Berlin The natural gas supply situation is likely to remain tight in the next few years. Due to the strong global demand for liquefied natural gas (LNG for short), it is proposed to secure access to LNG through long-term supply contracts.
This is the result of an unpublished Prognos study commissioned by the Climate Protection Science Platform (WPKS). WPKS is an expert committee established by the federal government in June 2019. She advises the federal government on climate protection issues.
The study addresses various scenarios for the development of gas demand and specifically addresses the question of whether the capacity of planned LNG terminals in Germany will be sufficient to meet gas demand. “In all scenarios in the short term to 2023 and 2024, there is a threat of intense competition for available LNG volumes,” the authors write. From 2025, it can meet the global demand for liquefied natural gas.
However, the study shows that in 2025 there could also be a scenario in which the existing LNG import infrastructure is not yet sufficient in Germany’s unfavorable scenario.
This would be the case if high domestic demand was met by maximizing gas shipments abroad, while the largest import pipeline from Norway failed and Russia completely stopped sending remaining gas to Eastern Europe via Ukraine.
Current plans to expand floating LNG receiving terminals, known in technical terms as floating storage and regasification units (FSRUs), may be rationalized over the next few years to maintain supply security, the authors wrote.
The report thus provides new arguments for the Federal Ministry of Economic Affairs. In the midst of the severe gas supply crisis triggered by the war in Ukraine, the German government decided in 2022 to lease 5 FSRUs for a short period of time. Two of these five FSRUs (“Federal FSRUs”) are already in operation. A third, entirely privately sourced, is also in play. To date, it is the only FSRU in the Baltic Sea. Other projects are located in Beihai.
liquified natural gas “be as flexible as possible“ Shopping
Several experts concluded that the planned FSRU capacity was oversized and consolidated the use of fossil fuel gases.
The ministry disagrees with that assessment. FSRU capacity already in use or under construction in the North Sea can only replace about half of lost Russian gas supplies, even at theoretical full capacity.
Even importing pipes from northern and western Europe, especially from Norway, Belgium and the Netherlands, cannot make up the gap. “In order to maintain supply security and affordability, it is therefore necessary to expand additional gas import capacity. We also need safety buffers as a precautionary measure in the event of disruption,” the ministry said.
Prognos experts recommend seeking long-term supply contracts. “As intense competition for global LNG production has become increasingly evident, particularly in the coming years, long-term LNG buyers have an advantage,” the report said.
>> Read also: Brussels rejects Berlin’s plan for new gas-fired power plant
Furthermore, experts advise European buyers to be “as flexible as possible in terms of delivery locations and deadlines”. “If LNG demand falls, there should be an option to sell volumes to the rest of the world.” Climate defenders, however, warn against long-term contracts that they believe contradict climate protection goals.
Just last week, nationalized German gas importer Sefe announced a contract with U.S. LNG producer Venture Global LNG to supply 3 billion cubic meters of LNG per year. The contract period is 20 years.
Sefe points out that the destination of the goods is up to you. As a result, LNG can easily be sold to other parts of the world if demand in the country falls.
Experts call for caution
Experts are urging caution given plans to replace FSRUs with permanently installed LNG terminals in the next few years. “In the context of the potential for excess capacity in the longer term, we believe that careful planning is warranted, especially for stationary LNG import terminals,” they wrote. Indeed, demand for LNG is likely to decline significantly over the next decade, otherwise Climate protection goals cannot be achieved. However, developers of stationary LNG terminals point out that their systems are also suitable for handling climate-neutral gas.
Another expert opinion, also commissioned by Prognos’ WPKS, underlines this point: According to this, there is a fundamental risk of a “lock-in effect” in fixed LNG terminals. This refers to a situation where users of a technology do not switch from one technology to another, more promising technology due to higher switching, search, or investment costs. The authors suggest that this risk must be ruled out. They recommend: “The legislature should be committed to the subsequent use. The subsequent use of the terminal building should be considered and regulated when planning the construction of the fixed facilities.”
The LNG Acceleration Act takes this into account: Onshore receiving terminals can therefore only be operated with natural gas for a limited period of time to ensure a sustainable, climate-neutral subsequent use from the outset. Green hydrogen and its derivatives such as ammonia will later be imported via the terminal.
more: Germany’s most important gas supplier dashes optimism