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Germany closes in on hoisting the LNG flag

Projects jockey to sail Germany into the LNG importers’ club

Anyone with more than a passing familiarity with the European gas market will be no stranger to proposed German LNG import terminals. Various plans have launched over the last 15 years before foundering on the unforgiving rocks of the country's extensive import pipeline and storage capacities and lukewarm attitude to stimulating gas demand.

But four projects are now looking decidedly more sea-worthy, buoyed by the twin prospects of Dutch import volumes in long-term decline and government support for an LNG infrastructure expansion.

Three large-scale regasification terminals are planned by various backers, while the fourth project is a smaller-scale affair that does not encompass regasification and pipeline gas, but only bunkering and LNG supply to industrial customers via trans-shipment, truck and rail.

The German LNG project, which is promoting a 5bn m³/yr regasification terminal at the North Sea port of Brunsbuettel, near Hamburg and the ChemCoast industrial park, where Total, Germany's Dea, South Africa's Sasol and others operate refineries and chemicals plants, has edged into the lead by signing up an anchor customer in German utility RWE. The consortium partners, infrastructure firms Vopak and Gasunie from the Netherlands (who are also partners in that country's Gate terminal) and Germany's Oiltanking, secured RWE's commitment to a "considerable part" of the proposed capacity in an open season process.
German LNG plans 200,000m³ of LNG storage and a jetty suitable for vessels up to Q-flex size.

Regasified volumes could be sent into the natural gas network and LNG could also be distributed via trucks, barges and bunkering facilities. FID is expected by the end of 2019, ahead of a construction start in 2020 and the terminal could be ready for operations in the final quarter of 2022.

Government support

The German ministry of economy and energy says the German government is giving political backing to the project and Norbert Brackmann, the federal government co-ordinator for the maritime industry, is in close contact with the stakeholders. Plans to support LNG infrastructure in Germany were a surprise inclusion in the country's February coalition treaty. In March, chancellor Angela Merkel's CDU/CSU-SPD coalition, in its founding pact, pledged to "make Germany the site for LNG infrastructure".

But the ministry is keen to stress that, while it supports LNG imports in general, it is not currently picking any winner. The federal government does not prefer individual locations; site selection is a question that investors must decide, says the ministry. "It is conceivable that more than one terminal will be built. If requested, the German government will examine the funding of LNG infrastructure projects. We cannot, however, provide any information about any applications or confirm any funding decision," the ministry continues.

Source: Company information /Petroleum Economist

German LNG says it has applied for financial support, but not from the ministry of economy and energy, but rather the ministry of transport, under its mobility and fuel strategy, or MKS in German. This may mean support only for the small-scale aspect of the German LNG plan, as the MKS is aimed initially at LNG replacing heavy fuel oil in the bunkering market, not supporting pipeline gas import diversification.

German LNG-as-bunker-fuel demand could reach 18.5bn m³/yr by the early 2030s, according to Murray Douglas, research director for European gas at consultancy Wood Mackenzie. The MKS' "LNG action plan" aims to develop a joint LNG infrastructure programme for shipping—both ocean-going and inland—by bringing together maritime stakeholders, the energy and ports industries and the public sector to try to harmonise safety standards and approval procedures, to develop a communications strategy for public acceptance of LNG as a fuel and to enable plannable investment decisions.

But it acknowledges that developing the requisite infrastructure is a "great challenge" and recommends regional pilot programmes as a first step to a longer-term market introduction strategy for LNG as an alternative to heavy oils. And it stresses that "in all cases, it will be necessary to make sure of this investment".

Competing interests

The government's openness to potentially supporting multiple LNG import projects leaves the door open for competing proposals, including a 10bn m³/yr floating storage and regasification unit (FSRU) near the Jade Weser Port at the deepwater Wilhelmshaven harbour, promoted by German utility Uniper.

Uniper, like RWE at Brunsbuettel, is not interested in infrastructure investment, but instead in facilitating an FSRU that would be built, owned and operated by a partnering shipowner. The proposed facility would provide LNG storage capacity of 265,000m³ and include all the features for small scale LNG, including bunkering and truck loading. 

The firm says the FSRU solution would offer significant cost savings and deliver competitive regasification tariffs compared to existing or planned terminals. It favours Wilhelmshaven as the best port for safely landing LNG tankers up to the largest Q-Max vessels, and due to its proximity to the German pipeline network and storage facilities, such as those at Etzel.

