Liquefied natural gas is coming to Europe’s rescue. But for how long ?


This article is part of a special report on Climate Solutions, which looks at efforts around the world to make a difference.

ISLE OF GRAIN, England – The calm waters near the entrance to the River Medway seem best suited to sailboats and other pleasure craft, but some of the world’s largest ships head here for a pier.

Simon Culkin, the import terminal manager at the facility called Grain LNG, jokes about making sure none of these vessels are manned by a “learner learner”.

The behemoths, some of which are more than 300 meters long, carry cargoes of liquefied natural gas. Once the ships latch onto a rack of pipes on the pier, their frigid fuel flows into massive, 160-foot-tall concrete-lined storage tanks.

When full, these huge cylinders contain almost unimaginable energy – enough, Mr Culkin estimates, to power the south of England for 10 days. Upriver is London, an economic powerhouse and huge energy consumer.

In recent months, energy markets in Europe have seen the biggest disruption in memory, along with record prices, as tensions have built up with Russia over Ukraine. But LNG, largely from the United States, has cushioned the blow in Britain and been a lifeline for Europe.

Yet while imports have advanced the European Union’s goal of reducing its reliance on Russian energy, growing fuel reliance also comes with potentially negative implications, including uncertainty about its future and concerns about its impact on the climate.

“Countries will have to source gas if they don’t source gas from Russia,” said Doug Parr, chief scientist and policy director at Greenpeace UK. “The climate risk is that there is a blockage in the new gas infrastructure which is proving quite difficult to remove,” he added.

European LNG imports are up more than 50% from a year earlier in the first five months of 2022, according to Bernstein, a Wall Street research firm. Britain has seen an increase in LNG imports over the winter months, with January being the highest on record.

Britain is in relatively better shape in terms of energy security than most other European countries because it produces substantial amounts of gas from offshore fields, while most members of the European Union have little of their own production.

“Historically, LNG has been the marginal back-up fuel for the UK,” said Jack Sharples, a research fellow at the Oxford Institute for Energy Studies, a research body.

Britain sends some of the gas received at its three terminals to the continent through pipelines under the North Sea.

Increases in liquefied gas have helped Europe offset gas shortages from Russia. Increasing LNG imports is the most important aspect of the European Union’s strategy to reduce dependence on Russian gas.

While Russia has long supplied a wide range of energy products to Europe, Moscow’s stranglehold on supplies of gas, used for heating, cooking, power generation and industry, has been particularly strained. developed, supplying about a third of European consumption in recent years.

“We simply cannot rely on a supplier who explicitly threatens us,” European Commission President Ursula von der Leyen said earlier this year as she set out a proposal to make Europe independent of Russian energy.

A wide range of shippers sent fuel to Europe, but the main increases came from the United States, which, due to the boom in shale gas production, rose from a standstill a eight years at one of the three largest LNG producers in the world. exporters, as well as Qatar and Australia. Sometimes LNG exceeded the flow of Russian gas. About half of the vessels that have docked at Grain LNG in the past year have come from the United States.

In February, President Biden agreed to ensure that at least an additional 15 billion cubic meters of gas, equivalent to about 10% of imports from Russia, reach Europe this year, a goal that has already been reached.

Unlike most natural gas, which goes through pipelines, LNG can be shipped from anywhere that has invested in the facilities to cool it down to liquid, a multi-billion dollar investment, so that it can go to places like the Isle of Grain with its mazes. equipment to turn it back into steam.

“The key is flexibility,” said Paul Sullivan, systems capacity and risk manager at National Grid, the utility that owns the LNG terminal.

LNG is an energy source that can quickly make a difference. Cooling natural gas to minus 260 degrees Fahrenheit reduces its volume to one-six hundredth of its gas volume. A large tanker truck can carry enough fuel to light up to 70,000 homes for a year, according to an industry estimate.

But even as Europe embraces LNG with warnings from leaders like Ms von der Leyen about possible gas weaning, climate activists fear it could invest billions of euros in a costly new program based on fossil fuels – a program which, as Mr. Parr said, is then difficult to retire.

It is already happening. European countries scramble to build facilities to receive LNG After Russia invaded Ukraine, Germany found itself in the dangerous position of being the biggest buyer of Russian gas and yet not not have LNG receiving terminals in case Moscow cuts fuel, as it reports it can.

Berlin now plans to build up to four reception units. Finland, Estonia, Italy and the Netherlands are all planning to build terminals or expand existing ones. Some of these units are likely to be floating installations that can be towed away at the end of their lease.

Liquefied gas comes at a high price. In most years, the main LNG markets are Asian countries such as Japan, South Korea and China. In the first five months of 2022, Asian imports fell by 8%, partly due to slower demand from China caused by Covid lockdowns.

What helps move gas from Asia to Europe is not so much the promises of politicians like Mr Biden, but the astronomical prices – currently about nine times higher than two years ago.

“European prices need to rise to attract shipments from Asia to Europe to fill the hole created by Russia,” said Bernstein analyst Neil Beveridge. “It requires very high prices to do so.”

Futures prices have been around $40 per million British thermal units, an industry measure. In energy terms, this equates to more than $200 a barrel of oil, roughly double the current price of Brent crude, the international benchmark.

Natural gas prices in Europe are also about six times higher than those paid by US customers.

European companies using large volumes of gas find themselves at a competitive disadvantage. Earlier this month, CF Industries, a major US-based fertilizer producer, announced that it was proposing to close one of its two UK plants, whose process relies heavily on gas, as the Futures markets suggest such plants in Europe will be expensive. “for the foreseeable future”.

There are concerns about gas shortages in Europe this winter which would not only keep prices high but also lead to a variety of undesirable options including burning more coal and, as a last resort, gas rationing by shutting down the factories.

Quick or easy solutions to Europe’s energy problems do not seem to be available. There is simply not enough LNG available or likely to come on stream in the next few years to replace all of Russia’s exports to Europe.

While today’s high prices are likely to drive the construction of new LNG facilities, particularly in the United States, it takes at least five years to build new export facilities, so filling any hole left by Russia will take time.

Investors will also be uncertain about whether to move forward. Europe’s intentions are difficult to understand. Ms von der Leyen recently traveled to Egypt and Israel, which have large gas fields, in a bid to find new supplies. The agreement reached to speed up gas supplies to Europe was also tempered by language warning that gas consumption in the European Union should start to fall by 2030, perhaps too soon to reassure the investors considering investing billions of dollars in LNG facilities.

“These are very mixed signals from the EU,” said Massimo Di Odoardo, vice president for gas research at Wood Mackenzie, a consulting firm.

The current high LNG price could lead Europe to shift away from gas even faster than expected, by building more wind and solar power plants. If Europe is serious about meeting its emissions reduction targets, “the longevity of LNG demand in Europe is at risk,” Di Odoardo said.

National Grid is hedging its bets. The company is adding another storage tank, but it’s also looking at a greener future that could involve facilities to import or manufacture hydrogen, a potentially cleaner substitute for natural gas, and other futuristic energy sources. on its sprawling 600-acre site.

The plains are home not only to gas processing facilities, but also to several power stations and an aviation fuel import terminal, all within easy reach of London. For Mr. Culkin, it is an energetic cornucopia that “is not so easy to find”.


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