On 26 June, Gas Infrastructure Europe (GIE) released a study titled “The Contribution of Terminal Operators to Securing and Greening Energy for Europe”, conducted by DNV and Frontier Economics. It highlights LNG terminals’ critical role in enabling a climate-neutral and resilient energy system to rise. We spoke with Luis Ignacio Parada, President of Gas LNG Europe (GLE), about the evolving role of terminal operators, how to accommodate renewable and low-carbon energy carriers, how to enhance the security of supply and the main technological innovations and advancements.
Q: How do you see the role of terminal operators evolving in the next decade?
A: The study we published today was conducted by DNV and Frontier Economics. It showcases that terminal operators will play a crucial role in the energy transition by facilitating the import and distribution of renewable and low-carbon energy carriers. As Europe moves towards decarbonisation, terminals will likely evolve into multi-molecule hubs that can handle a variety of energy carriers such as hydrogen, ammonia and bioLNG. They will not only import and store these carriers but also potentially engage in processing and conversion activities. This evolution will be driven by the increasing need for flexibility, security of supply and the ability to adapt to different decarbonisation pathways.
Q: What are the main challenges and opportunities for terminal operators when it comes to adapting existing infrastructure to accommodate renewable and low-carbon energy carriers?
A: The study identified three main challenges and opportunities. First, the infrastructure needs to be adapted to handle new energy carriers: this is where import terminals can demonstrate their cost-efficient repurposing of existing infrastructure. Second, it will be essential to navigate regulatory requirements, including those related to safety and environmental compliance: this study is key in unveiling the policy levers needed. Third, we must secure investment for expansions, upgrades and repurposing actions: we must create a stable and adapted policy framework that provides investors with the necessary clarity, certainty and support. They are the trump card of Europe: they will provide flexibility in handling multiple types of energy carriers coming from overseas and will contribute to emission reductions and EU decarbonisation goals in parallel.
Q: Among the various pathways assessed for importing renewable and low-carbon gases, which ones do you believe have the most potential for scalability and why?
A: We estimate the future energy supply costs for imports of different energy carrier pathways in 2040 by ship, utilising terminals to the EU. We find that most upstream hydrogen pathways result in similar supply cost ranges (pathways 2-3, with the exception of 3D) – there is no clear cost advantage for a specific pathway, so terminal transformation decisions depend on a wider set of considerations, for example, local/regional needs (such as the end use case). The pathway featuring SynLNG as an H2 carrier appears as the most expensive import pathway**. The pathways relying on conventional LNG with CCS generally come with the lowest import costs, associated with uncertainty around natural gas prices and carbon capture costs. It should be noted that these quantitative conclusions are made under a set of assumptions and that local/national circumstances could imply different cost assessments for the different pathways.
** The efficiency losses incurred in the transformation of SynLNG to H2 are more costly than the same process for fossil LNG due to higher underlying costs for the commodity.
Q: In light of recent geopolitical developments, how crucial do you think the role of terminals is in ensuring the security of energy supply in Europe and what measures can be taken to enhance this security?
A: Terminals are crucial for energy security because they enable imports from diverse global sources, including intra-EU supplies and reduce dependency on single suppliers. They provide resilience to geopolitical developments and disruptions by enabling energy imports from many countries around the world, reducing dependence on individual countries or suppliers. Recent lessons from the energy crisis highlight the importance of terminals, as LNG terminals proved critical in securing energy supplies during a period of abrupt reductions in Russian pipeline gas imports. During 2022, the LNG supplies to Europe increased by +70 per cent compared to 2021 and more than [50] billion cubic metres per year (bcm/y) of new regasification capacity has been added to the market since then (75 per cent of the new capacity has been in the form of FSRU) to facilitate the surge in LNG imports. To enhance this security, it is important to recognise the major contribution of LNG terminals to greening and securing energy supplies for Europe. Europe will still need LNG supplies for, at least, the next couple of decades. Europe could have an “under-contracted” situation, with insufficient long-term contracts for the short/medium term, which would increase Europe’s reliance on the volatile spot market.
