In the spring of 2022, the chief executive of BASF — the world's largest chemical company, headquartered in Ludwigshafen on the Rhine — told his board that Germany faced a permanent loss of industrial competitiveness. He was not describing a temporary shock. He was describing the consequence of a political theory that had been built into the foundations of German energy policy over twenty years and had just been proved catastrophically wrong.
The theory had a name: Wandel durch Handel — change through trade. The idea was that economic interdependence with Russia would moderate Russian behaviour. That deepening energy ties with Moscow was not merely commercially convenient but strategically wise. That pipelines carrying Russian gas westward were instruments of peace as much as of commerce.
The invasion of Ukraine on 24 February 2022 ended that theory. What followed was not simply an energy crisis. It was the most expensive lesson in the recent history of economic policy about what happens when energy strategy and foreign policy are confused with each other.
The Architecture of Dependency
To understand what happened, you need to understand what Germany had built.
The Energiewende — Germany's energy transition — began formally with the Renewable Energy Sources Act of 2000. It was a genuine attempt to decarbonise one of the world's largest industrial economies. Renewables would be the future. But renewables are intermittent. Wind does not always blow. Sun does not always shine. The transition required a reliable, flexible backup — something that could be turned on quickly when renewable output fell short.
Germany chose natural gas. It was lower in carbon than coal, abundant, and — crucially — cheap, because Russia had enormous reserves and a strong commercial interest in selling them westward. Germany built 30 gigawatts of gas-fired generating capacity to complement its expanding wind and solar fleet.
Then Fukushima happened. In March 2011, the Japanese nuclear disaster prompted Chancellor Merkel to reverse a decision she had taken only months earlier to extend the operating lives of Germany's nuclear plants. The phaseout was accelerated. Germany's nuclear share fell from 23% of electricity generation in 2010 to 12% by 2020 — a loss of roughly 75 terawatt hours of reliable, low-carbon baseload power. That gap was filled not by renewables alone, but substantially by gas. The dependency deepened.
By early 2022, Russia supplied approximately 55% of Germany's natural gas imports — around 55 billion cubic metres per year — representing roughly 14 to 15% of Germany's total primary energy. Two major pipelines carried that gas westward under the Baltic Sea. Nord Stream 1 had been operational since 2011, with a capacity of 55 billion cubic metres per year. Nord Stream 2 — a second pipeline of identical capacity — had been completed in 2021, though certification had been suspended in November of that year amid rising diplomatic tension.
Germany had, as a matter of policy and philosophy, made itself strategically dependent on a single supplier for a sixth of its entire energy supply. It had done so knowingly, with political intent, and over the objections of allies — notably Poland and the Baltic states, whose warnings about Russian reliability were largely dismissed in Berlin as the anxieties of smaller countries that did not understand the subtleties of great-power diplomacy.
The Collapse
Germany halted Nord Stream 2 certification on 22 February 2022 — two days before the invasion, when Russia recognised the Donbas republics as independent states. The pipeline has never operated.
As the war deepened and sanctions tightened, Russia began throttling Nord Stream 1. By late July 2022, flows had been cut to around 20% of capacity. Gazprom cited turbine maintenance. On 31 August, flows stopped entirely. On 26 September, Nord Stream 1 was physically destroyed in an act of underwater sabotage. Between the two pipelines, 110 billion cubic metres per year of capacity was gone — more than half of everything Germany had been importing from Russia.
The market's response was immediate. European natural gas prices are quoted on the TTF benchmark — the Title Transfer Facility, the Dutch gas trading hub that serves as the reference price for the continent, equivalent to what Brent crude is for oil. In 2020, TTF had averaged around €10 per megawatt hour. In 2021 it averaged €47, already rising as post-pandemic demand outpaced supply. By August 2022, the intraday price hit €345 per megawatt hour — an all-time record. The 2022 annual average was approximately €130.
Gas feeds directly into electricity prices. German industrial electricity — which had cost around €154 per megawatt hour in the first half of 2021 — rose to €205 in the first half of 2022 and €225 in the second. For energy-intensive manufacturers that could not simply pass costs through to customers, the numbers were existential.
Germany Had No LNG Terminals
Here is the detail that sharpens the picture considerably: in February 2022, Germany had not a single liquefied natural gas import terminal. Not one. The country had built its entire gas supply infrastructure around pipelines — primarily from Russia, with the remainder from Norway and the Netherlands. It had made no provision for the scenario in which that infrastructure was unavailable.
