On July 5, 2024 the German government announced a new Initiative for Growth to underscore order, stability and renewed prosperity. The growth of Germany’s economy has been stunted over the course of the last few years but businesses, policymakers and its citizens plan to return Germany’s economy to its growth path before the end of 2024. It plans to do so by addressing underlying challenges that have surfaced as a result of the global energy crisis.
Despite the energy crisis being a catalyst for economic destruction, the true cause of Germany’s slump in economic output and performance is a result of its structural challenges. These include fast-paced demographic growth, weak productivity growth and weak self-sufficiency of energy production in and amongst other factors.
The path forward for energy includes natural gas
Under the new Growth Initiative, Germany’s energy market will represent a stark contrast to the one that was planned for during a pre-war era. While fossil fuels were to be phased out at one point in time and replaced partly by synthetic fuels, gas covered almost a quarter of Germany’s primary energy use in 2023 making it the country’s second most important energy source. Germany’s path forward now mirrors more closely the rest of the world’s which is that of an energy mix not a transition.
To better understand the rationale as to this change, until 2022, affordable, safe and environmentally-friendly energy had been the driving force behind Germany’s economy and its attractiveness as a dynamic business location. Germany intends to revive and reignite this.
Its government’s goal now is to increase the number of market participants who benefit from favorable electricity pricing when there is lots of wind and sun available. When there isn’t, natural gas will support Germany’s energy needs over the long-term.
Furthermore, the government plans to provide exemptions for natural gas projects if they are necessary for national security or geostrategic supply security interests and also take into account the potential offered by the domestic production of natural gas.
Domestic production of natural gas represents a turning point
The domestic production of natural gas in Germany, which is Europe’s largest economy, marks a significant change in attitude as this is the first time it has been recognized as a necessary path to energy security since Russia’s invasion of Ukraine. To date, many countries throughout the bloc remain heavily reliant on Russian gas imports – even more so than on US LNG imports.
The implementation of this new policy framework at a more fundamental level demonstrates commitment and vigor to lead Europe, the world’s second largest economy, out of Russia’s firm grip.
Exploration Projects Underway: MCF Energy
In line with this, exploration momentum in Bavaria is underway. Southern Bavarian authorities have begun to identify projects that could add a healthy level of domestic natural gas to the local grid as early as next year.
Government authorities recently issued the final permit required for one of Germany’s on-the-ground explorers and producers, MCF Energy and its operator, Genexco Gas, to drill the Kinsau 1A well on the Lech concession block, which will take place before the end of the year. Considered a pre-existing well site, this well was originally discovered by Mobil in 1983. The company will use existing infrastructure to minimize costs, save time and enhance efficiency.
The same explorer, MCF Energy, holds additional natural gas concessions across Germany which may significantly contribute to helping Germany achieve its domestic production goals. They are working to bring these assets online in addition to assets they hold in Austria as well as the Czech Republic so that Europe can reduce dependency and begin to produce more natural gas within its own borders.
Additionally, it should be noted that according to IOGP Europe, by extracting and producing gas domestically, across the entire European continent, it could reduce its global carbon footprint by up to 30%.
Europe’s Gazprom contract set to expire in December, what’s next?
For as long as Europe’s energy needs are predicated on Russia’s ‘openness’ to provide it, it remains susceptible to economic instability.
Europe remains one of Russia’s largest customers for gas and yet its major gas transit deal with Gazprom which flows gas through Ukraine is set to expire in December. Until the end of the agreement gas will continue to flow, even as fighting continues between Ukraine and Russia. No clarity has been provided around what will happen once the contract expires.
