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Permalink Reply by Skip Peel - Mineral Consultant on February 20, 2022 at 13:36

This NYT article is a good overview of the situation in Europe especially Germany.  In the short term, a boost for US LNG.  In the long run, an accelerated transition to renewable energy.  Renewables will take a decade or more to replace natural gas but when that happens the future of US LNG is uncertain.  Will increased export capacity run up against a slowing demand?  Will other buyers of US LNG replace the demand from Europe?

Germany Tries to Loosen Its Ties to Russian Gas Pipelines

An increasingly belligerent Russia, an energy crunch and a new Green minister of economics all add up to a change of direction in Germany’s policy on natural gas.

nytimes.com Feb. 14, 2022

BERLIN — For decades, Germany has been a steadfast consumer of Russian natural gas, a relationship that has seemingly grown closer over the years, surviving Cold War-era tensions, the breakup of the former Soviet Union and even European sanctions against Moscow over its annexation of Crimea. Until this winter.

Since November, the amount of natural gas arriving in Germany from Russia has plunged, driving prices through the roof and draining reserves. These are changes that Gazprom, Russia’s state-controlled energy behemoth, has been regularly pointing out.

“As much as 85 percent of the gas injected in Europe’s underground gas storage facilities last summer is already withdrawn,” Gazprom said on Twitter a couple of weeks ago, adding that “facilities in Germany and France are already two-thirds empty.”

With tensions between the West and Russia over Ukraine — a key transit country for Russian gas — showing few signs of easing, Germany’s new minister for the economy and climate change, Robert Habeck, has begun to raise an issue that was unthinkable just a year or two ago: looking beyond Russia for the country’s natural gas needs.

“The geopolitical situation forces us to create other import opportunities and diversify supply,” Mr. Habeck, who is a member of the environmentalist Greens, said last week. “We need to act here and secure ourselves better. If we don’t, we will become a pawn in the game.”

Now the government is reviving plans for building a terminal for liquefied natural gas, or L.N.G., on Germany’s northern coast. That proposal, long pushed by Washington, was previously shelved as being too costly. But in recent months, liquefied natural gas, arriving via giant tankers from the United States, Qatar and other locations, has become a vital source of fuel for Europe as supplies piped in from Russia have dwindled.

Europe has more than two dozen L.N.G. terminals, including ones in Poland, the Netherlands and Belgium, but the one proposed for Germany’s coast would be the country’s first.

The government is also considering rules that would require energy companies to maintain a base level of natural gas in reserve. Last week, the amount of natural gas in the country’s storage tanks had dropped to 35 to 36 percent, the government said, below the level considered necessary at the start of February to survive a week of bitter cold. Roughly a quarter of all Germany’s natural gas capacity is held in facilities owned by Gazprom, including the country’s largest underground tank.

These moves are in addition to efforts to build more renewable sources of power, such as expanding wind and solar capacities.

Natural gas is an increasingly critical source of energy for Germany. Last year it accounted for nearly 27 percent of the energy consumed, according to government figures, an increase from 2020 that is expected to continue when the country shutters its last three nuclear power plants in December and works to phase out coal-burning power plants by 2030. And two-thirds of the gas Germany burned last year came from Russia.

For years, Germany’s Western and European partners — especially the United States, Poland and the Baltic countries — have expressed concern over Germany’s reliance on Russia for natural gas. Construction of a pipeline called Nord Stream 2 was completed last year and further outraged Germany’s partners. The pipeline runs 746 miles under the Baltic Sea from the Russian coast near St. Petersburg to northeastern Germany.

German allies’ repeated warnings that President Vladimir V. Putin of Russia could use the link as a way to exert energy blackmail over Europe fell on deaf ears in Berlin, where, as recently as December, Chancellor Olaf Scholz referred to the $11 billion pipeline as “a private-sector project.”

Even as Germany tries to become more independent of Russia, Nord Stream 2 is a continuing reminder of a tight relationship.

