Liquid Gas

Global energy buyers, fearing dependence on Russian gas, look to Qatar

Erdgas a Russian worker
A Russian Gazprom worker checks a regulator at a gas pipe near the Ukrainian border.
  • Why it matters

    Why it matters

    New energy supplies could reduce the estimated €10 billion that Germany sends to Russia each year to purchase natural gas, limiting Russia’s ability to use its energy exports as a political weapon.

  • Facts

    Facts

    • Germany needs to become less dependent on Russian energy and to build its own liquid natural gas terminal.
    • Twenty E.U. countries already have LNG terminals including the Netherlands, Belgium and Spain.
    • Of the seven terminals under construction, two are located in the Baltic countries.
  • Audio

    Audio

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Germany buys almost 40 percent of its natural gas from Russia, sending €10 billion ($13.4 billion) a year Moscow’s way. But the real price is much higher, because Germany is making itself dependent on an increasingly unpredictable country, one that repeatedly abuses its gas shipments as an instrument of power.

In 2009, when Russia stopped the flow of gas to Ukraine, hundreds of thousands of households in southeastern Europe had their gas cut off in the middle of the winter. In the current Ukraine crisis, Russia has also warned Europe of possible bottlenecks. European Union Energy Commissioner Günther Oettinger even proposes that EU member states perform stress tests to simulate the loss of gas deliveries from Russia.

At the moment, no one believes that Germans could soon be without heat. Domestic reserves are too large, and temperatures are too high in the summer. But the old argument that nothing will happen because Russia is just as dependent on German payments as Germany is on Russian gas no longer applies. Not to a country that is allowing the conflict with the West to keep escalating, even if it inflicts serious harm on the domestic economy. Germany can no longer expect Russia to act in its economic self-interest.

What should Berlin do? To reduce its dependency on Russia, Germany must take advantage of all technical and economic options, including the construction of a liquefied natural gas terminal.

Germany’s energy dependence on Russia increases its vulnerability and possibly even its susceptibility to blackmail. This makes Berlin abundantly cautious, as its response to the Ukraine crisis has shown. While Chancellor Angela Merkel must constantly consider how sanctions against Russia will affect her energy policy, the United States is largely independent of Russian gas deliveries and can act more decisively.

What should Berlin do? To reduce its dependency on Russia, Germany must take advantage of all technical and economic options, including the construction of a liquefied natural gas terminal, which other countries have had for a long time. The plans for a German terminal have been on the back burner for years, and the necessary infrastructure already exists in the North Sea port of Wilhelmshaven. So while there is an alternative to Russian gas, what is currently lacking is the will to move forward. Construction could begin the minute that hurdle is overcome.

Germany currently gets most of its natural gas through pipelines. One is the Transgas pipeline, which brings gas from Siberia to Europe through Ukraine. Another is the Jamal pipeline, which passes through Belarus and Poland. What they have in common is that most of the gas they transport comes from Russia. There is no pipeline that delivers American or Australian natural gas.

 

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Burning flames from a gas well north or Doha, Qatar. Source: AFP

 

In contrast, LNG can be shipped from anywhere. First it has to be cooled to -160°C (-256°F), so that it liquefies and can be shipped with special tankers. In theory, the technology should allow Germany to buy its natural gas from anywhere in the world. The catch is that special terminals are needed to accommodate the tankers, and Germany lacks these terminals.

Ironically, the German Liquefied Natural Gas Terminal Company was established in Wilhelmshaven more than four decades ago, in 1972. On its website, the company describes its purpose as “receiving, storage, processing and re-gasification of LNG, and construction and operation of the necessary facilities.” This is precisely what Germany would need to reduce dependency on Russia by purchasing LNG elsewhere.

But not much has happened since 1972. The permits have all been issued, and yet the giant construction site on Jade Bay has been vacant for decades. In 2007, even Mrs. Merkel voiced her support for the planned terminal, saying it would be “smart not to become dependent on one supplier.” For that reason, she added, the government was thinking about LNG, “which includes the construction of a large terminal in Wilhelmshaven.”

Germany is apparently still thinking about it, while other countries have long moved ahead. There are now 20 terminals to accommodate the importation of LNG to the European Union, including facilities in the Netherlands, Belgium and Spain. Of the seven terminals still under construction, two are in the Baltic countries, which aim to reduce their dependency on Russia.

So why is nothing happening in Germany, of all places? The arguments against the construction of an LNG terminal cannot be ignored, but they can certainly be refuted. The first argument is that building a terminal would be a losing proposition. This is the position taken by energy giant E.on, the majority shareholder in the German LNG terminal company. It’s understandable that E.on doesn’t want to foot a construction bill of up to €1 billion. LNG is now too expensive to compete with pipeline gas from Russia, which costs half as much. That’s why some European LNG terminals are not operating at full capacity. But this could change soon, as more and more countries export LNG, bringing down the costs of the technology.

Still, E.on doesn’t want to take the risk alone. This is where the political world should come in, but it feels that it isn’t responsible. Officials at the German Economics Ministry point out that the decision on whether to build an LNG terminal is purely up to the investor. But they’re wrong. The question of where Germany gets its natural gas is highly political – more so than ever before. When the security of Germany’s energy supply is at stake, politicians cannot simply deny responsibility.

Taxpayers will clearly subsidize construction of the LNG terminal, but that’s simply the price Germans will have to pay to become less dependent on Russia.

What would be the upside? LNG terminal opponents argue that the countries that export liquid gas are no better than Russia, and they have a point. Qatar, the world’s largest exporter, has attracted attention recently because of the inhumane conditions endured by workers preparing its infrastructure for the 2022 FIFA World Cup. The second-largest exporter, Malaysia, isn’t exactly a model democracy, either.

But Germany’s main goal should be to reduce its energy dependency on a single country. It makes Germany susceptible to blackmail, so that it runs the risk of having its gas shut off. This is why the country should diversity its supply of imported natural gas, focusing more on Qatar and less on Russia.

Being dependent on Russia makes Germany vulnerable, potentially susceptible to blackmail, and certainly cautious.

Translated from the German by Christopher Sultan

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