Natural Gas Import Dynamics and Russia's Role in the Security of Germany's Supply Strategy

The aim of this paper is to explain the natural gas demand dynamics of Germany and to determine the factors affecting the import of natural gas from Russia. In the existing literature, there are several studies which investigate the demand structure of single sectors (like industry or households), but there is a lack of analysis that tries to explain import quantities as a whole. On the basis of a theoretical discussion, the components of natural gas import quantities have been tested through different time series analysis. We found that the European natural gas and oil prices are co integrated with a time lag of 7 months. We interpret this result as revealing that natural gas is a viable substitute for oil. The time series estimation results support our hypothesis and demonstrate a positive relationship between oil price and natural gas demand. Furthermore, we found that the German industry production level is also an important determinant for natural gas import. In the next step, we used a technological variable, energy intensity change over time, to explain the change in natural gas import. Then, a new variable was implemented within the analysis: The purpose of natural gas import which is a hybrid variable and indicates which purpose dominates, i.e. either heating or electricity production. After a positively resulted significance test, we made a simple forecast analysis using an AR-Process to show that the positive trend of natural gas import will continue, if all of the significant variables have the same development in the future. It is important to show this trend because this kind of development raises the increases the issue of dependence of both countries from each other. Against this background alternatives will be discussed as to how Germany could improve security of its natural gas supplies.