LNG — liquefied natural gas, shipped in cryogenic tankers from the United States, Qatar, Australia and elsewhere — requires specialised import terminals where the gas is returned to its gaseous state. Building a permanent terminal takes years. Germany had none and had not planned any.
The government moved with unusual speed. It committed approximately €6.5 billion to lease five floating storage and regasification units — effectively large ships that can receive LNG tankers and pump gas into the onshore grid. The first opened at Wilhelmshaven on 17 December 2022, ten months after the invasion. By the end of 2023, five floating terminals were operational, with combined capacity of around 13.5 billion cubic metres per year — roughly a quarter of what Russia had been supplying at peak.
The shortfall was met by rationing, demand reduction and premium-priced purchases from global LNG markets. German industrial gas consumption fell approximately 20% in 2022 compared with the year before. That reduction was not achieved painlessly.
The Cost in Factories and Jobs
BASF halted ammonia production at its Schwarzheide plant in 2022. In January 2023, it announced 2,600 job cuts at its Ludwigshafen headquarters — the world's largest integrated chemical complex — and committed to a permanent reduction in its European production footprint. Its chief executive was explicit: Germany had become structurally uncompetitive for energy-intensive manufacturing, and that was not expected to reverse.
ArcelorMittal shut blast furnaces at its Hamburg and Bremen steel plants in the autumn of 2022. Thyssenkrupp Steel cut production and has since reported recurring losses. Yara, the Norwegian fertiliser group with substantial German operations, reduced European ammonia output by 40% in August 2022. Aluminium smelters including Trimet suspended or cut production. German chemical industry output fell 12% from 2021 to 2023. Glass and ceramics fell 10%. Paper fell 8%.
The BDI — the Bundesverband der Deutschen Industrie, Germany's main federation of industry — reported in 2024 that 32% of its member companies had already relocated or were planning to relocate production capacity outside Germany. Energy costs were cited as the primary factor. German industrial production fell 2.5% in 2023 and continued declining through 2024.
Where Things Stand Now
Gas prices have retreated. TTF averaged around €33 per megawatt hour in 2024 — far below the 2022 peak, though significantly above the pre-crisis levels of 2020. Cold weather pushed prices back towards €45 to €50 in early 2025, a reminder that the vulnerability has not disappeared. Europe has diversified its supply — American LNG now flows across the Atlantic in volume, and Germany's planned total LNG import capacity is expected to reach approximately 30 billion cubic metres per year by 2026 — but that is still well short of the 55 billion cubic metres it once received from Russia by pipeline.
German industrial electricity prices have not normalised. In the first half of 2024, large industrial users were paying approximately €171 per megawatt hour on the standard rate — the highest in Europe. Germany has cushioned the blow for its most strategically important manufacturers through an extensive exemption system: energy-intensive firms qualifying under the Special Equalisation Scheme can reduce their effective electricity costs by 50 to 65%, bringing rates down to around €70 to €100 per megawatt hour. But the standard rate remains Europe's highest, and the businesses that do not qualify are the ones that have been leaving.
The last three German nuclear plants — kept running beyond their intended shutdown dates specifically because of the energy crisis — were finally closed on 15 April 2023.
The Lesson
The German error was not primarily a technical one. Germany did not miscalculate the physics of energy transition. It miscalculated the politics of dependency.
The Wandel durch Handel doctrine was a coherent theory rooted in a genuine historical observation: that economic integration between West Germany and its Eastern neighbours had contributed to the peaceful resolution of the Cold War. The mistake was to extend that theory to Russia under Putin — a different country, a different leader, and a different set of calculations entirely — and to embed it in physical infrastructure that could not be quickly unwound.
Energy dependency is not the same as trade dependency. A country that imports French wine can switch to Italian wine if the relationship sours. A country that imports 55% of its gas through two pipelines running under one sea has no such flexibility. When the relationship with the supplier breaks down, the adjustment is not a substitution. It is a crisis.
The implications extend well beyond Germany. Every country that has built strategic economic assumptions on top of geopolitical ones — that a trading relationship, a military alliance, or a diplomatic understanding will hold indefinitely — is exposed to the same risk. The form differs; the structure is the same.
Energy policy, at its most consequential, is not about technology or economics. It is about the conditions under which a society functions. Get those conditions wrong — price them too cheaply, insure against their disruption too lightly, and assume the future will resemble the present — and the adjustment, when it comes, is paid for in factories, in jobs, and in years of lost output that no subsidy scheme can fully recover.
Germany is still paying that price. The lesson is available to anyone willing to read it.