Home Energy assets LNG exporters face risk of stranded assets despite current demand boom

LNG exporters face risk of stranded assets despite current demand boom


Scrambling desperately for supplies of non-Russian gas to keep lights and heating on this winter, Europe is driving liquefied natural gas (LNG) imports and prices soaring. The short-term economics of LNG projects are attractive. But if the EU wants to achieve its objective target To reduce global gas consumption by 30% by the end of this decade, some LNG infrastructure in both importing and exporting countries could become stranded assets. Instead of supplying LNG for decades to come, some projects may no longer be needed, especially if the LNG market becomes surplus after 2026, as some analysts predict, when several large export facilities are currently under construction at the main exporters, Qatar and the United States. connect yourself.

Gas demand reduction

High prices, energy conservation and the closure of factories or production lines by industries are all expected to lower gas demand in Europe this winter compared to the five-year average. Falling demand could help prevent European gas storage levels from being fully depleted by the end of next winter, Wood Mackenzie analysts say said earlier this month.

Falling gas consumption in Europe, due to demand destruction and energy savings – and the growing possibility of energy rationing— would help gas storage this winter and next, says Wood Mackenzie.

Yet reduced demand alone cannot ensure adequate supply. European economies, the largest of which, Germany, are already reeling from the worsening energy crisisespecially after Russia’s Gazprom shut down the Nord Stream gas pipeline indefinitely.

However, gas remains a key part of the EU’s energy mix, both for heating homes, generating electricity and powering industrial processes. This is why Europe is rushing to build LNG import terminals to receive more gas from sources other than Russia.

Floating LNG import facilities

Currently, the fastest and cheapest option to have more LNG import facilities is to rent floating regasification storage units (FSRUs), said Kaushal Ramesh, senior gas and oil analyst. LNG at Rystad Energy. FinancialTimes‘Alan Livesey.

“There are few use cases better suited for FSRUs than the current situation in Europe,” Ramesh told FT.

Onshore LNG import facilities are much more expensive, take years to build, and ultimately could remain stranded assets if (a big “if”) Europe achieves its goal of reducing consumption emissions by 30% by 2030 and greenhouse gas emissions by at least 55% by 2030, as an interim target on the way to net zero emissions by 2050.

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Thus, Northern European countries are now looking to charter FSRUs for LNG imports to secure gas supply for the coming winters until the EU makes significant progress in reducing consumption. of gas through energy efficiency measures and increased use of hydrogen and renewable gases.

For example, the day in May when Gazprom announced that it cut off all gas supply to Finland with immediate effect, Finland The transmission network company Gasgrid Finland Oy and the American company Excelerate Energy have signed a ten-year lease agreement for the Exemplar LNG terminal to ensure sufficient gas supply in Finland.

“Leasing an LNG terminal is extremely important, as it guarantees the security of gas supply in both Finland and Estonia,” Gasgrid CEO Olli Sipilä said at the time.

In the Netherlands, the gas supplier Gasunie is building a floating LNG terminal in Eemshaven in the Groningen region and this terminal should operate at full capacity in late November or early December. Gasunie says that in the long term, this terminal can be reassigned to the storage of green hydrogen.

Germany, for its part, has already chartered five FSRUs since May, two of which, in Wilhelmshaven and Brunsbüttel, should start their operations at the end of this year.

For the EU and its members, it seems to currently make sense to meet short-term gas needs, while working to reduce gas consumption and rely more on renewable gas, hydrogen and gas replacement in heating and power generation. Therefore, most opt ​​for chartering the cheaper FSRU terminals than spending billions of dollars and years to plan, design, license and build the more expensive onshore LNG import terminals.

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After all, these facilities could become stranded assets in a decade or two.

The same applies to LNG export terminals. Major exporters, the United States and Qatar, have announced major capacity expansions that are expected to become operational after 2026.

While Europe’s energy crisis has strengthened the case for a rush to build new LNG export infrastructure, the EU’s plan to cut gas consumption and emissions could be a problem for investments in LNG that arrived too late for the party.

Investments in new LNG infrastructure expected to increase to $42 billion per year in 2024, Rystad Energy to research shown last month. But 2024 would be the peak of new LNG infrastructure investment – ​​“project approvals after 2024 are expected to fall off a cliff as governments move away from fossil fuels and accelerate investment in low-carbon energy infrastructure,” said the energy research company.

If Europe moves away from LNG to meet low-carbon commitments under the EU’s REPowerEU plan, “there is a growing risk of an LNG glut and a price crash after 2026 as new volumes hit the market,” Simon Flowers, President and Chief Analyst at Wood Mackenzie, said end of August.

By Tsvetana Paraskova for Oilprice.com

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