The raft of latest liquefied pure gasoline (LNG) import tasks being deliberate in Europe, in addition to the long-term gasoline offers being signed by patrons in latest months are incompatible with decarbonization targets and threat jeopardizing the continent’s power transition, a report by nonprofit analysis group World Power Monitor (GEM) has warned.
The Ukraine struggle has led to an enormous enhance in import capability throughout Europe, with 195 billion cubic meters/yr lined up for commissioning between 2022 and 2026.
A few of this new capability is already on-line, together with the Krk floating storage and regasification unit (FSRU) in Croatia, the Revithoussa LNG Terminal in Greece and the Eemshaven FSRU within the Netherlands, in addition to the Wilhelmshaven and Lubmin FRSUs in Germany, which began receiving cargoes between December and January.
In 2021, the EU imported 155 billion cubic meters of gasoline from Russia, together with LNG.
Whereas some short-term provides have been secured at a excessive value this winter, the overwhelming majority of the brand new capability will develop into out there too late to handle safety points for this winter and the following, which is after they’re most wanted, the report argued.
The principle concern is that every one that deliberate capability most likely received’t be wanted sooner or later.
Whereas “LNG growing capacity could be in contrast with decarbonization targets… The main concern is that all that planned capacity probably won’t be needed in the future as the demand for LNG is not expected to grow at the same pace as the LNG future facilities are expected to be built,” Ana Maria Jaller-Makarewicz, Europe power analyst on the Institute for Power Economics and Monetary Evaluation (IEEFA) advised Fuel Outlook.
“For the last 10 years or more the gas demand in Europe hasn’t increased and if these new patterns in demand persist, the demand won’t be expected to grow in the future,” she mentioned.
“As a result, it is likely that these new LNG terminals will become stranded assets in the future.”
Germany considers re-export choice
On the identical time, 15-20 year-long gasoline offers signed lately run opposite to EU regulation, which suggests a 35 % lower in gasoline demand to 2035, the report mentioned.
“Because it is a sellers’ market, sellers have the upper hand and buyers are being forced to consider longer-term contracts, even if they do not expect strong demand in the future,” Jaller-Makarewicz mentioned.
Lengthy-term agreements signed embrace Polish PGNiG’s 20-year cope with U.S. main Sempra for 4 billion cubic meters/yr beginning in 2027; and French Engie’s 15-year settlement additionally with Sempra for 1.2 billion cubic meters/yr from 2027.
Furthermore, Bulgaria’s state-owned Bulgargaz and Turkey’s Botas signed a deal in January granting Bulgaria entry to Botas’ LNG and transit pipelines for 13 years.
The overwhelming majority of contracts introduced lately have been nevertheless between U.S. exporters and German patrons.
“Fifteen years is great… I wouldn’t have had anything against 20 [years] or longer contracts,” Germany’s financial system minister Robert Habeck was quoted as saying in November, commenting on Conoco Phillips’ cope with Qatar.
Habeck added sooner or later the necessity to meet local weather targets and due to this fact to cut back gasoline volumes would lead to German corporations having to ship the volumes to different nations.
Redirecting the volumes within the 2030s is an crucial for EU member states which can be critical about hitting local weather targets and lowering gasoline demand.
“Redirecting the volumes in the 2030s is an imperative for EU member states that are serious about hitting climate targets and reducing gas demand,” the GEM report’s creator, Greig Aitken, advised Fuel Outlook. Nonetheless, he mentioned the “fundamental issue is that by entering long-term contracts at all, EU countries are potentially giving producer countries such as the U.S. the guarantees they need to continue production of fracked gas for export via new export terminals.”
These want “longer-term contract guarantees to be financially feasible. The rush for new, non-Russian supplies”, he mentioned, is more likely to create “unnecessary gas lock-in for too long, however countries try to mitigate against this by rerouting supplies.”
Andy Flower, impartial advisor at FlowerLNG, advised Fuel Outlook: “New U.S. tasks sometimes require a 20-year contract to assist the elevating of funds to assist the funding in liquefaction services, however the contracts have vacation spot flexibility so cargoes will be traded to different markets if not wanted in Europe to offset the associated fee.
“Non-U.S. project like Qatar are typically looking for a long-term contract with little or no destination flexibility, which makes it a major commitment for a European buyer when the EU is legislating for the reduction and eventual elimination of natural gas use.”
However, the actual fact many new terminals are counting on FSRUs means these “can be moved to other locations if no longer needed as has already happened with FSRU-based terminals in, for example, the USA, Brazil, Egypt and Israel, or used to trade as LNG carriers”, Flower mentioned. “So the developers of these terminals are not making a 20-year or longer commitment to use them as FSRUs.”
Stranded asset threat for these is being downplayed by promoters with their claims about future conversion to inexperienced hydrogen.
The potential repurposing of those terminals for ammonia or hydrogen imports in later years has additionally been instructed as a approach to handle the danger of stranded property.
Nonetheless, “the economics and practicalities of these conversions are still very uncertain” and the “stranded asset risk for these is being downplayed by promoters with their claims about future conversion to green hydrogen,” Aitken mentioned.
This text was initially printed by Gas Outlook.
This text has been supported by the European Local weather Basis to help the Gas Outlook Initiative. Accountability for the knowledge and views set out right here lie with the creator. The European Local weather Basis can’t be held accountable for any use which can be product of the knowledge contained or expressed therein.
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