What LNG can and cannot do to replace European imports of Russian gas

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A crucial part of the European Union’s plan to wean itself off Russian energy is to dramatically increase purchases of liquefied natural gas from other producers. But the EU is not yet equipped to receive enough fuel to fully replace Russian gas. Additionally, there is only a limited amount of LNG to sell on the global market, leaving European countries to battle with big Asian buyers such as Japan and South Korea to secure the supplies they need. to get through the colder winter months.

The places where natural gas is found are often hundreds or thousands of miles away from where it is used in power plants, factories, refineries and homes. It can be transported relatively inexpensively overland via pipelines, but only to fixed points. Over the past six decades, a multi-billion dollar industry has developed to cool gas to minus 260 degrees Fahrenheit (minus 162 degrees Celsius), at which point it turns into a liquid that can be loaded onto ships. refrigerated and sent around the world. At the other end, it must be received in a specially constructed terminal where the fluid is converted back into gas.

2. What can Europe buy?

Global LNG production – led by the United States, Qatar and Australia – is expected to reach 455 million tonnes in 2022, according to figures from Bloomberg Intelligence. Around 70% of on-water cargo is reserved for customers with long-term contracts, while the remaining 30% is sold on the global spot market. This means that around 136 million tonnes of LNG this year will go to the highest bidder. In theory, there is enough LNG on the market to cover EU gas imports from Russia, equivalent to 118 million tonnes of LNG. However, the two dozen import terminals in Europe have spare capacity to absorb only about half.

3. What is Europe doing?

Germany, the biggest buyer of Russian gas in the EU, is building several LNG import facilities, its first, despite its goal to phase out fossil fuels by 2035. It usually takes several years to obtain permits and the billions of euros of financing required. build such terminals. Germany has temporarily allowed a speeding up of the approval process and expects the first two to be operational this winter. Both are on-board floating terminals that can be commissioned within months. The Netherlands was also increasing its import capacity, with plans to add two floating units in September. To move gas from coastal import terminals to demand centers elsewhere, new pipelines are being laid.

4. Why can’t the offer expand easily?

Although a new gas well can be brought on stream in weeks, the approval and financing process for a plant that liquefies the fuel takes years. So, in the immediate term, the world is limited to about four dozen LNG facilities worldwide, as well as some 600 specialized tankers that can carry cargo. A fire at an LNG plant in Texas temporarily destroyed nearly a fifth of US exports in June. Plans to restart the facility after repairs have been delayed until November, worsening the global supply shortage. Substantial new volumes will not hit the global market until the mid-2020s, once Qatar and the United States have built more factories.

5. How does the increase in EU purchases affect other importers?

The standoff between Europe and North Asia’s biggest buyers has sent the price of LNG skyrocketing and contributed to a quadrupling of European benchmark gas prices between early 2022 and late August. Thailand paid twice as much for its LNG supplies in June than a year earlier. For some buyers, the prices were out of reach. Emerging South Asian economies such as India, Pakistan and Bangladesh were expected to rely more on more carbon-intensive fuel oil to generate electricity, intensifying pollution and undermining efforts to contain global warming . The Pakistani government triggered blackouts and hiked electricity bills, while shops in Bangladesh closed earlier as part of energy austerity measures.

More stories like this are available at bloomberg.com

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