LNG terminals also have to be prepared to play their part in the energy transition whilst still supplying their legacy LNG demand. The concept of a hybrid terminal, for example, a terminal handling not only LNG but also other types of molecules (including ammonia, bioLNG, hydrogen), emerges as an effective solution allowing for a gradual, cost-efficient and secure transition. To unlock their full potential, it will be essential to align regulations, facilitate licensing and permitting, increase support measures, enhance international coordination, roll up standardisation and certification schemes, and ensure that downstream market regulation is compatible with hybrid terminals.
Q: How can terminal operators balance the need for a rapid transition to renewable energy with the environmental impacts of their operations?
A: Terminals enable a green transition through gradual emission reduction in light of varying needs across regions and time. A diverse use of terminals across the EU (for example, for hydrogen, e-methane, biomethane, ammonia, carbon) allows for a parallel ramp-up of a renewable economy while still maintaining security of supply for methane demand. In addition, terminals can facilitate local and regional emission reduction options by providing access to green carriers before (or while) alternative designated infrastructure (for example, for hydrogen) is developed.
LNG operators are also very committed to reducing methane emissions in all the identified pathways. The recently approved EU regulation will help to ensure that methane emissions are properly mitigated in Europe. Moreover, when handling hydrogen, ammonia, or other molecules (including CO2 via CCUS technologies), LNG operators are willing to apply their best efforts to minimise environmental impacts.
Q: What specific policy measures do you think are most urgent for regulators to implement to support terminal operators in the energy transition and how can these measures address current market challenges?
A: Regulators need to recognise the diverse range of services/options that existing terminals can provide: LNG terminals can become multi-molecule terminals. It is essential to enable the appropriate implementation of new EU rules, and reinforce even more the cooperation between LSOs and legislators/regulators when implementing the new Hydrogen and Gas Decarbonised Market Package.
A sound investment environment and a level playing field across the EU remains essential. Policymakers should also speed up, harmonise and facilitate project licensing and permitting in developing agile “hybrid permitting” to allow multiple molecules to co-exist at the same terminal. To facilitate the deployment of new decarbonisation projects, it will also be advisable to activate measures across the value chain, resulting in cost reductions for required technologies (pilot projects, R&D, innovation funding and so on)
Q: Given the importance of international coordination in the upstream supply chain, what are the key areas where cooperation between the EU and non-EU countries is most needed?
A: Key areas include developing common standards and certifications for energy carriers, establishing strategic partnerships with exporting countries and fostering collaboration on R&D projects and infrastructure development to share knowledge and reduce costs. It is essential to support the international coordination, standardisation and certification schemes. We must develop strategic partnerships and cooperation between the EU and exporting countries. We should also consider imports of renewable and low-carbon energy in the EU framework, including those covered by mechanisms such as H2Global and EU H2 Bank. It will also be key to work on aligning standards, Certifications and GOs. In addition, it ensures downstream market regulation is compatible with hybrid terminals. Terminals need visibility on the decarbonisation developments downstream. Imports are not limited only to injection into an H2 grid and molecules can also be delivered to the consumers by other means such as trucks or train. Last but not least, we should stimulate demand downstream and consider regulatory developments for all future markets (for example, CO2 market).
Q: Among all the technological innovations and advancements, which ones do you think are particularly promising for improving the efficiency and sustainability of terminal operations?
A: The study shows that there is no “silver bullet” but that different pathways offer different strengths and weaknesses. Terminals in different regions in Europe will choose different decarbonisation pathways. Terminals allow for different carrier and end-use pathways based on decarbonised molecules (bioLNG/synLNG, ammonia, LH2) or decarbonisation processes (CCS/CCUS). Besides, LNG terminals can be repurposed partially or completely, allowing for a gradual and cost-effective decarbonisation.
Among the promising pathways and technologies identified in the study, we also see the integration of carbon capture and utilisation (CCU) technologies to reduce emissions and produce valuable by-products. Other technologies include the cryogenic power to tap synergies at multi-molecule terminals and the efficient and safe handling of new molecules based on advanced monitoring and automation systems for better operational control.