The undersea pipeline is owned by a subsidiary of Gazprom, but it was financed with money from European energy companies. Two German energy companies, Uniper and Wintershall DEA, along with Austria’s OMV, Energie from France and Shell, put up a total of 950 million euros (about $1.08 billion) in 2017, providing half the cost of construction.

The pipeline has yet to begin operating, as it awaits approval from a German regulator that is not expected before the second half of this year. But last week, President Biden told reporters in a news conference with Mr. Scholz that if Russia invaded Ukraine, “then there will be no longer a Nord Stream 2,” adding: “We will bring an end to it.”

Standing nearby, Mr. Scholz noticeably didn’t match those words. Although he no longer insists the pipeline is purely an economic undertaking, he has not yet been as forthcoming about preventing it from operating. The financial implications of such a move may be part of his reasoning.

If the German government prevents the pipeline from ever going into operation, it could potentially be liable for damages owed to the companies involved, including claims for the years that it should have been in operation.

Those costs could run as high as €40 billion, according to estimates worked out by Jonathan Stern, a distinguished research fellow at the Oxford Institute for Energy Studies.

“This is only if it is assumed that the pipeline never operates,” he said in an email, stressing that the calculation was based on a lot of assumptions. “It could be claimed that it is just ‘delayed,’ i.e. that it could start up in a few years if ‘circumstances change.’”

The ties binding Germany to Russian gas are more than financial. Gerhard Schröder, who preceded Angela Merkel as chancellor from 1998 to 2005, is known for his cordial ties with Mr. Putin. He is the chairman of Rosneft, the Russian state oil firm, and chairman of Nord Stream, the subsidiary of Gazprom that owns the pipeline, and has been nominated to join the board of Gazprom.

Recently, the chief executive of a company that gave Nord Stream 2 financial backing, Alfred Stern of OMV, warned against singling out the pipeline when gas levels in Europe were low and prices high.

“I believe that neither Nord Stream 2 nor any other distribution channels need to be seen in isolation,” Mr. Stern said. “We should be aware of the fact that we need gas in Europe — there is a shortage of gas, production levels are going down, and demand now and in the near future will remain high.”

And the market for liquefied natural gas may tighten. Concern is growing in the United States that the push to export natural gas is disrupting the domestic market, driving up prices for Americans who rely on it to heat their homes.

“There has been a lot of talk about energy transformation, diversification away from Russia, but realizing we still depend very much on natural gas and Russia,” said Kirsten Westphal, executive director of the H2 Global Foundation and a member of the German Hydrogen Council.

The ultimate solution to this problem, she said, is to focus much more resources on developing clean replacements for natural gas, including hydrogen, which many hope could eventually replace the fossil fuel in existing pipelines and power plants.

“Now is the time for the government to really push for green and clean gases and to quickly transition to green and climate-neutral hydrogen and make the infrastructure hydrogen-ready,” she said.

While that remains the German government’s goal, leaders in the interim have been forced to acknowledge the reality of their reliance on natural gas from Russia and the dangers that dependence poses to Europe’s largest economy.

“Germany is still highly dependent on imports of fossil fuels,” Mr. Habeck told lawmakers last month, acknowledging that the expansion of renewables would not happen overnight or without resistance from some corners. “Strategically, it is the right thing to do, not only to protect the climate but also to increase the resilience of the German economy.”

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Permalink Reply by Steve P on February 21, 2022 at 6:20

The article mentions in passing the shutdown of German's 3 last nuclear power plants.  In my view, shutting down all of those plants in Germany was a strategic error.  Nuclear power generates no green house gases, but it does have spent nuclear fuel waste to be dealt with.  Nevertheless, Germany's dependence on NG rose substantially with the phase out of nuclear.  It's plans for conversion to renewables was overly optimistic, and the Country is now paying the price.

