Analysis
This article is continually updated. Last update: 11/18/2020
The question is not if Germany builds an LNG terminal, but rather where and how many.
In early 2018, the German government announced its intent to become a direct importer of Liquefied Natural Gas (LNG). Germany, the EU’s largest gas consumer, decided to build at least one LNG import and regasification terminal at the coast ready to receive global LNG supplies. The decision is surprising and significant as it marks a shift in Germany’s gas import strategy. Germany imports almost its entire gas supply via pipelines from Norway and Russia. The Russian gas exporter, Gazprom, is currently building “Nord Stream 2”, Europe’s largest transnational pipeline project. Berlin’s decision to shift to LNG imports raises questions about its motives.
In mid-2018, the German Chancellor Angela Merkel made the announcement, which sounded like an appeasing promise to the US government, which condemns German gas deal with Russia as a security threat. Furthermore, the US and several EU members consider the Nord Stream 2, as a threat to the EU’s and Ukraine’s political independence. Thus, international pressure on Germany to diversify import sources for gas and ultimately develop its capacities has increased through 2018 and 2019. Berlin chooses to emphasize the economic necessity of LNG as a counter to diplomatic pressure.
In early 2019, the German Minister for Economy, Peter Altmaier declared that Germany continues to support the development of LNG terminals. There are four LNG terminals under consideration for construction in Germany. Although construction has not yet started for any of these projects, the planning status of each has reached an advanced level, which includes specific locations, time frames, estimated costs, regasification capacities, investor constellations and in some cases capacity off-take contracts.
This article explains why Germany will have an impact on the global LNG market, how Germany’s gas import strategy has changed, whom will benefit most from Germany’s LNG capacity, and what we know about the four prospective LNG terminals.
A major consumer enters the market
Germany currently imports over a quarter of the EU’s total gas imports. This makes the country the EU’s largest importer and consumer of natural gas; although none of it is directly imported LNG. Regardless of the initial import capacity that German LNG terminals will create, the country’s commitment to LNG has the potential to impact the dynamics of the global LNG market. The global LNG market is still driven by the Asian regional market; however, Europe has the potential, and the necessary capacities to become a significant player.
In 2017, 75% of the EU’s total LNG import capacity, which is 227 bcm, remained unutilized. The EU still imported about 13% of the total globally-traded LNG, which is a similar percentage to China or South Korea, and half of Japan’s. If the EU’s LNG capacity were fully utilized, it could compete with Japanese imports. The fact that China and Japan heavily invest in LNG infrastructure at the same time, lessens this hypothesis to a certain degree.
It is likely that any additional LNG capacity in the EU makes little economic sense because of the EU’s low demand for LNG.
There are several reasons why Germany is applying pressure on the LNG market. This pressure could have a significant impact on the global LNG trade. According to current plans, Germany could add between 8 and 10 bcm or 22+ bcm at best of LNG import capacity. Although these numbers do not seem to be too stimulating, considering that Nord Stream 2 alone will add 55 bcm of import capacity, the establishment of an LNG infrastructure in Germany illustrates a pivotal point in Germany’s gas import strategy. Germany, a regional neighbor to France and the UK, represents one of the most attractive gas markets in Europe. Suppliers will adapt their export strategy to Germany’s LNG signal. At least two-thirds of the planned LNG import capacity is probably already pre-booked by foreign LNG suppliers.
The mentioned LNG suppliers will also more likely utilize Germany’s LNG capacity above the EU’s average of 25%. The current low utilization of LNG import capacity in the EU somewhat correlates with the remoteness and structural deficits in some regions of the EU internal gas market. The German gas infrastructure system is well established and the domestic gas market close to maturity. The likelihood of high capacity utilization is a given, as well as the potential for further LNG capacity creation.
Pipeline gas remains Germany’s main import source
The most imminent problem remains, how the price of LNG will compete with the traditional gas pipeline. In 2017, Germany imported 128 bcm natural gas, 53 bcm of which was imported from Russia. The next largest gas suppliers to Germany are the Netherlands and Norway. Both countries are reducing their gas exports for the past several years and will continue. LNG import capacity is one option to meet future shortfalls. The other option is Nord Stream 2. Despite the political support of LNG development, Berlin has shown no intent to obstruct construction of the Nord Stream 2 pipeline. German LNG capacities, for this reason, are not intended to existing and planned pipeline infrastructure.
