LNG imports

Ports compete to build 'white elephant' gas terminal

LNG 1800×1200
A load of hot air. Source: Reuters

Three German cities are competing to become the site of Germany’s first import terminal for liquified natural gas (LNG). Whichever of Stade, Brunsbüttel and Wilhelmshaven, all located on or close to the country’s North Sea coast, wins the contract, they will likely be helped by substantial federal government subsidies.

Plans to liquefy gas from the North Atlantic coast of the United States and Canada are well advanced, and German energy giant Uniper agreed to a 20-year deal to buy LNG from Pieridae, the Canadian enterprise behind the scheme.

After liquification, the gas would be shipped across the Atlantic in tankers. But as yet there are no ports in Germany with an LNG terminal equipped to process the gas and deliver it into the national network.

Berlin is very keen to see the infrastructure developed, citing the need for energy supply diversification. The Economic Affairs ministry indicated that it is willing to guarantee loans for half of the investment needed. The government’s spokesman on maritime affairs confirmed the taxpayer may also directly contribute tens of millions of euros.

Take the money, please!

With so much public money up for grabs, it is unsurprising that the three ports are competing to host the terminal. But as of yet, none of the three have raised enough private funds to cover the difference. The total investment required is estimated at half a billion euros.

This reflects the reality of the LNG supply market in Europe. Although Germany has no terminal, there are more than 30 in the rest of Europe, including Poland and the Netherlands, which could deliver to the German market. In fact, oversupply in LNG infrastructure means many terminals are running at 25 percent capacity. A new terminal in northern Germany is unlikely to ever make a profit.

So why the rush to build? The answer is Donald Trump. When Mr. Trump’s administration ratcheted up trade tensions with Europe earlier this year, one of his complaints was Germany’s reliance on Russian gas and its failure to import American gas.

The German government, which never previously lamented the lack of an LNG terminal, saw a chance to make a relatively harmless concession. A small price to pay to stop a damaging trade war, especially since Berlin continues to support Nord Stream 2, a controversial new pipeline which will bring even more Russian gas to Germany.

Wherever it is delivered, LNG is unlikely ever to be competitive with Russian gas, which can be pumped directly into the grid, without the elaborate processing needed by LNG. “Compared to other gas sources, liquefied gas is simply not competitive,” said Thomas Kusterer, CFO at energy utility EnBW.

However, Saad Al Kaabi, CEO of Qatar Petroleum, the world’s largest LNG producer, wants to compete with Nord Stream 2 and supply gas to Germany. “We are very seriously interested in a stake in a German LNG terminal and are talking with both companies — Uniper and RWE,” he said.

Comparatively little LNG has so far been shipped across the Atlantic. In 2016, Europe imported 2.8 billion cubic meters of LNG, a fraction of the 420 billion cubic meters supplied by Russia, Norway and the Netherlands.

Hope for ships

Nonetheless, with public investment apparently guaranteed, German ports are busy making the case. Stade’s bid is backed by a consortium including the US chemical giant Dow, but may be hampered by the river port’s location, relatively far inland. The involvement of Chinese investors may also not play well in Berlin.

The coastal port of Brunsbüttel in the state of Schleswig-Holstein can offer room for massive tankers to maneuver. Earlier this week, RWE, one of Europe’s leading energy companies, and the joint venture German LNG Terminal GmbH, supported by the Dutch state-owned energy supplier Gasunie, reached a long-term agreement for a “significant capacity volume” of a future terminal.

Wilhelmshaven, on the North Sea coast, offers the best access to shipping and is already connected to the domestic gas grid, but doesn’t have a private investment partnership.

Supporters of an LNG terminal say that state subsidies will be needed until there is adequate demand. Hardly the most promising sales pitch. But proponents are placing their hopes on the urgent need to find a new, clean maritime fuel.

Currently, most large ships burn heavy fuel oil, which emits large amounts of sulfur and other pollutants. New international rules mean shipping must radically cut emissions from 2020 on. LNG’s proponents say it is the ideal replacement shipping fuel. However, other observers point out that converting engines to run on gas is not simple, and filtering systems offer a viable alternative solution.

A version of this article appeared in the business weekly Wirtschaftswoche, a sister publication of Handelsblatt Global. To contact the author: wirtschaft@wiwo.de

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