It isn't clear to me how any American President can "shut down" a pipeline in Europe, although Trump asserted that he had stopped it and then Biden asserted that he "would allow" it to be completed.

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Permalink Reply by Skip Peel - Mineral Consultant on February 21, 2022 at 10:08

Nord Steam 2 will be completed but as the article mentions the legality and financial liability of prohibiting its use is dicey.  Although the closing of the nuclear plants may have been premature, Fukushima was the straw that broke the European dependence on nuclear.  IMO the mistake was not realizing that Putin would use Nord Stream 2 as a weapon against Germany.  The closing of the nuclear plants should have created a fast track construction of natural gas storage to support the transition to renewables.

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Permalink Reply by Mister Sunday on February 22, 2022 at 7:27

  I just read that Nord Stream 2 has been completed for more than five months without a single delivery having been made through it.  the article also stated that with the current situation it is politically dead.

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Permalink Reply by Skip Peel - Mineral Consultant on February 22, 2022 at 9:03

It has not been certified for service by the German government.  Here's hoping that Europe has an early and mild spring.

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Permalink Reply by Skip Peel - Mineral Consultant on February 22, 2022 at 13:28

CNN excerpt.

Energy is a major political issue in central and eastern Europe, where gas supplies from Russia play an essential role in power generation and home heating. Natural gas prices have set new records this winter in Europe, and a conflict in Ukraine could bring more pain to consumers.

On Tuesday, the benchmark price of natural gas for delivery in Europe next month leaped to about €79 ($89.54) per megawatt hour, up from €71.50 ($81.04) at Monday’s close, according to data from Independent Commodity Intelligence Services.

Prices have dropped from record highs hit just before Christmas. Still, they remain significantly above where they stood one year ago, when gas traded at €16.30 ($18.47) per megawatt hour.

Analysts said the fight over Nord Stream 2 shouldn’t dramatically change the price outlook for this winter. The pipeline hadn’t been expected to come online until the second half of the year, noted Tom Marzec-Manser, head of gas analytics at ICIS.

Still, Dmitry Medvedev, deputy chairman of Russia’s Security Council, warned after Germany’s announcement that prices in Europe would skyrocket.

“Welcome to the brave new world where Europeans are very soon going to pay €2,000 for 1,000 cubic meters of natural gas,” he tweeted.

Marzec-Manser said that would be equivalent to approximately €215 ($243.75) per megawatt hour, roughly 20% above the record high reached in December.

Europe is in better shape than it was a few months ago after ramping up imports of liquefied natural gas, or LNG, in January and early February, according to Henning Gloystein, director of energy, climate and resources at Eurasia Group. Weather has also been relatively mild.

Yet a lot rides on what happens next.

LNG from the United States and Qatar will help the bloc withstand any disruptions to gas flows though Ukraine, which account for about 10% of total supply to the European Union, should pipelines be damaged in fighting.

But if Moscow, which has already reduced its gas exports to Europe, decides to choke them off further in response to Western sanctions, it could dramatically escalate the situation.

“If Russia stops sending any gas to Europe, there isn’t enough LNG to cope with that,” Gloystein said.

He said Russia is not expected to take such a drastic step since it would also hurt Gazprom, but it remains a possibility given Putin’s recent aggression.

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Permalink Reply by Mister Sunday on February 23, 2022 at 3:49

An MWh is equal to 3.4095106405145 MMBtu

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Permalink Reply by full name on February 23, 2022 at 5:02

The EIA gives a good overview of prices, demand and shipments.  In the Overview section there is an International section. Provides prices for both Europe and Asia.  Prices are in MMbtu making it easy to compare.  This comes out weekly.  Next update is tomorrow  (see note at top of the web page).

https://www.eia.gov/naturalgas/weekly/

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Permalink Reply by Skip Peel - Mineral Consultant on February 24, 2022 at 14:02

I guess we will now find out.  Ukraine will be a Russian puppet state.

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