In a nutshell: oil and gas law in Germany

An extract from The Oil and Gas Law Review - 7th edition

Introduction

Germany produces little domestic oil and natural gas and relies heavily on imports. In 2018, only 2 per cent of oil and 6.4 per cent of natural gas were produced domestically while the rest of it had to be imported to cover domestic oil and gas consumption. Crude oil is mainly imported from Russia, Norway and European Union Member States. Natural gas comes mainly from Russia, Norway and the Netherlands.

Annual domestic oil and gas production has been declining steadily. In 2018, annual oil production amounted to 2.1 million metric tons, which represents a decline of about 6.6 per cent from 2017 levels while production of natural gas declined by about 13.1 per cent and amounted to 6.3 billion cubic metres. On 1 January 2019, Germany had proved and probable reserves of about 29 million metric tons of oil and 50.3 billion cubic metres of gas. Like in the year before, active drilling activities have continued to be at a low in 2018, with five exploration wells and 19 field development wells.

Onshore oil and natural gas fields are mainly located in the northern part of Germany. More than 90 per cent of domestic gas and around one third of crude oil production and reserves are located in the federal state of Lower Saxony. Germany's only two offshore oil and gas fields are located in the North Sea.

Since around 1980, German energy policy has aimed to transition from conventional fossil fuels towards renewable energy sources. By launching the Energiewende (energy transition), Germany is reducing its dependency on oil and gas imports. However, while the legislature establishes necessary conditions to encourage investments into renewable resources, conventional energy sources like oil and natural gas ensure a secure energy supply to cover domestic needs.

A framework of mining laws covers the extraction of oil and gas and sets out requirements for a number of issues such as licensing, health and safety, environmental protection, compliance and monitoring. With regard to the use of unconventional fracking methods, a legislative package was adopted in February 2017 to impose a de facto prohibition on hydraulic fracking while also tightening requirements on conventional fracking methods.

Legal and regulatory framework

The central legislative act regulating the exploration of oil and gas is the Federal Mining Act of 1980. European legislation on licensing, environment, health and safety was transposed into national law by amending the Federal Mining Act and by creating the Federal General Mining Ordinance of 1995. The Federal Mining Act is further accompanied by a number of ordinances on technical and procedural issues such as the Health and Safety Mining Ordinance and the Ordinance on Environmental Impact Assessments of Mining Projects.

The Federal Mining Act aims at ensuring availability of raw materials by effectively managing and promoting exploration, extraction and processing of mineral resources through licencing and approval procedures. The Act safeguards raw materials by prioritising the extraction of raw materials over other public interests and by providing that conflicting public law should be applied only to the extent that exploration and extraction are impaired as little as possible.

The Federal Mining Act also aims to ensure the safety of mining operations and employees and to strengthen precautions against risks to human life, health, equipment and materials.

The requirements on licensing, health, safety and environmental protection are implemented and enforced through administrative acts as well as through compliance and monitoring mechanisms. While the Federal Mining Act is a federal law, the respective competent authorities of the federal states have the power to enforce the provisions of the Federal Mining Act. Federal authorities only have the power to enforce mining laws in the area of the continental shelf.

The competent authorities of the federal states in which mining activities take place can grant exploration and extraction licences. The licences entitle the holder to explore for and extract resources specified in the licence. Details and requirements to apply for such a licence may differ somewhat between the respective authorities in the different federal states. The application process may in practice also be delayed or accelerated depending on the specific political situation.

Mining authorities should approve the operating plan that the mining operator has to prepare in order to carry out the specified exploration or extraction. The approval procedure includes the assessment of the proposed measures with regards to safety and protection of workers, protection of the surface and prevention of damage to the public interest. The authorities also monitor compliance with the mining law provisions and may issue implementation measures to prevent risks. To further enforce the provisions of the Federal Mining Act the authorities can impose fines or penalties.

Germany has entered into numerous multilateral and bilateral treaties on dispute resolution and trade liberalisation. Germany is also a party to double taxation treaties with more than 100 countries.

Germany is a contracting party to the Energy Charter Treaty. The Treaty aims at establishing a framework for energy security on the basis of open, competitive markets and sustainable development. Germany is also a contracting party to major trade liberalisation and investment protection agreements, such as the General Agreement on Tariffs and Trade (GATT), the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 or the International Centre for Settlement of Investment Disputes Convention of 1965.

Germany is a Member State of the European Union and, therefore, also subject to the legal framework of the Union. Consequently, Germany is part of the European internal gas market as well as of the Energy Union, which the European Union's Third Energy Package from 2009 established. Further, the Regulation on wholesale energy market integrity and transparency (REMIT) is directly applicable in Germany. The Regulation aims at identifying and penalising abusive practices in wholesale energy markets and has a direct effect on participants of the German gas market.

The European Union has also entered into the Comprehensive Economic and Trade Agreement (CETA) with Canada aiming to liberalise trade by reducing tariff barriers and establishing rules on investment protection. CETA provisionally entered into force on 21 September 2017, but before the provisions of CETA can take effect in the European Member States their national parliaments still have to approve the agreement.