The Wilhelmshaven facility could also commence operations in 2022 and Uniper—as well as its discussions with possible FSRU partners and transmission system operators for the network link—is in "advanced talks" both on long-term LNG procurement to potentially serve its capacity and for third-party booking of regasification capacity above its own requirements. The firm says it has "been surprised by the substantial interest in regasification capacities from LNG players around the world".

Stade, a port just downriver for Hamburg on the Elbe river, is the location for the third proposed large-scale LNG import project with capacity of up to 8bn m³/yr. It is promoted by Australian investment bank Macquarie and infrastructure firm China Harbour Engineering but has not yet made public interest from any potential capacity holders.

On a smaller scale, Russia's Novatek and Belgian gas transmission system operator Fluxys signed in October a land lease agreement with the Port of Rostock Port for construction of an LNG trans-shipment terminal, which will offer LNG bunkering services in addition to LNG distribution via trucks, with a capacity of 300,000t/yr (0.4bn m³/yr). LNG will be supplied from Novatek's Cryogas-Vysotsk LNG plant which is being built near Saint Petersburg.

Russian dependence

So, will a German LNG terminal materialise? A decline in production from the Netherland's giant Groningen field—from 21.6bn m³/yr down to 5bn m³/yr by 2022–23—which will likely impact on Dutch exports to Germany, leaving it more dependent on just Norway and Russia for pipeline imports, is a major driver behind growing German LNG import momentum, according to Wood Mackenzie's Douglas.

The drop in Dutch deliveries will be offset by the planned 2019 start-up of the 55bn m³/r Nord Stream 2 pipeline, delivering additional Russian gas via a sub-sea route directly into Germany. But a combined 34pc of Germany's current gas demand is met through imports from the Netherlands, Denmark and through transit pipelines from Belgium and France, as well as 11pc by German domestic production forecast. Within about ten years, it is likely that all present pipeline sources besides Norway and Russia will be very low or non-existent, according to the European Centre of Energy and Resource Security. Supply security and diversity bolster the LNG import argument. 

Source: Petroleum Economist

But the MKS emphasises a German active role in any EU and neighbour states' LNG infrastructure initiatives. For LNG bunkering, the nearby Gate LNG terminal in the Netherlands and the Swinoujscie facility in Poland both offer those services and nearby Nordic states have also made significantly more progress than Germany on small-scale LNG. For large-scale regasification, there is currently plenty of spare capacity in both Poland and the Netherlands and at terminals in the UK, France and Belgium with easy pipeline access into Germany. Whether Germany really needs its own LNG import capacity, or can rely on its neighbours' existing infrastructure, remains in question.

Potential supply sources have attracted much attention, ever since US president Trump in July attacked the Nord Stream 2 plan but in the same breath admitted that part of his opposition to the plan was a desire to sell more US LNG to Germany. Qatar's emir, its foreign, economy and finance ministers and the CEOs of both Qatar Petroleum and the Qatar Investment Authority attended a Qatar-Germany business and investment forum in Berlin in September, fuelling rumours that the Gulf state also has eyes on supplying and even participating in German LNG import projects.

But much of the speculation about LNG supply misunderstands how northern European LNG capacity holders currently operate. With the exception of Poland, which took a strategic supply diversification decision to enter into a point-to-point supply agreement with Qatargas, Europe's LNG importers tend to take a portfolio approach to supply and regasification capacity, delivering into their European terminal capacity when the economics make sense and from the most logical supply source to which they have access. Any contracts involving dedicated suppliers to specific terminals are usually put options for the seller, not concrete guarantees of regular deliveries.

For example, Uniper will likely add North American LNG export volumes into its portfolio, with agreements for up to 0.9mn t/yr of US supply from the under-construction Freeport LNG terminal and up to 4.8mn t/yr from the proposed Canadian Goldboro LNG. But it already has European regasification capacity outside of Germany, as well as global options such as its plan to supply Sharjah in the UAE.

European LNG contracting could change as and when the region becomes more dependent on a Norway-Russia pipeline duopoly, and extra-regional imports, and places a greater strategic premium on the supply security that long-term LNG import contracts could offer. But, in the current climate, expectations of any swift progress for German LNG import terminals tied to specific supply contracts from the US, Qatar or other suppliers seem wide of the mark.

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