Europe urged to invest in LNG infrastructure as winter gas crisis looms

Network operators have called for investments in liquefied natural gas (LNG) infrastructure in order to prevent supply shortages as gas flows from Russia hit record lows ahead of a scheduled ten-day maintenance of the Nord Stream 1 pipeline.

Gas flows from Russia have been steadily decreasing over the past months, declining to 31% of EU imports in April this year, down from 45% at the same period last year.

The EU aims to have its gas stores 80% full by November, and many countries are now counting on rising LNG imports from the US and Qatar to fill the gap.

But increasing imports also requires investment in new LNG infrastructure, which risks being left stranded as Europe moves to decarbonise its economy and reduce its reliance on fossil fuels.

“Frankly speaking, the cost of stranded assets is probably quite small compared to the cost of being cut off in the middle of winter,” argued Alex Barnes, a visiting fellow at the Oxford Institute for Energy Studies who spoke at a recent EURACTIV event.

Others say the gas crisis should be seen as a turning point in how infrastructure costs are considered. “Infrastructure that made security sense but did not make business sense was not built,” remarked Tomáš Prouza, special envoy of the Czech ministry for trade and industry.

“We need to change, and we need to invest into security. That is something I think we finally understand,” added Prouza, whose country currently holds the EU’s six-month rotating Council presidency.

Those calls were echoed in Berlin as well.

Yasmin Fahimi, the freshly elected head of Germany’s leading trade union DGB, had warned of a “serious emergency” on Sunday (3 July). 

“Because of the gas shortages, entire branches of industry are threatened with permanent collapse: Aluminium, glass, the chemical industry. Such a collapse would have massive consequences for the entire economy and jobs in Germany,” she told the daily Bild.

A full cut in Russian supply to Germany in August would see a demand destruction of 20 to 25 billion cubic meters (bcm) of gas, which represents 27% of the country’s consumption in August 2021, analysts told Bloomberg.

Over the past months, the German government has spent billions to acquire floating LNG terminals ahead of the winter season, and passed emergency laws to speed up construction of new gas import infrastructure. Without LNG imports, Germany is guaranteed to enter a gas shortage in the coming winter, according to projections by the federal network agency.

Climate advocates, meanwhile, have warned against increased investment in LNG, saying new infrastructure will lock Europe into fossil fuels for many years to come, and raise the risk of overcapacity as well as stranded assets.

A paper published in Nature Energy on 4 July hammered the point home, reminding that “natural gas is a fossil fuel with a significantly underestimated climate impact that hinders decarbonisation through carbon lock-in and stranded assets.”

German LNG accelerator law under fire by environmental NGOs

The German government, rushing to reduce its reliance on Russian gas, is about to enact a law that will accelerate the construction of liquified natural gas infrastructure. Germany will then be able to import LNG from anywhere, causing concern among environmental NGOs about extending its dependence on fossil fuels even longer.

Hydrogen to the rescue

To address long-term sustainability issues, the European Commission and the gas industry are putting their hopes on repurposing LNG infrastructure for hydrogen.

“Increasingly in Europe, governments, infrastructure operators and industry are looking and turning towards hydrogen as a solution to meet actually the 2050 [climate] goals,” said Pieter van Aartsen, board member of industry body Gas Infrastructure Europe, which supported the EURACTIV event.

“The perspective for gas pipes is to be able to use them in the future for hydrogen imports,” he said. “These pipes can be, varying a little country by country, be reused for hydrogen to a very large extent,” he added.

In Brussels, EU policymakers have been following the same line. “We need to make sure that whatever we build is hydrogen ready,” said the special envoy from Czechia.

In its REPowerEU plan adopted on 18 May, the European Commission calls for “accelerated efforts” to deploy hydrogen infrastructure, saying total investments are “estimated to be in the range of €28-38 billion for EU-internal pipelines and €6-11 billion for storage”.

By March 2023, the EU executive intends to map preliminary hydrogen infrastructure needs, based on input from EU member states, energy regulators, as well as gas infrastructure operators at EU and national level.

Gas grid operators unveil plan for European hydrogen infrastructure 'backbone'

A group of eleven European gas infrastructure companies from nine EU member states presented on Friday (17 July) a plan to create a dedicated hydrogen pipeline network of almost 23,000 km by 2040, to be used in parallel to the natural gas grid.

However, experts have raised questions about the cost of converting LNG terminals to hydrogen.

“The conversion of a LNG terminal to liquid hydrogen is a technical challenge,” said Arno Büx, chief commercial officer at LNG terminal operator Flyxus. “An economically viable business model… is far from imminent,” he told Bloomberg news.

Policymakers are aware of this. “As far as I know, the LNG terminal itself is only suited for gas,” said Patrick Graichen, a senior German official who spoke to EURACTIV in April.

Rather than hydrogen, ammonia is expected to play a key role in converting LNG terminals to new clean energy uses and prevent them from becoming stranded assets.

A chemical traditionally used in the fertiliser industry, ammonia can also be used as carrier to store or transport hydrogen, or as an alternative transport fuel in its own right.

According to Büx, the pipes and tanks used for LNG could work with ammonia. The cost of retrofitting them represent roughly 15% the price of building a new LNG terminal, he said.

> Watch the full EURACTIV event below:

[Edited by Frédéric Simon]

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