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LNG terminals: the winning card of Europe’s security of supply?

The European Union has a clear goal: to diversify its energy supplies, reducing its reliance on Russian fossil fuels imports well before the end of the decade. New players are therefore emerging on this new energy map, first and foremost the United States, which currently is the largest provider of liquified natural gas (LNG) to Europe.

Indeed, according to the REPowerEU plan launched by the European Commission, the diversification of supplies largely counts on LNG imports from non-Russian sources. And while countries like Slovakia and Germany are having discussions with Qatar, the US and the EU have launched a joint Task Force, according to which the US will ensure additional LNG volumes for the EU market of at least 15 billion cubic metres (bcm) in 2022, with expected increases going forward.

Can Europe rely solely on LNG to reduce its reliance on Russian gas?

Vincent Demoury, Secretary General of the International Group of LNG Importers (GIIGNL) believes that thanks to its flexibility, LNG can contribute to Europe’s energy supply diversification “but one should not expect any miracles in the short-term given the tightness already observed in the LNG market.”

“Replacing current Russian gas volumes entirely with LNG in one year is out of reach and would require to develop new export and import capacity,” he tells CEENERGYNEWS, ahead of the GIE Annual Conference that will take place in Budapest on 7-8 April and where he will be one of the speakers. “The United States is an increasingly significant provider of flexible LNG volumes to the global market and numerous liquefaction projects are ready to be launched. Eliminating Europe’s dependency on Russian gas will take time and will require developing imports from multiple origins.”

“The current import of Russian in Europe equals to about 150 bcm of gas in 2021,” says Arno Büx, Chief Commercial Officer of Fluxys Group, GLE President and GIE Board Member. “This equals to about 125 million tons of LNG or about one-third of the LNG produced in 2020. Furthermore, most of this LNG is contracted on a firm and long-term basis, mainly to Asia. Any speedy replacement is hence challenging in the short term. The aim of the European Commission is to replace 100 bcm of Russian gas by the end of 2022, 50 bcm of which through LNG which is a very ambitious target.”

And, as a matter of fact, despite the transatlantic assurances, US gas exporters are already operating nearly at capacity. 

“Indeed, today, the US liquefaction plants are running at full capacity but it should be mentioned that over the last month the share of Europe as a destination of these volumes has increased to about two-thirds,” he continues.

Destination and price: the competitiveness of LNG

Moreover, LNG suppliers are free to sell their products where they can get the best price, making arise the question of Europes’s competitiveness compared to other markets, like the Asian one.

“The LNG market is a competitive one and LNG flows are dependent on price signals,” Mr Demoury explains. “In the absence of destination restrictions, sellers will direct cargoes to the markets where they can get the best price. In a high price environment, a number of price-sensitive countries in Asia or Latin America may reduce their LNG imports, thus freeing up cargoes for Europe. Countries who have the option to burn other fuels may also temporarily switch to alternative energy sources.”

For Mr Büx, one has to make the distinction between destination and price.

“In the LNG industry, a big share of the LNG produced is sold under long term contracts with fixed destinations, mainly in Asia,” he tells CEENERGYNEWS. “A growing share of LNG is sold under shorter-term contracts with more flexibility on the destination so more relevant for the European markets. So we cannot argue that LNG suppliers are free to sell their LNG to the best-priced market. Today, the European market is probably the most expensive and attractive in the world for the share of flexible volumes but this remains limited.”

The role of LNG terminals in CEE

As Mr Demoury was saying, Europe needs to develop new export and import capacity and Central and Eastern Europe could finally play a more prominent role in the diversification of energy supply. For example, Lithuania was the first to completely abandon Russian gas as all the country’s gas demand is satisfied through the Klaipeda LNG terminal. According to the terminal’s operator, the regasification capacity for the ongoing gas year is fully booked: we are speaking about 23,9 terawatt-hours (TWh), in total, of LNG which has been allocated to customers. Also, earlier in February, the shareholders of the Alexandroupolis LNG terminal took the last and most significant milestone, before entering the project’s construction phase and companies from the US, Qatar and Israel are expected to be the main gas suppliers to the Terminal.

“LNG terminals in Central and Eastern Europe are an opportunity to diversify gas supplies by providing access to 20 LNG exporting countries,” underlines Mr Demoury. “They can also help to reduce coal consumption by enhancing the role of natural gas in power generation. In the future, additional LNG import capacity will be required, including through the deployment of FSRUS. Transmission networks will also need to be adjusted to reflect the changes in gas flows.”

“LNG terminals are obviously part of the LNG supply chain and are required to import and regasify the LNG in the right market at the right cost as is the downstream infrastructure,” says Arno Büx. “In the world and in Europe there are generally more regasification capacities than associated deliveries, especially in Spain. This situation has obviously changed and today most of the available regasification capacities are utilised especially in North-West Europe. As part of this increase in the need for regasification capacities, Fluxys is associated with various initiatives in its existing infrastructures (Belgium, France and Greece). Furthermore, Fluxys is actively involved in the development of a new import terminal in Stade, Germany.”

Policies addressing climate change further underpin the long-term security of the energy supply

The current situation, following Russia’s aggression on Ukraine and the record-high energy prices, is bringing significant geoeconomic and geopolitical shifts. 

Paolo Nicoletti, Managing Director of the advisory agency NOVE, who will also speak at the GIE Annual Conference, believes that the EU has learnt the lesson and will avoid re-creating a dependency on one country.

“The ongoing crisis put to the forefront the need for a stable and secure supply of energy from reliable sources and LNG imports will certainly play an important role in phasing out dependency on the Russian gas,” he says. “It will need to be combined with more domestic production, increased energy efficiency and a broadened flexible energy mix in short term.”

As for which players will emerge, Mr Nicoletti points out that the concept of diversification of energy sources underpins the idea of decentralised production and more independence for both consumers and nations.

“In that sense, it is more of a question as to who can manage their transition faster and smoother, rather than emerging,” he tells CEENERGYNEWS.

And while the EU is focusing more on the security of supply, some countries went back to coal, threatening all the efforts made in the fight against climate change. Building new terminals and new gas infrastructure might be a step back for the environment. In this regard, the new Task Force launched by the EU and the US will undertake efforts to reduce the greenhouse gas intensity of all new LNG infrastructure and associated pipelines, including using clean energy to power onsite operations, reducing methane leakage and building clean and renewable hydrogen-ready infrastructure.

But are the EU priorities changing? For Paolo Nicoletti, we have to differentiate here between priorities, which are long-term and objectives, which are short-to-mid-term.

“In that sense, I would say we are not shifting priorities at all,” he says. “To the contrary, the nature of the policies designed to address the climate change, be it investments in renewables and low-carbon solutions, energy efficiency, or carbon removal further underpin the long-term security of energy supply and will likely be further enhanced.”

“However, in a moment of a crisis we are facing now, it is only logical that the governments of all coalition compositions, the European Commission and the Parliament all look for practical short-term solutions to remedy the situation,” he concludes.

GIE Annual Conference is part of the major events on the Energy agenda. Each year taking place in a new destination in Europe, it welcomes experts coming from all around the world to meet and discuss the evolutions of the energy landscape and what is coming next. For this 19th edition, it will be organised in Budapest on 7-8 April. It will be the occasion to share information on the latest developments regarding the security of supply in Europe as well as the options for decarbonisation with gas infrastructure and, renewables and low-carbon molecules. The EU Commissioner for Energy Kadri Simson as well as multiple Secretaries of States will join 40 other high-level decision-makers coming from multiple horizons to challenge today’s questions.

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