Milestones in energy supply

The early 1990s ushered in a phase of some of the greatest political upheavals in Europe since the Second World War. The Soviet Union began to open up under Mikhail Gorbachev. Democratic elections took place in Poland. A peaceful revolution brought down the Berlin Wall and Germany was reunited. In 1991, the Soviet Union finally dissolved itself. The Cold War was over – it was the dawn of a new era. This led to a mood of political optimism in Europe and many things seemed possible. There was hope for a new, completely different future with Russia. Russia itself talked about a “Common European Home.” And Germany was grateful to Russia – because without Russia’s approval, German reunification would not have been possible.
 

1990: Cooperation between Wintershall and Gazprom begins amid optimism about a new era in Europe

It was during this time that BASF’s cooperation with Gazprom began. Even before the fall of the Berlin Wall, BASF had been considering building its own pipeline from Ludwigshafen to Emden, Germany, to secure future supplies of gas at competitive prices from Norway. But this project for natural gas supply was never realized. In 1990, BASF subsidiary Wintershall then entered into a long-term agreement with the Russian company Gazprom to market Russian natural gas in Germany. This also included pipeline infrastructure projects in Germany and joint ventures to produce gas and oil in Russia.

The reasonfor this move was BASF's interest in breaking up the monopoly structures in Germany, obtaining gas at competitive prices and strengthening the competitiveness of the Ludwigshafen site in international comparison. 

Industrial customers and private households benefit from gas market

In the early 1990s, there was a hefty clash with Ruhrgas AG, particularly about supplies to eastern Germany. In cooperation with Gazprom, BASF invested via Wintershall to establish an alternative joint business model, which was to cover everything from production to transport, storage and gas trading. From the mid-1990s, in cooperation with Gazprom, a parallel pipeline network was thus created in Europe with a length of more than 6,000 km. As a joint venture partner with a 35 percent share, Gazprom co-invested with Wintershall in the expansion of German gas infrastructure. The three storage facilities in Rehden, Jemgum and Haidach, which are so important today, were also established in collaboration with Gazprom. It was only because of these joint investments with Gazprom that Ruhrgas AG’s monopoly could be broken and a real gas-to-gas competition could be established. As a result, prices fell, especially in Germany. Industrial customers and private households alike benefited from this.

In Germany, consumption of natural gas surged by the end of the 1970s as a result of the Russian gas supplies. Over the past 40 years, consumption has risen to the current level of around 90 billion cubic meters per year. With natural gas consumption rising in other European Union countries as well, the first ideas for new transport routes and pipelines started appearing from the mid-1990s.

With the revision of its Atomic Energy Act in 2002, Germany decided to phase out nuclear power. In 2020, it also moved to accelerate the phase-out of coal energy. But this has not been accompanied by the needed expansion of renewable energy and transmission grids.

Plans were therefore being made to build a number of new gas-fired power plants – as a bridge technology until the age of regenerative energy. After all, without storage capacities, the supply of renewable energy is still too volatile. Natural gas is needed as a bridge technology in Europe and the main potential alternative to Russian natural gas is liquefied natural gas (LNG). LNG is expensive and much of it is produced in the United States by fracking – a practice that a large majority of the German population does not support. This also explains why Europe and Germany long relied on natural gas from Russia.

Ten years ago, the European Commission estimated that demand for natural gas in 2030 would reach up to 575 billion cubic meters. At the same time, Europe’s own production was declining. Today, it appears the estimates of 10 years ago were too high: In 2021, natural gas consumption in the European Union was around 393 billion cubic meters.
 

Construction of new pipelines to address rising gas consumption in Europe

Rising gas consumption in Europe led to the construction of new pipelines towards Europe after the year 2000. These included the building of Nord Stream 1, with Gazprom as the majority owner and European companies, including Wintershall, as minority shareholders. Nord Stream 1, with a transport capacity of 55 billion cubic meters per year, started operations in 2011.

In 2013, planning began for a second Nord Stream pipeline, which was criticized by eastern European countries and the United States. Wintershall Dea was one of five lenders for the pipeline project Nord Stream 2. The pipeline was completed in 2021, but the approvals process for Nord Stream 2 was stopped in response to Russia’s preparations to invade Ukraine in 2022 and the project firm was sanctioned.

