Norway, so the three, so the most are the most expensive. And then you have north of the mountains near ham. Then you have prices like 15 euros and 20 kilometers south there are like 200. So there, do you have it? Huge difference in prices internally in Norway. And that is also a bit challenging for it muds the water a bit or something. But the consumers in northern Norway are really well off, and you see the same in Sweden as well, because all, it's due to all the wind power, which is built in Sweden mainly. And it just keeps prices down. At the same time. There is no new wind power in Norway. Coming online the next year because there has been so much opposition against wind power the last couple of years. So the politicians just pulled the plug. Literally, yes. And that, yeah. You see the consequences of that now.

Richard Sverrisson, Editor-in-Chief, Montel: 22:34

Has the chart crisis changed any kind of public opposition to wind power in Norway?

Gert Ove Mollestad, Editor Norway, Montel: 22:38

Yes, there are. There are. More voices now. You hear more voices now calling for wind power and then is, it is the cheapest form of new electricity to build in Norway. You can buy. They need I don't know, 25 or 30 euros, and you can sign a PPA with a lot of consumers in it and the pot. You have the best wind conditions, more or less in the world that is onshore in Norway because the weather in Norway is. Really bad, more or less all the time. But there, there has been a, really, a standstill now but the higher prices are so you can sense that there is a change in the mood going on but we still, we don't have to. We don't have the legislation in place, so there will be no wind power maybe in the next five years, maybe 10 years in Norway.

Richard Sverrisson, Editor-in-Chief, Montel: 23:24

But still there's a movement to bring it online. And I think if I can just finish, it's a, we're in a world with a very uncertain future. And I just like to finish on a kind of some signs of optimism. And I think you, you mentioned Andreas, a very ambitious targets by the German government. Do you think. Is there also a change in, in, in. Public opinion or views within Germany that the energy and trans transition must happen and it must happen quicker.

Andreas Lochner, Editor Germany, Montel: 23:50

That's what at least politicians say. We will see if, like the local opposition against wind farms that we have seen over the past years will decrease. I think what helps a lot is that people or at least their local municipality, municipalities, they can get, money from the wind farms directly. So they really see, okay, this is the wind farm here, but we also earn money from that and we can pay for the kind or or the public bath or something else. So there's they really profit from it, and I think that helps quite a lot. And if you're looking at an optimistic outlook, let's say we have seen this week the Tesla factory coming online in Germany. We have had the announcement recently from Intel investing in a massive factory in Germany. So they seem to trust in the German targets they seem to trust in the renewables expansion. Because obviously they wouldn't want to invest in a country with power prices of 230 euros per megawatt hour. So in the long run there is some optimism there as well. Let's just hope that the crisis and the war will end soon.

Richard Sverrisson, Editor-in-Chief, Montel: 24:51

Absolutely. I'd like to finish there, guys, on a sum rays of light out there. So Gert and Andreas, thank you very much for being part of the Montel Weekly podcast this week. So listeners, you can now follow the podcast on our own Twitter accounts. Aply named the Montel Weekly podcast. Please direct message. Any suggestions, questions, or let us know if you think you have a good idea for a guest on the show, you can also send us an email to podcast@montelnews.com. Lastly, remember to keep up to date with all that's happening in energy markets on Montel News. You can subscribe on Apple Podcasts and Spotify or wherever you get your podcasts from. Thank you and goodbye.