From the Editor: Germany’s Plan B [Gas in Transition]
Russia’s invasion of Ukraine has put Berlin in a highly complex position, but one which is in large part of its own making. The fears and warnings of its east European neighbours about too great a dependence on Russian gas have been vindicated and the risks starkly exposed. Germany now has no choice but to embrace LNG and it needs to do so quickly.
Germany is not the most gas-intensive economy in Europe, but it has become much more dependent on the fuel in recent years and will become more so as it phases out its nuclear power plants and ramps down its use of coal and lignite – if these plans remain unchanged.
Increased use of gas, despite being a fossil fuel, was always, in the short term at least, an integral part of Germany’s climate change strategy.
Green expansion
The country has been at the forefront of renewables deployment, installing more wind and solar capacity than any other European nation. At the end of 2020, it had 53.8 GW of solar and 62 GW of wind capacity, including, at the end of 2021, 7.8 GW of offshore wind.
Renewables’ share of the country’s primary energy supply rose from 12.5% in 2015 to 18.2% in 2020, an impressive expansion, but nowhere near enough to compensate for the combined declining share of nuclear and coal. As a result, gas’s share of primary energy rose from 21.0% in 2015 to 25.8% over the same period. Almost all of this gas is imported.
A comparison of 2015 and 2020 data clearly reveals Germany’s trajectory. Domestic gas production, never large, has continued to decline, falling from 7.2bn m3 in 2015 to 4.5bn m3 in 2020. Imports, however, in 2020, were marginally lower than in 2015, at 102.1bn m3.
The key changes have been, first, Germany’s greater domestic consumption of gas, which rose from 74.6bn m3 to 86.5bn m3 over the period, reducing its role as a transit country.
Second has been the reduction in gas imports sourced from the Netherlands, which itself became a net importer of gas in 2018, reflecting the decline of the Groningen gas field.
Nord Stream 1 and 2
As a consequence, all of the increase in German gas consumption over the last six years has been met by increased Russian gas imports, a relationship cemented by the construction of the 55bn-m3 Nord Stream 1 pipeline, the second string of which was completed in October 2012.
Despite significant opposition, regionally and from the EU, the plan was to inaugurate the controversial Nord Stream 2 pipeline this year, doubling Germany’s capacity to receive direct Russian gas imports under the Baltic Sea. This gas would meet Germany’s needs as the energy transition progressed, supposedly secure from any Russian-Ukrainian frictions.
Following Russia’s invasion of Ukraine, Berlin has said it will not certify Nord Stream 2 and has announced a major revision of its energy plans to reduce its dependence on Russian gas. In this light, the complete absence of LNG regasification capacity now looks like a massive strategic error.
LNG options
A number of LNG projects have been looked at in Germany, but they have struggled to make headway in the face of the expected increase in Russian pipeline imports. These plans are now being revived.
Three projects have or had made the most progress, Brunsbuettel, Wilhelmshaven and Stade LNG, the first two of which the government has identified for fast-tracking.
The 8b-m3/yr Brunsbuettel LNG project is located at the mouth of the river Elbe, the entry point to the Port of Hamburg, and is expected to cost €450mn. The facility will have a jetty and two berths allowing it to receive large LNG tankers up to Q-max size. It will also have facilities for loading tankers, trains and smaller vessels. It will have two LNG storage tanks, each with a capacity of 165,000 m3. The planning approval process started last year and a consortium has already been chosen as engineering, procurement and construction contractor.
The partnership behind the project, German LNG Terminal GmbH, originally comprised Dutch gas network operator Gasunie, German tank storage company Oiltanking and Dutch storage company Vopack LNG Holding. Vopak said in November last year that it intended to withdraw, throwing the project’s future into further doubt.
However, the project also had backing from German utility RWE, which has been exploring options for later repurposing the proposed terminal for hydrogen imports. On March 4, the German government announced that state development bank KfW, Gasunie and RWE had signed a memorandum of understanding for the project in which RWE would take a 10% share and KfW 50%. Oiltanking and Vopak are expected to finalise their withdrawal in May.
The Wilhelmshaven LNG project also needs resuscitation. It was shelved in November 2020, but now also looks likely to be revived with government backing. German utility Uniper, in which Finland’s Fortum owns a majority share, is behind the project.
The former plans anticipated a 10bn-m3/yr floating, storage and regasification unit (FSRU). A non-binding solicitation for capacity in October 2020 failed to spark sufficient interest. Uniper said it would look at developing the site as a hydrogen and ammonia production and import facility instead.
Now, however, LNG is back to the fore, although as with Brunsbuettel, the intention is to build a “hydrogen ready” facility or pursue both green ammonia and LNG plans simultaneously, perhaps as an integrated project.
Wilhelmshaven is a deepwater port on Germany’s North Sea Coast, further to the west than Brunsbuettel. It needs only a 30-km pipeline extension to connect with the German gas grid, while the use of a FSRU suggests a much quicker construction time than for an onshore terminal.
Uniper had in fact already ordered an FSRU from Japanese shipowner MOL, which had contracted construction to South Korea’s Daewoo Shipbuilding and Mariner Engineering. Had Uniper’s former plans progressed, the FSRU could have been in operation by the end of June 2023. MOL switched the order to receive a super large LNG carrier in the wake of Uniper shelving the LNG project.
The third and largest major German LNG project is Stade LNG located further down the river Elbe than Brunsbuettel, although it would also be able to take Q-max LNG carriers and incorporate road and rail LNG loading. A non-binding solicitation for capacity in February last year indicated interest in a facility with 12bn m3 capacity. A binding solicitation was planned for January 2022, but was put back because of gas price volatility until this summer. A final investment decision is expected in 2023.
The project owner is Hanseatic Energy Hub (HEH), the main shareholders of which are Belgian gas infrastructure company Fluxys, Switzerland’s Partners Group and the Hamburg-based Buss Group. HEH has announced that it will seek planning approval for the €800mn ($877mn) project. This is expected to take a minimum of 18 months. If construction then commenced immediately, operations could start up in 2026.
Stade LNG has not been mentioned in government announcements, which may reflect a lesser degree of project readiness or concern about rushing into too much LNG import capacity. Existing long-term contracts for Russian pipeline gas imports are unlikely to be abandoned, although no new long-term contracts are likely to be signed.
The two LNG terminals identified by the German government for fast-tracking would add combined import capacity of 18bn m3/yr, which could displace less than a third of 2020’s German imports of Russian gas. If Stade LNG also progresses, it would increase German LNG import capacity to 30bn m3/yr by around 2026 or 2027.
As such, while LNG is not the complete answer, it would still go the farthest and fastest of any other options in addressing Germany’s new-found security of energy supply dilemmas.