German Energy Industry Upbeat for 2006

The German gas and oil industry is small, but German gas production in particular makes up a significant chunk of the country's energy supply.

With sales on the rise in 2005, German oil and gas producers pumped money into investment. The Federation of the German Gas and Oil Industry, or WEG, said at its annual press conference that German energy firms boosted investment by more than a third last year, to approximately 1.1 billion euros ($1.3 billion).

Georg Schöning, head of German energy and water company RWE Dea AG is also head of the WEG. He chalked the good results up to the world's seemingly unquenchable thirst for oil, especially in China.

"We saw already a year ago, that huge demand exists in China. It was admittedly slightly lower in 2004, but in general, global demand has kept growing."

Industry expects price stability

The oil and gas companies and their subcontractors are counting on continued strong demand for oil. Although high demand has led to sharp oil and gas price increases in the past, the WEG predicts this trend is waning.

The WEG also said it expects less price fluctuation than in the last year, although no price decrease is expected. This is mainly a question of supply and demand: in the short term, output cannot be increased.

"We've seen global demand grow in the last couple of years and we have to say that the possibility of increasing output further is limited. That means … extremely limited availability of extra supplies," Schöning said

No one at the WEG is keen to talk about a future when oil reserves run out. They stress, instead, the projection that currently known oil reserves will last for another 50 years, and gas reserves should last another 60 years.

Political stability is key

"The oil and gas reserves are predominantly located in the Middle- and Far East. That means areas that we, as a Western industry, don't always have easy access to (the reserves), neither do we have any influence on these countries' political stability," Schöning said.

This supply could be damaged by political instability, such as recent developments in Nigeria, where local regions have been fighting over their share of oil wealth. German oil producers hope transparency is the answer.

Schöning said his company RWE is an example. "Our activities in Egypt … are clearly regulated through production-sharing agreements. That means contractual agreements exist with the countries stating exactly what is due to the state and what belongs to the oil companies."

Despite the turbulence in world markets and increasing tensions in the major oil-producing nations, WEG claims Germany's oil supply is secure. The fact that the country produces even a fraction of its own oil supply adds an element of stability, Schöning said.

Germany cites balanced supply

"Here in Germany, we have a fairly balanced supply structure. This applies to both the oil and gas markets," said Schöning. "If we take the UK as an example, we can see that local oil production will in the future no longer be possible, and they'll have to rely on the global market for all their energy needs. This in turn means that price volatility is likely to increase."

One fifth of Germany's gas supply comes from national sources, although its gas production has been decreasing for several years. Moreover, technologically, it is becoming increasingly difficult for Germany to exploit its own gas resources in an economically viable manner.

Schöning discounted the effects political conflicts could have on energy supplies, saying, "I'm really not that greatly concerned about oil supplies for Europe as a whole, as the past has proven. None of the political conflicts we've experienced have threatened supplies to any great extent."