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Germany needs shale gas to boost economy

A new study calls for a rethink of energy policy, with the country's unconventional resource base taking centre stage

Germany should overhaul its energy policy and use its shale gas resources to both boost its economy and cut carbon emissions, IHS, a consultancy, says in a new report. The IHS study said increasing Germany's use of mature renewable energy, such as onshore wind and solar, and increasing the role of domestically-produced natural gas would boost the country's industrial competitiveness, cut carbon emissions and generate 1 million jobs by 2040.

According to IHS calculations, shale-gas development could, by 2040, add €138 billion ($189bn) to the country's GDP, and translate to an extra €847 per year in disposable income for each German citizen per year. This compares to the costs of remaining committed to the current Energiewende - Germany's strategic plan to shift the country's focus from nuclear power and fossil fuels to renewable energy.

The US Energy Information Administration estimates Germany's Lower Saxony basin could hold 2.26 trillion cubic metres (cm) of shale gas-in-place, with around 480bn cm of that believed to be recoverable. The consultancy added that the country's shale gas resource could support domestic natural gas production through the 2030s, providing more than 35% of current German gas consumption.

IHS estimates Germany could produce more than 20bn cm of shale gas per year by 2030, with production reaching more than 25bn cm/y by the middle of the next decade. The consultancy also said total shale gas production in the 28 European Union countries could exceed 70bn cm/y in 2030 and rise to nearly 90bn cm/y in 2040. This could cut European gas prices by as much as 20%, the study said, which could make lower-carbon, gas-fired power generation more economic than coal.

Figure 1: Incremental German GDP - comparison of scenarios
Figure 1: Incremental German GDP - comparison of scenarios

However, shale gas development across Europe remains a contentious issue and Germany's coalition government said last year it would ban hydraulic fracturing until the process had been proved environmentally safe. Instead Germany is pursuing an ambitious renewable energy policy.

IHS said Germany's focus on renewable energy could undermine the country's industrial base, with soaring electricity prices hurting competitiveness. German electricity prices have risen by 60% since 2007 as the country has sought to boost its renewable energy capacity. 

Germany's high electricity prices have had a knock-on effect beyond its industrial base, affecting the entire economy. The IHS report said high electricity prices have lost the country €52bn in net exports over the past five years and will make Germany's highly integrated industrial sector less competitive in the future, with negative impacts on the wider economy.

Soon after the 2011 Fukushima Dai'ichi nuclear disaster, Chancellor Angela Merkel set ambitious targets for increasing renewable energy's share of the country's energy mix. This will also see power generation shift from nuclear power and fossil fuels to renewable energy. Merkel wants renewable energy to make up 35% of Germany's energy mix by 2020, up from 23% in 2012. The government wants this to rise to 80% by 2050.

In 2011, Germany was the world's largest producer of electricity from solar power. It was also the largest European producer of non-hydro renewable electricity, including wind power and biofuels. This is an admirable feat in terms of low-carbon energy production, but it has come at a high price for German taxpayers, who fund renewable energy through government subsidies. The country's carbon emissions have also increased as the switch from nuclear power has seen it turn to coal-fired generation as it seeks to meet electricity demand.  

IHS said rethinking the Energiewende would cut the cost of the power system by €125bn between 2014 and 2040. This would be mainly happen through a reduction in offshore wind development and an increased use of domestic natural gas. Increasing the use of gas at the expense of coal would ensure Germany's carbon emissions would rise by around 10% between 2014 and 2040, compared to a rise 20% over the period if the use of gas is not increased. "Germany's current path of increasingly high-cost energy will make the country less competitive in the world economy, penalise Germany in terms of jobs and industrial investment, and impose a significant cost on the overall economy and household income," IHS vice chairman Daniel Yergin said. "But there is an alternative path which will allow Germany to retain much of the decarbonisation benefit created by adding renewables while reducing overall costs."

Economic benefits if Germany adopts a lower-cost power system compared to the Energiewende:

  • A GDP increase of nearly €28bn, or 0.9%, in 2020, and €85bn, or 2.5%, by 2025. The impact on GDP is even larger in the longer term, reaching €138bn, or 3.4%, by 2040;
  • A net overall employment increase of 207,000, or 0.5%, in 2020, and 559,000, or 1.3%, by 2025. The economy would support nearly 1m additional jobs by 2040;
  • Disposable income: Average disposable income increases by €123 per person in 2020 and by €847 per person in 2040 as the economic benefits resulting from moving towards a more competitive Energiewende extend to virtually all the citizens of Germany;
  • Nearly €40bn in additional annual revenues by 2030, rising to €68bn by 2040 as a result of increases in overall economic activity and royalties from gas production; and
  • Net exports for the manufacturing sector will rise by €36bn in 2030 and €63bn by 2040 - a 20% increase - as lower energy prices support German manufacturing's competitiveness.

 

Figure 2: Indirect jobs created by 100 direct jobs in industry
Figure 2: Indirect jobs created by 100 direct jobs in industry
Figure 3: Industrial electricity prices by country
Figure 3: Industrial electricity prices by country
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