Germany became a buyer of LNG

Germany opened its first LNG storage and regasification terminal in Wilhelmshaven. Berlin is seeking to quickly replace Russian gas with LNG in the face of a growing energy crisis. Two more new LNG receiving terminals at Brunsbüttel and Lubmin could be launched in the near future. Germany hopes to have up to 30 bcm of LNG import capacity by the end of next year, covering up to a third of Germany’s gas needs if only Berlin can find enough LNG on the market.

Germany, once Gazprom’s largest gas consumer, has launched the first floating storage and regasification unit (FSRU) for liquefied natural gas (FSRU) Hoegh Esperanza at the North Sea port of Wilhelmshaven. Berlin sought to bring the project into operation as soon as possible: the project was accelerated by a special law, and 26 km of pipeline connecting the new terminal with the existing gas pipeline system were laid in just five months.

The terminal’s storage facilities have already been filled with 165,000 cubic meters of LNG from Nigeria, regasification will begin on December 22, and regular gas supplies to the network from January. FSRU will be able to supply gas to 50,000 homes throughout the year.

Until this year, Germany did not have its own LNG terminals, mainly buying cheap pipeline gas from the Russian Federation instead (covering 55% of its supply needs). The country could receive liquefied natural gas from the world market only through terminals in Belgium and Holland. Back at the end of 2020, the German Uniper was collecting binding applications for the reservation of FSRU capacity in Wilhelmshaven, but market participants did not show sufficient interest in the project. Instead, Uniper considered adapting the project for hydrogen supplies.

The situation changed after the outbreak of hostilities in Ukraine, when gas supplies to Germany through the Nord Stream pipeline were limited, and Berlin had to rely on gas supplies from neighboring countries, incurring transportation costs.

However, the Wilhelmshaven project does not yet have gas supply guarantees: Uniper has a long-term agreement with Qatar, but it will only come into effect in 2026. Thus, it is still difficult to say that LNG supplies to the new terminal will reduce domestic gas prices: Germany will have to compete for LNG cargoes on the spot market with other EU countries. In addition, in the coming months, the market expects an increase in demand from China, which has eased anti-COVID measures, cold weather has come to northwestern Europe, which increases demand for gas.

In order to get away from Russian gas, Germany intends to implement six FSRU projects, including the one launched in Wilhelmshaven – five of them are funded by the state, and another private terminal will appear in the port of Lubmin.

It is planned that two more terminals – in Brunsbüttel (RWE Elbehafen LNG project with a capacity of up to 7.5 billion cubic meters) and Lubmin (Deutsche ReGas project with a first phase capacity of 3.6 billion cubic meters) – will be ready for operation by the end of the year, and the rest are expected by the end of 2023. “By the end of next year, we will probably have an import capacity of more than 30 billion cubic meters of gas. This alone corresponds to more than half of the total volume of gas that passed through pipelines from Russia to Germany last year,” said German Chancellor Olaf Scholz at the FSRU commissioning ceremony on December 17.

As long as there is only one regasification terminal, it will not fundamentally change the situation, and gas prices will depend more, for example, on the weather than on the presence or absence of a new FSRU, independent analyst Alexander Sobko believes. The maximum capacity of the terminal in Wilhelmshaven is 7.5 billion cubic meters per year, or about 20 million cubic meters per day. For comparison, this is a little more than a quarter of the current, very small, volumes of Russian pipeline gas exports to Europe, which, in turn, make up only a fifth of the former norm. And the guaranteed capacity of the terminal, in accordance with the applications submitted by gas recipients for booking capacities, is only 5 billion cubic meters. Nevertheless, it makes sense to launch new terminals, Alexander Sobko believes: the recent queue of tankers near European ports suggests that, at least in certain periods, it is the lack of terminal capacity, and not LNG cargo, that is critical for gas supplies to the EU.

Tatyana Dyatel