More cross-Baltic Sea Russian pipeline gas or the country’s first LNG import terminal? Outside pressures are building as decision time looms for Germany
Of all the leading European economies, Germany is conspicuous by its absence from the list of the world’s LNG import nations.
Although German shipowners and engineers have played a leading role in developing liquefied gas carrier technology over the years, and there are now some German LNG-powered ships in operation, the country, unlike its neighbours, has never felt the need for LNG import infrastructure.
That policy is now about to change. German internal and geopolitics as well as the push for a greener environment are shaping the drive to provide at least one major terminal for importing LNG. Alongside this initiative, Germany is set to construct its first coastal LNG distribution terminals that will facilitate, among other things, the bunkering of LNG-powered ships.
Complex energy mix
Viewed from the outside, the German energy policy appears to be a mass of contradictions. On the one hand, the country is committed to building up the share of renewables in its energy mix. Indeed, in 2017 renewables accounted for 33% of the energy utilised by the German power market.
On the other hand, the use of lignite, or ‘dirty coal’, has increased in recent years, following the decision by Angela Merkel’s government, in the aftermath of the Fukushima disaster in Japan in 2011, to phase out nuclear power by 2022. More than half of Germany’s nuclear plants are now shut down and nuclear provided only 11.7% of the country’s power needs last year.
Although renewables have filled most of the gap caused by nuclear’s declining contribution, on the days the wind doesn’t blow and the sun doesn’t shine, fossil fuels pick up the slack. Because indigenous coal is cheaper than imported gas, lignite has been the go-to fuel in times of need.
In 2017 lignite met 22.5% of Germany’s power requirements, hard coal 14.1% and natural gas 13.2%. Over 30% of the gas consumed in the country is supplied by Russia via pipeline while another 23% comes from the Netherlands, again by pipeline. The reserves in the giant Dutch gas field at Groningen are depleting, adding to the immediacy of Germany’s future gas supply considerations.
The extensive use of lignite means that Germany is failing to meet the short-term emissions reduction targets laid down by the European Union and in its own Energiewende, or ‘energy transition’, policy. Germany’s carbon dioxide emissions for the first three months of this year, of 217M tonnes, have already exceeded the ambitious target set for 2018 as a whole.
The gas situation
A new Russian pipeline delivery route opened in 2011 when the subsea Nord Stream link, from Vyborg to Greifswald on Germany’s north coast was commissioned. The two countries would like to construct a second such connection, the US$11Bn Nord Stream 2 pipeline, to double the cross-Baltic delivery capacity.
The Nord Stream 2 timetable calls for the link to be completed by the end of 2019. Germany has already granted all the necessary construction permits and some preliminary preparation work for the line is underway. Russia’s energy giant Gazprom is the sole shareholder in Nord Stream 2 but five western energy companies have pledged to meet half the line’s construction costs.
Russia is promoting Nord Stream 2 because the route bypasses Ukraine and is thus free from any possible effects of the political turmoil besetting the two former Soviet countries. Many in Germany favour Nord Stream 2 because it enhances the country’s energy security, provides additional volumes of gas at a competitive price and avoids the transit fees incurred by gas passing through other sovereign territories.
However, while the two principals may be positive towards the project, the tense global geopolitical situation and the emergence of a new Cold War in all but name have prompted many governments to sound alarm bells about Nord Stream 2.
Chief among the project’s antagonists is the Trump administration in Washington. The US president is cautioning against Europe’s and Germany’s over-reliance on Russian gas and pressurising Angela Merkel to ditch Nord Stream 2. Conveniently, the US is rapidly building its LNG export potential and is stressing it has plenty of product to fill the tanks of any new LNG terminal or terminals that might be built in Germany.
Other countries viewing Nord Stream 2 with disfavour include Ukraine, Belarus and Poland. The transit fees these countries collect from existing overland gas pipelines from Russia to Europe represent a valuable source of income. The EU in Brussels itself is also negative on Nord Stream 2, pointing out that it does nothing to help Europe diversify its gas supply sources.
LNG terminal projects
One alternative gas supply option available to Germany is to beef up the country’s pipeline links with Belgium and the Netherlands, more specifically with the underutilised Zeebrugge and Rotterdam LNG import terminals. The downside of such an approach is that the links would require the approval of all 14 German gas distribution companies.
In recent months the German Government has weighed up the pros and cons of the political and environmental arguments and warmed to the idea of having its own LNG import terminal. Irrespective of whether the Nord Stream 2 pipeline is built, Berlin has recognised the merits of having an LNG receiving facility on domestic soil, to increase the country’s range of gas supply options.
A number of sites have been put forward as potential homes for German LNG terminals. Uniper proposes a major import facility in Wilhelmshaven which would use a floating storage and regasification unit (FSRU). The vessel would have the capacity to process up to 7.3 mta of LNG, a relatively high volume for an FSRU.
Another terminal project, backed by the chemical company Dow and with a capacity of 6 mta, has been put forward for Stade, up the River Elbe.
Schemes for small to medium-scale LNG distribution facilities are also being tabled, at the same time as those for larger import terminals. In the case of the terminal planned for Brunsbüttel, at the mouth of the River Elbe near the entrance to the Kiel Canal, by a joint venture comprising Gasunie, Oiltanking and Vopak, it is a case of dusting off a project first put forward several years ago.
In its latest incarnation Brunsbüttel would be a multifunctional distribution facility, with the ability to load LNG bunker vessels, road tankers and rail tank cars. Named German LNG Terminal GmbH, the facility would have the capacity to handle up to 3.7 mta of LNG, and RWE is prepared to use a substantial chunk of that throughput. A final investment decision in the next few months would enable construction work to start early in 2019 and the terminal to commence operations in late 2022.
Elsewhere, Novatek and Fluxys this month announced a joint venture initiative to build a medium-scale LNG transhipment terminal in the north German port of Rostock. The facility would have the capacity to handle up to 0.3 mta of LNG, the bulk of which would be provided for use as marine and road transport fuel.
The intention is to supply the Rostock terminal with LNG from a small liquefaction plant Novatek is building in the Russian port of Vysotsk, transported across the Baltic in a coastal distribution LNG carrier.