An oil tanker Trident Hope unloads its fright in the oil port of Wilhelmshaven, northern Germany, on June 10, 2008. The U.S. has pledged to help maintain Europe's energy supply by boosting exports of liquefied natural gas if Russia were to invade Ukraine.Joerg Sarbach/The Associated Press
Europe is suddenly obsessed with liquefied natural gas, a minor but growing source of imported fuel that could play a key role in keeping the lights on if a Russian invasion of Ukraine triggers a sanctions battle.
Energy-starved Europe is already scouring the planet for LNG shipments to build its gas reserves and try to stop already painful prices from climbing even more. But energy analysts say there is no way Europe would be able to find enough LNG to meet its demands if Russia were to eliminate, or even reduce, gas exports.
“Even before the Russia-Ukraine geopolitical tension, the global LNG market was very tight,” said Jack Sharples, a research fellow with the gas research program at the Oxford Institute for Energy Studies, in an interview. “We in Europe are not suffering from a physical shortage of gas at the moment, though we are aware that if any particular source of supply were to falter, we would find it difficult to replace it.”
Canada has the natural gas, but can’t get LNG to Europe
LNG is largely an American, Qatari and Australian export phenomenon, and each of those countries is expanding production – a slow, capital-intensive process – to meet burgeoning demand. Europe has been the top export destination for U.S. LNG for two months, outpacing its exports to Asia. But that could change overnight if Asian storage tanks were to run low; so far, a warmer-than-usual winter has ensured fairly high reserves, allowing some LNG shipments originally destined for Asia to be diverted to Europe.
Mr. Sharples thinks the LNG market will keep expanding, all the more so since so many countries, including Germany and China, plan to eliminate their coal burners over the next few decades to achieve net-zero emissions.
Canadian LNG, he said, would be welcomed in the European and Asian markets. So far, only one Canadian export project, LNG Canada, in Kitimat, B.C., is under construction. “If more Canadian projects were to receive the green light, they would find markets with no problem,” he said. “The displacement of gas, a fossil fuel, in the world economy will take decades.”
Making LNG involves chilling the gas to -160 C, at which point it becomes a liquid with a volume 600 times smaller than that of its gaseous state. The LNG is then loaded onto ships with spherical, insulated tanks and delivered to import terminals, which warm it back into a gas and feed it into storage tanks or pipeline systems, making it ready to burn almost immediately after delivery.
Europe, including Britain, is highly dependent on imported gas to meet its energy needs – from heating homes and factories to generating electricity and producing ammonia-based fertilizer. Last year, Europe imported 84 per cent of the gas it required, a third of which came from Russia, its biggest single supplier (Norway is No. 2, followed by Algeria). Most of the gas arrives through pipeline. According to the Oxford Institute for Energy Studies, less than a fifth comes in the form of LNG.
Germany, Europe’s biggest economy, is far more dependent on Russian gas than the rest of the continent. It typically buys 50 per cent or more of its imported gas from Kremlin-controlled Gazprom, the world’s largest stock market-listed gas company, making it Gazprom’s single biggest client.
Were Russia to invade Ukraine, gas would land at the centre of the sanctions campaign. It is already at the centre of the sanctions debate.
On Monday, after meeting with German Chancellor Olaf Scholz at the White House, U.S. President Joe Biden said, “We will bring an end to it,” referring to the new Nord Stream 2 pipeline between Russia and Germany, which has been built but is not yet operating. (Mr. Scholz declined to assure Mr. Biden, at least publicly, that the pipeline would never be approved if Russia were to invade.)
Killing off the pipeline could trigger Russian retaliation that may see Gazprom send less gas to Europe. The International Energy Agency has already accused Russia of withholding potential extra supplies to Europe, jacking up the price to record levels as the pandemic recovery boosts demand for energy. On Feb. 8, the price for gas at the Dutch gas trading platform, the benchmark for European wholesale prices, was US$26 for every million British thermal units (BTUs). Exactly a year ago, it was only US$7.
The skyrocketing price and the threat of a sanctions war explains why Europe is desperate for LNG, a fuel that can be moved fairly quickly from one port to another, such as crude oil, depending on who is willing to pay the best price. But Europe is at a distinct disadvantage when it comes to securing LNG supplies quickly.
The reason: Eastern Asia is largely dependent on LNG, rather than pipeline gas, and would not be happy to see a lot of its shipments diverted to Europe. Chinese demand for LNG is voracious – it is the world’s largest importer.
European imports by supplier
2021 monthly average, in millions of cubic metres per day
500
450
400
Norway
Russia
350
LNG
300
250
200
150
100
N. Africa
50
Azerbaijan
0
J
F
M
A
M
J
J
A
S
O
N
D
the globe and mail, source: the oxford
institute for energy studies
European imports by supplier
2021 monthly average, in millions of cubic metres per day
500
450
400
Norway
Russia
350
LNG
300
250
200
150
100
N. Africa
50
Azerbaijan
0
J
F
M
A
M
J
J
A
S
O
N
D
the globe and mail, source: the oxford
institute for energy studies
European imports by supplier
2021 monthly average, in millions of cubic metres per day
500
450
400
Norway
Russia
350
LNG
300
250
200
150
100
N. Africa
50
Azerbaijan
0
J
F
M
A
M
J
J
A
S
O
N
D
the globe and mail, source: the oxford institute for energy studies
“This dependency on LNG has traditionally led Asian buyers to pay a premium in order to secure cargoes ahead of European buyers,” Mr. Sharples said. “Those Asian buyers will only allow cargoes to be redirected to Europe if they have sufficient volumes to meet their own needs first. The LNG markets are very tight now. If Asia can’t spare some LNG, then Europe would be in trouble.”
There simply is not enough LNG worldwide to solve Europe’s problem if a gas war breaks out with Russia. Germany, alone among the big European economies, even lacks an LNG import terminal, suggesting the country took the view that Russian gas would be forever reliable and cheap.
While LNG production and exports are increasing – the United States became the leading exporter of the fuel in December, although Qatar is expanding production quickly, too – most of the world’s LNG plants and import terminals are operating at capacity or close to it.
Europe still imports the vast majority of its gas by pipeline, so even if global LNG supplies were to rise suddenly, there is no guarantee the extra shipments would overcome the continent’s energy shortages. In 2019, total U.S. and Qatari exports of LNG to all markets was less than the amount of gas exported by Russia to Europe.
The European energy crisis will trigger the construction of LNG import terminals. Germany has at least two proposals that could get under way soon, after years of delays. “The government’s plan is to develop LNG terminals in Germany,” spokesman Steffen Hebestreit said at a recent news conference. “Liquefied natural gas is one of the energy supply alternatives to gas imported from Russia.”
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.
Eric Reguly