Gas supply: Is the federal government exaggerating when it comes to building up LNG capacities?

Gas supply: Is the federal government exaggerating when it comes to building up LNG capacities?

Berlin Federal Minister of Economics Robert Habeck (Greens) defends himself against public criticism, including from his own ranks, for overdoing it with the gas. “We price in risks, plan with safety buffers as a precaution, create flexibility and act in European solidarity,” said Habeck. On Friday morning, his ministry sent a 19-page report to the Bundestag’s Budget Committee that reads like a defense plea.

The report about which the digital news provider first Table Media reported provides new fuel for the discussion on liquefied natural gas (LNG) capacity building. Ever since the Russian war of aggression in Ukraine, Germany has tried to gain independence from pipeline gas from Russia. In autumn 2022, Russia then completely stopped deliveries to Germany.

The federal government wants to close the gap that has arisen in the gas supply, primarily through LNG terminals at the ports in northern Germany. In the opinion of some Greens, she overshoots the mark.

They fear that Germany will be affected by the new Terminals later get rid of climate-damaging natural gas. “In the federal government’s current plans, there are such large safety buffers that there is a risk of fossil overcapacities – with major ecological and economic risks,” said the Greens member of the Bundestag Felix Banaszak the Handelsblatt.

Even in the Federal Ministry of Economics, not everyone is convinced of the approach. The environment of Chancellor Olaf Scholz (SPD) should push to prioritize security of supply. Evidently there was a long struggle over this report. It should have been finished two weeks ago.

The Economics Minister defends his course.  Source: Reuters

Robert Habeck

A look at the details now sheds light on the logic followed by the proponents of a large safety buffer – and what weaknesses the argumentation has.

How much gas is Germany missing?

Even before the Ukraine war, Germany had received gas from other countries. But the majority came from Russia. After the outbreak of war, the supply from other suppliers increased significantly, especially from Norway. Since then, Germany has also been supplied with liquid gas, which arrives at ports in neighboring countries such as Belgium and France.

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At the same time, the demand for gas is falling. Households are converting their heating systems to heat pumps, industry wants to rely on hydrogen. According to the Ministry of Economic Affairs in the report, this is not enough. In 2023 there will still be a supply gap of around 28 billion cubic meters, which will have to be closed by German LNG terminals. By 2030, the gap will narrow to 13 billion cubic meters due to falling gas demand.

The government officials stress that Germany cannot view its situation in isolation from international ones. Only 62 percent of the gas transported through Germany remains in the country. Eastern Europe in particular must increasingly be supplied. Some countries there still get Russian gas, but increasingly want to get rid of it.

How much LNG is planned?

In order to be able to close this gap quickly, Germany relies on LNG ships. These special ships are chartered and parked in front of the ports. The delivered gas, which previously had to be liquefied for transport, is restored to its original state and fed into the supply network.

>> Read here: Russia continues to supply many EU countries with gas

The federal government chartered five of these special ships last year. It has already been put into operation at the Wilhelmshaven and Brunsbüttel sites. They are to start at the other locations Wilhelmshaven II, Stade and Lubmin next winter. A sixth special vessel organized by private companies has been active off Lubmin since early 2023.

The special ships are to create additional capacity for gas imports of 13.5 billion cubic meters in 2023. This has not closed the gap of 28 billion cubic meters created by the lack of Russian gas. However, because the gas storage facilities in Germany are full to an above-average extent, there should not be a shortage of gas this winter or next.

The special ships are a quick but expensive solution. For this reason, three permanent LNG terminals are to be built in Germany’s ports. The federal government has a half stake in one, and the other two are private projects.

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>> Read here: Gas storage level is currently 69 percent

They should all be operational between 2026 and 2027. Then the annual German LNG capacity will increase to 54 billion cubic meters – and exceed the supply gap by more than 40 percent.

Does this government plan make sense?

Not only will the new LNG capacities exceed the supply gap more and more over the years. The ministry officials also calculate extremely generously in the report. There is reason to believe that the overcapacities are even larger than shown.

In the report, the highest possible scenario is chosen when estimating gas consumption. A further ten percent consumption is then added to this as a “risk premium”. There are also considerations that the federal government would charter a sixth LNG ship and place it off the Baltic Sea island of Rügen.

In addition, the situation in neighboring countries is assumed to be static. In Eastern Europe, however, demand is also likely to fall, meaning that these countries will need less gas from Germany. “The report raises new questions,” criticized Green politician Banaszak. “In order to achieve the climate goals, it is not an option to use the planned capacities.”

Sascha Müller-Kraenner, Federal Managing Director of the German Environmental Aid, also complained: “Contrary to all budgetary caution and scientific recommendations from leading institutes, billions of taxpayers’ money are being invested in oversized LNG infrastructure, which is unnecessary for our energy security.” 9.8 billion euros the federal government has planned between 2022 and 2038 for its LNG plans, but there are likely to be more.

When it comes to the “scientific recommendations of leading institutes”, Müller-Kraenner refers to a study on the global gas markets that the Energy Economics Institute at the University of Cologne (EWI) carried out on behalf of the federal government. The study shows that the planned German LNG terminals would be 100 percent utilized in 2035 if Russia also stops supplying gas to Eastern Europe by then and if global gas consumption does not fall in line with climate targets.

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If Russia continues to deliver gas to the east as before, or if climate targets are at least partially pursued and thus gas is saved, the study says that the terminals will only be used to 16 to 38 percent capacity in 2035, depending on the scenario. In 2026, even in the worst scenario in which gas consumption does not fall, they will only be used to a maximum of 75 percent.

>> Read here: How secure is the gas supply next winter?

The Ministry of Economy defended itself in the report. The import capacities should not be “sewn on edge”. “Rather, the infrastructure must be designed in such a way that consumption peaks (e.g. a particularly cold winter) or the temporary failure of individual components can be reliably covered.”

A possible failure of infrastructure or deliveries does not play a role for the critics. This also applies to the EWI study. After the act of sabotage on the Nord Stream pipelines, the federal government is particularly concerned about similar incidents on the gas pipelines from Norway to Germany. Union faction vice Jens Spahn jumps to the side of the government. “In the crisis, it’s better to have than you need,” said Spahn.

With a view to the climate issue, the officials point out that the LNG terminals could be converted to climate-neutral hydrogen: “The planned fixed LNG infrastructure will be prepared for climate neutrality to be achieved by 2045.” And just because there is more capacity, it has to you do not use them.

The debate is obviously based on both factors that can be influenced more easily and factors that cannot be influenced at all. Who will be right in the end will only become clear in a few years.

Cooperation: Catiana Krapp

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