Planned new liquefied natural gas (LNG) imports into Europe, as well as long-term gas contracts signed by buyers in recent months, are inconsistent with decarbonisation targets and threaten the continent’s energy transition, warned a report by the non-profit research firm Global Energy Monitor (GEM).
The Ukraine war has massively increased import capacity across Europe with 195 billion cubic meters/year for commission between 2022 and 2026.
Some of this new capacity is already online, including the Krk Floating Storage and Regasification Unit (FSRU) in Croatia, the Revithoussa LNG terminal in Greece and the Eemshaven FSRU in the Netherlands, as well as Germany’s Wilhelmshaven and Lubmin FRSUs, which have been commissioned. Receiving cargo between December and January.
In 2021, the EU imported 155 billion cubic meters of gas, including LNG, from Russia.
While some short-term supplies have been secured at higher prices this winter, the vast majority of new capacity will be available too late to address security concerns this winter and beyond, when they are most needed, the report argues.
The main concern is that not all planned capacity will likely be needed in the future.
Although “LNG incremental capacity may be counterproductive to decarbonization targets… the main concern is that not all planned capacity will likely be needed in the future as LNG demand is not expected to grow at the same pace as LNG future facilities. are expected to be built,” Ana Maria Jaller-Makarewicz, Europe energy analyst at the Institute for Energy Economics and Financial Analysis (IEEFA) told Gas Outlook.
“Gas demand in Europe has not increased for the last 10 years or so and if these new patterns of demand continue, demand is not expected to increase in the future,” he said.
“As a result, it is likely that these new LNG terminals will become stranded assets in the future.”
Germany considers re-export option
At the same time, recently signed 15-20 year-long gas contracts run counter to EU law, implying a 35 percent reduction in gas demand by 2035, the report said.
“Because it’s a seller’s market, sellers have the upper hand and buyers are forced to consider long-term contracts even if they don’t expect strong demand in the future,” Zalar-Makarewicz said.
Among the long-term contracts signed are Polish PGNiG’s 20-year deal with US major Sempra for four billion cubic meters/year starting in 2027; And French Eng also has a 15-year deal with Sempra for 1.2 billion cubic meters/year from 2027.
Furthermore, Bulgaria’s state-owned Bulgargaz and Turkey’s Botas signed an agreement in January to give Bulgaria access to Botas’ LNG and transit pipelines for 13 years.
Most of the recently announced deals were between US exporters and German buyers.
“Fifteen years were great… My 20s would have been nothing against it [years] Or more deals,” German Economy Minister Robert Habeck was quoted as saying in November, commenting on ConocoPhillips’ deal with Qatar.
Habeck added the need to meet climate targets in the future and therefore reduce gas volumes would require German companies to supply volumes to other countries.
Redirecting volumes into the 2030s is an imperative for EU member states that are serious about hitting climate targets and reducing gas demand.
“Redirecting volumes into the 2030s is an imperative for EU member states that are serious about hitting climate targets and reducing gas demand,” Greg Aitken, author of the GEM report, told Gas Outlook. However, he said that “the fundamental problem is that by entering into long-term agreements, EU countries are potentially guaranteeing producer countries like the US to continue producing fracked gas for export through new export terminals.”
These require “long-term contractual guarantees to be economically feasible. The rush for new, non-Russian supplies”, he said, “has the potential to create unnecessary gas lock-in for very long periods, but countries try to mitigate against this by rerouting supplies.” does.”
Andy Flower, independent consultant at FlowerLNG, told Gas Outlook: “New US projects typically require 20-year contracts to support fundraising to support investment in liquefaction facilities, but the contracts have destination flexibility so cargoes can be traded in options. Market if not required in Europe to offset costs.
“Non-US projects like Qatar typically seek a long-term contract with little or no destination flexibility, creating a major commitment for the European buyer as the EU legislates to reduce and eventually eliminate natural gas use.”
On the other hand, many new terminals are relying on FSRUs, meaning that “they can be relocated if no longer needed, as is already the case with FSRU-based terminals in, for example, the United States, Brazil, Egypt and Israel, or LNG carriers. was doing business as”, said Flower. “So the developers of these terminals are not making a 20-year or longer commitment to use them as FSRUs.”
The risk of stranded assets is being minimized by promoters with their claims of future conversion to green hydrogen.
The possible recovery of these terminals to import ammonia or hydrogen in later years has also been suggested as a way to address the risk of stranded resources.
However, “the economics and practicalities of these conversions are still very uncertain” and “the risk of stranded resources for them is being downplayed by promoters with their claims about their future conversion to green hydrogen,” Aitken said.
This article was originally published by Gas Outlook.
This article was supported by the European Climate Foundation in support of the Gas Outlook Initiative. The information and opinions set forth herein are the sole responsibility of the author. The European Climate Foundation cannot be held responsible for any use that may be made of the information it contains or discloses.