Alternative pipeline projects have fallen through, including South Stream and the Nabucco pipeline, which was supposed to run through Turkey to connect southern Europe with gas sources in Azerbaijan. The Trans Adriatic Pipeline was realized and transports gas from Azerbaijan via Greece and Albania to Italy.

In 2015, Wintershall swapped parts of the German gas infrastructure including a stake in gas storage facilities, it had built up with Gazprom in exchange for a share in natural gas deposits in Russia. This swap was a purely economic decision for BASF and did not have a negative impact on supply security in Germany. Storage capacity could be booked by third parties before and after the divestment. This is also evidenced by the current situation, in which the storage facilities will make an important contribution to supply in the winter months and the capacity will ultimately be used by the market area managers.

This decision was preceded by several far-reaching political developments in Brussels, which made the operation of pipelines and storage facilities in Germany and Europe less and less attractive for industrial companies. As a result of the E.U. laws, integrated energy supply companies had to be split up into production, trading, storage and transport activities. In 2003, an E.U. Directive legislated that all market participants must have non-discriminatory access to natural gas grids. Tariffs have been controlled by the regulatory authorities since 2009. As a result, natural gas grids lost their strategic value and did not provide attractive rates of return for industrial companies. The regulations were tightened again in 2009 with the complete “unbundling” of the market: This meant that the transmission and long-distance networks for electricity and gas had to be separated from the generation, procurement and sales activities of energy companies.

Wintershall refocuses in response to E.U. regulations

BASF’s entrepreneurial response to this was to shift Wintershall’s focus to creating value through oil and gas exploration and production. The swap of the infrastructure shares was being considered from 2011, and thus prior to Russia’s annexation of Crimea in 2014. Policymakers also had no objections to the asset swap. In response to a question in the Bundestag, the German federal government said in 2015: “The asset swap has no influence on the E.U.’s goals. The supply security and the diversification of natural gas supply sources will not be adversely impacted by the change of ownership resulting from the asset swap.”

The German Ministry for Economic Affairs conducted an evaluation of the necessity of a strategic natural gas reserve and concluded in 2015 that Germany had a high degree of supply security. The establishment of a natural gas reserve similar to the oil reserve, which laws stipulate must be sufficient for 90 days, would have been possible, both prior to and after the transfer of the storage facilities to Gazprom. However, the state did not want to bear the costs of around €1.6 billion annually.

Plans and ideas are urgently being developed to figure out how Germany can break free from Russia’s grip as quickly as possible and revamp its energy sector to become independent. As one of the largest gas consumers, BASF will do its part.

Independent of geopolitical developments, BASF long ago started to move away from fossil fuels. BASF will progressively reduce its natural gas consumption in the coming years. Against the backdrop of ongoing climate change, the company has set itself a goal to reduce its greenhouse gas emissions by 25 percent by 2030, as compared to 2018. By 2050, BASF wants to reach net-zero emissions.

To reach these climate targets, BASF wants to move away from carbon-, oil- and gas-based energy generation. This will require enormous amounts of renewable energy. But such an industrial-scale transformation cannot happen overnight.

Renewable energy plays a key role: BASF and Vattenfall building world’s largest offshore wind farm

In partnership with Vattenfall, BASF is building a 1.5 gigawatt offshore wind farm in the North Sea off the coast of the Netherlands. It is slated start up in 2023 and will then be the world’s largest offshore wind farm. In addition, BASF has signed 25-year contracts with energy companies such as Engie and Ørsted to secure energy supplies in the double-digit terawatt range. In addition, BASF plans to partner with RWE to realize a 2 gigawatt offshore wind farm in the German North Sea. To transition away from natural gas-based energy generation in Europe, however, BASF will need many more wind farms. This will require the acceleration and broadening of capacity expansion plans in Germany and the European Union. This is a huge challenge, which requires a revamp of the planning and approvals processes.

At the same time, BASF is working on developing new CO₂-free processes for chemical production. As part of this, BASF is building pilot plants in Ludwigshafen and testing new technologies on an industrial scale to be able to roll these out rapidly worldwide. Electric steam crackers, heat pumps and climate-neutral processes for hydrogen production are just a few of the technologies and innovations for the transformation to climate neutrality.