Faced with the risk of encountering very expensive facilities that will “rust” without being used is Europe, in the event that plans to build several LNG terminals along the coast of the old continent are put into operation.
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Europe rushed to switch to liquefied natural gas after Russia’s invasion of Ukraine in late February 2022. But 15 months later, it looks like… they’ve overreached: As Bloomberg reports, if plans are implemented, full capacity will have it will significantly outpace demand for LNG after 2030, by which time RES penetration is expected to have skyrocketed. Doing so would render billions of euros worth of infrastructure useless.
“Some of the investment in LNG import infrastructure has been done by the markets based on the assumption that there will always be demand somewhere in Europe,” said Ogan Kose, managing director of natural gas specialist Accenture Plc. However, he points out, if each country aspires to have its own LNG import capacity, and since the markets are not going to work cooperatively, Europe is expected to find itself burdened with enormously expensive infrastructure that will not work.
For now, while the energy crisis remains in the spotlight, new terminals continue to emerge in many countries. Italy is nearing the opening of its fourth facility. Germany is pushing to develop its fourth floating terminal off the Baltic Sea island of Ruegen. Other projects are planned in countries like Estonia and Greece.
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However, estimates of LNG demand vary. S&P Global Commodity Insights expects LNG markets to peak in 2028-29, before declining over the next decade, albeit at levels that could be even higher from 2022. Some other industry watchers see a decline. deeper into consumption in the 2030s.
Meanwhile, Europe’s LNG import capacity could increase by around 50% by the end of this decade, according to the Institute for Energy Economics and Financial Analysis. And a 25% figure might prove unnecessary at some point.
Europe is “flooded” with natural gas
Europe survived last winter’s crisis without major supply disruptions due to unusually mild weather, lower energy consumption and an influx of liquefied natural gas. As a result, natural gas storage levels are now much higher than normal for the time of year.
Still, ships are carrying record levels of liquefied natural gas to Europe as risks loom for the coming winter. On peak days, existing facilities operate at full capacity, leaving LNG tankers at sea waiting to unload their cargoes.
For now, according to Bloomberg, Europe has no choice but to build new infrastructure to cope with the current demand for LNG. Terminals are not built to operate at full capacity year-round, and it is common to have an average annual utilization rate of 50% to 70% or less.
The region could add another two to four floating terminals beyond those already planned, said Thomas Thorkildsen, commercial director of Hoegh LNG, which has supplied Germany with two such units for 10 years.
“We are seeing a lot of interest in more capacity in a number of countries in northwest Europe,” he said in an interview. “However, there are opposing views and political processes and decisions need to be completed before compromises can be made.”
However, there are concerns about the possibility of low demand in the long term. The European Union can reduce natural gas use by nearly 45% by 2030 as it moves towards renewable energy sources, according to a scenario from the International Energy Agency.
In fact, capacity at some of the existing terminals in Europe is tied up until 2045 or even 2050, according to Elengy SA, which operates three land terminals in France and had an average utilization rate of 95% last year.
The EU, according to the economic agency, sees the additional capacity as a regulatory factor to provide energy security. In addition, floating storage units can act as LNG carriers if demand for capacity decreases. They can also be transferred to other places, such as developing markets in Asia. Some new terminals could be converted to use other products, such as ammonia or hydrogen.
Europe will still need LNG even after 2030, said Esther Ang, head of LNG at Swiss trading company MET International AG. More export projects, from the US to Qatar, will deliver larger quantities, flooding the markets.
“There are more LNG projects in the world now than in the past,” he said in a recent interview in Amsterdam. “There will be times when these assets are absolutely necessary and times of potentially lower demand, but the point is to manage that risk.”