Faced with the risk of ending up with very expensive installations that will “rust” unused, Europe, in the event that the construction projects for several LNG terminals along the coast of the old continent are implemented.
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Europe rushed to switch to liquefied natural gas after Russia invaded Ukraine in late February 2022. But 15 months later, it looks like they…have overdone it: as reports Bloomberg, if the plans are implemented, total capacity will have significantly exceeded LNG demand after 2030, by which time RES penetration is expected to have exploded. This would make infrastructure worth billions of euros unnecessary.
“Part of the investment in LNG import infrastructure has been made by the markets on the assumption that there will always be demand somewhere in Europe,” said Ogan Kose, managing director of the specialist. natural gas Accenture Plc. However, he notes, if each country aims to have its own LNG import capacity, and given that markets are not going to operate in a cooperative manner, Europe should find itself burdened with costly infrastructure that does not will not work.
For now, while the energy crisis remains at the center of concerns, new terminals are still emerging in many countries. Italy is approaching the opening of its fourth factory. Germany is pushing to develop its fourth floating terminal off the Baltic island of Rügen. Other projects are planned in countries such as Estonia and Greece.
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However, estimates of LNG demand vary. S&P Global Commodity Insights expects LNG markets to peak in 2028-29, before slowing over the next decade, but to levels that could be even higher from 2022. Some other industry watchers see a larger drop in consumption in the 2030s.
At the same time, Europe’s LNG import capacity could increase by around 50% by the end of this decade, according to the Institute for Energy Economics and Financial Analysis. And a figure of 25% might turn out to be unnecessary at some point.
Europe is “flooded” with natural gas
Europe survived the crisis last winter without major supply disruptions due to exceptionally mild weather, lower energy consumption and an influx of liquefied natural gas. As a result, natural gas storage levels are now much higher than normal for the time of year.
Yet ships are transporting record levels of liquefied natural gas to Europe as risks loom for next winter. On peak days, the existing facilities operate at full capacity, leaving the LNG carriers at sea waiting to unload their cargoes.
For now, according to Bloomberg, Europe has no choice but to build new infrastructure to meet current LNG demand. Terminals are not built to operate at full capacity all year round, and it is common to have an average annual utilization rate of 50% to 70% or less.
The region could add two to four more floating terminals on top of those already planned, said Thomas Thorkildsen, commercial director of Hoegh LNG, which has supplied Germany with two such units for 10 years.
“We are seeing strong interest in increased capacity in several countries in northwestern Europe,” he said in an interview. “However, there are opposing views and political processes and decisions must be completed before commitments can be made.”
However, there are concerns about the possibility of weak long-term demand. The European Union can reduce its natural gas consumption by nearly 45% by 2030 by switching to renewable energy sources, according to a scenario by the International Energy Agency.
Indeed, the capacities of certain existing terminals in Europe are blocked until 2045 or even 2050, according to Elengy SA, which operates three land terminals in France and recorded a record average utilization rate of 95% last year.
The EU, according to the economic agency, sees additional capacity as a regulatory factor to ensure energy security. In addition, floating storage units can act as LNG carriers if demand for capacity decreases. They may also be transferred to other locations, such as developing markets in Asia. Some new terminals could be converted to use other products, such as ammonia or hydrogen.
Europe will still need LNG even after 2030, said Esther Ang, head of LNG at Swiss trading firm MET International AG. Other export projects – from the United States to Qatar – will deliver larger quantities, flooding the markets.
“There are more LNG projects in the world today than in the past,” she said in a recent interview in Amsterdam. “There will be times when these assets are absolutely needed, and times of potentially weaker demand – but the goal is to manage that risk.”