Europe Turns to LNG to Avert Energy Crisis

European nations are looking at ways to increase their imports of liquefied natural gas (LNG), including from Russia, as concerns about a shortage of natural gas across the European Union (EU) continue ahead of the upcoming winter. The EU has said it wants to end its reliance on Russian gas after Russia’s invasion of Ukraine, with officials in March of this year saying the goal is to reduce dependence on Russian gas by as much as two-thirds by the end of 2022. EU officials also have said they want to end most or all of their imports of natural gas from Russia by the end of the decade.

Russian exports of gas to Europe continue, though; a mid-September report from Bloomberg said Greece is set to accept the first cargo of LNG from Russia’s new Portovaya LNG plant, located near the Nord Stream 1 pipeline that Russia has kept offline since late August. Sweden also is importing Russian LNG; Greenpeace activists in early September blocked an LNG tanker from unloading Russian gas at a Swedish port. Swedish officials in August said a new LNG/bio-LNG terminal will be built in the Port of Oxelosund, as part of a deal signed between small-scale LNG provider Avenir LNG and port operator Oxelösunds Hamn AB.

1. An LNG carrier is a tanker specially designed to transport liquefied natural gas. A feature of an LNG ship that makes it different from other bulk cargo carriers are the insulated, temperature-controlled tanks that ensure the gas is kept in a liquid state at about –162C. Source: Shutterstock

Meanwhile, two floating LNG terminals are setting up in the Dutch port of Eemshaven. The floating storage and regasification units (FSRUs) would convert LNG into gas for onshore distribution, with LNG reportedly coming via carrier (Figure 1) from the U.S. The FSRU units, usually moored just offshore, can be built more quickly than onshore LNG terminals. Analysts have told POWER that more than two dozen new FSRUs are expected to be installed in EU member nations in the next few years. The German government has contracted for five FSRUs, with two additional private set-ups planned. At least three of the projects are expected to be in service no later than this winter. Italy, France, Poland, and other countries also are planning projects.

Russia on Aug. 31 shut Nord Stream 1 for what it said would be a brief period of maintenance, but the pipeline has not reopened. Russian officials have said economic sanctions imposed by other countries due to the invasion of Ukraine are responsible for the indefinite halt to gas supplies via Europe’s main pipeline. Other pipelines remain in operation.

Gazprom, Russia’s state-owned multinational energy group, on Sept. 12 said it was shipping 42.4 million cubic meters of natural gas to Europe via Ukraine, a volume that has been steady for days. “EU members want to move away from Russian-sourced gas, but they also recognize they can’t abandon natural gas, so they must find new supplies. Some are still sourcing gas from Russia, but this represents an opportunity for U.S. LNG exporters and U.S. natural gas producers to support the European market,” said Dan Kish, senior vice president of policy at the American Energy Alliance. “The U.S. can set itself up as a chief energy supplier for Europe.”

Energy analysts have said Europe depends on Russia to supply about 40% of the natural gas the region needs for both gas-fired power plants, and home and business use. Countries for the past several months have been looking for alternative sources for this gas due to concerns about an energy crisis this winter.

“Because the EU needs to reduce its reliance on Russian gas, the reduction in gas and power demand as well as an increase in LNG imports have become crucial in the EU energy strategy,” said Francois Le Scornet, president and senior consultant at Carbonexit Consulting. “The LNG sourcing aspect remains particularly critical and pretty difficult as the market is under strong constraints that could be further exacerbated by a cold winter or by stronger than expected economic growth in China, for instance.”

“When we talk about European reliance on Moscow’s LNG, we’re primarily discussing Germany being most heavily reliant,” said Richard Gardner, CEO at Modulus, an Arizona-based company providing technology products and services to clients across a variety of industries, including the energy sector. “The country’s consumption is far too great to consider moves similar to those made by Baltic countries earlier this year. In fact, since Nord Stream 1 was completed, Germany has relied more heavily on Russian gas. While the EU attempted to diversify its energy sources in 2010 and 2014, Germany’s dependence rose higher to 55% by 2021, even after Russia annexed Crimea.”

Germany already has postponed plans to close all its nuclear power plants, saying in September it would keep at least two of its three remaining facilities on standby until the middle of next year. The country earlier this year acknowledged it would increase its used of coal-fired power in an effort to avoid an energy crisis.

Gardner told POWER, “It is comparably less difficult to end reliance on Russian coal, given the varied import alternatives, but gas imports are more difficult. As of 2020, Germany imported roughly 30% of its supply from Norway. While the country has cut its Russian imports to 35% this year, it still has a long way to go before winter, and that isn’t even including the sizable volume historically relied upon by France, Italy, and Poland.”

Gardner noted, “This year, Europe has raced towards reducing gas consumption, in addition to attempting to find alternative imports. Notably, Germany’s gas storage sites are already filled to more than 85%, nearly a month before its goal of October 1. While it is possible that Europe will see shortages this winter, at least on a regional basis, one of Europe’s greatest strengths is its purchasing power. Because of their combined volume, major users could attempt to come together and fight back against Moscow’s weaponization of gas with its own ultimatum, dictating a lower price on imports. While this would further fuel shortages over the winter, over the long-term, the move would provide greater security and remove energy as Putin’s greatest source of economic leverage.”

Le Scornet told POWER, “Of course, the EU needs to source all the LNG currently available on the market, and contracts are probably taken with all the producing countries, and the U.S. in particular, obviously plays a major role as an LNG provider to the EU.” Le Scornet said political pressures could impact the amount of U.S. LNG made available for export, since exporting U.S. natural gas could increase prices for U.S. gas consumers. “[The Biden administration] may see increasing internal domestic pressure to control exports,” he said.

Le Scornet noted that European countries need to establish new LNG import terminals “in strategic locations in Europe in order to connect LNG imports to onshore domestic gas transportation and distribution systems. Germany and many landlocked central European countries are indeed still highly dependent on Russian gas that is transported by pipeline because the supply between countries with LNG terminals like France, for instance, and countries like Germany is limited by the existing connecting pipeline capacities.”

Le Scornet said the FSRUs, like those in the Netherlands, “are supposed to be short-term solutions, and long-term planning and strategic decisions must probably be taken. Two terminals should open in Germany at Wilhelmshaven and Brunsbutell, but this should only happen during the coming winter.”

Darrell Proctor is a senior associate editor for POWER (@POWERmagazine).

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