For this reason, Germany’s commitment to the LNG might not be as ambitious as global suppliers want to perceive. Germany’s intentions serve two other objectives, supply, and price security. First, the decreasing supply of Norwegian and Dutch gas improves the economic leverage and to some degree, the political leverage of Russia. Moscow will become more and more a monopoly supplier of a strategically vital resource. LNG import terminals, even if their capacities remain unused, provide an important alternative supply source. Second, global LNG prices cannot currently compete with price opportunities for pipeline gas in Europe. The Russian supplier, Gazprom, is likely going to underbid global LNG prices and maintain its market share in Germany. This illustrates the security of low prices for German and other European consumers. Full utilization of LNG import capacity is not necessary in this case as well.
The closer look at Germany’s gas market, however, reveals that German LNG still is a prosperous business. Germany is not only the EU largest gas consumer but is also a large gas transit state. Although German consumers expect an increased gas demand, it does not have enough import capacity to meet its demand. This enables suppliers to re-export gas supplies. For example, most of Germany’s gas imports, via the existing Nord Stream pipeline, are destined for the Central and Western European markets. The anticipated interconnecting infrastructure for Nord Stream 2, confirms that a bulk of the imported gas from Nord Stream 2 is destined for the Eastern and Southern German market and for export to the Central European market.
Germany’s role as a European gas hub is expanding. The expected LNG import capacity will feed into the German gas network, which will eventually connect to the Belgian and Dutch gas network. The interest of Dutch and Belgian companies to invest in German LNG terminals indicate that the LNG is likely to replace decreasing domestic production.
U.S. LNG to arrive in Germany
German LNG projects are recipients of international and national political support, without which a realization of any of the LNG terminal can be put into question.
One of the evident factors that have kept Germany from developing LNG import capacities is its economic futility. The current global LNG price levels cannot undercut Russian provided pipeline gas prices. Also, the EU has not yet developed enough market power share to significantly influence global LNG prices. These continue to be driven by Asian markets.
Despite these facts, the U.S. government has an interest to support German LNG ambitions. One reason is that German LNG terminals create export opportunities for US LNG producers. There is little doubt that Washington DC’s lobbying campaign against Nord Stream 2 serves commercial interests at the same level, if not more, as concerns over political and energy security in the EU and Ukraine.
While business representatives from Qatar, the world’s largest LNG exporting country, have publicly shown interest to invest in the German LNG infrastructure and demonstrated interest to become a main supplier in the future. Most of the imported LNG will most likely come from the US. The majority of the companies investing in German LNG terminals, either have LNG projects in the USU.S. or are shareholders in its gas producers and subsidiaries. Many of the known energy companies that have booked LNG capacity at German terminals operate LNG export terminals in the US as well.
US LNG has the advantage of the geographical proximity to the European market, which enables exporters to provide lower shipping costs. Amongst major global LNG producers, only Algeria and Russia have a closer or similar shipping distance.
Germany’s LNG projects
There are currently four LNG terminals under consideration in Germany. Three of them are located at the German North Sea coast and one is located at the Baltic Sea.
While it is possible that all projects will come to the realization, at least two of them are likely to be constructed in the near term. These two projects are also most likely to receive political, financial and regulatory backing by the German government.
The list below ranks these four LNG projects in order of their potential realization. It also provides the currently known specifications, such as location, the investor and shareholder composition, costs potential capacities, and timeframes. Some of the provided data and information are based on estimations or cannot be provided, as the project negotiations and planning remains ongoing.
1. LNG Wilhelmshaven (Jade-Weser-Port, Wilhelmshaven)
The LNG Wilhelmshaven terminal is a Floating Storage Regasification Unit (FSRU) and will be located at the Jade-Weser-Port near Wilhelmshaven at the North Sea coast of Lower-Saxony.
The LNG Wilhelmshaven FSRU project has three main shareholders, which is Germany’s major gas company “Uniper”, the Japanese shipping company “Mitsui O.S.K. Lines” and the Dutch gas company “Titan LNG”. Uniper is likely to be responsible for the legal service and operation of the business, while Mitsui is the owner and technical operator of the FSRU. Titan LNG will likely control the small-scale LNG branch of the project, which includes LNG distribution as a fuel. According to media reports, Uniper has signed a charter contract for the FSRU for a period of twenty years. The FSRU would be berthed permanently at the Jade-Weser-Port.
The projected FSRU has a storage capacity of 263,000 cubic meters and a total annual regasification capacity of 10 bcm. The investment costs for the FSRU are estimated between $ 200- 400 million. According to Uniper, the LNG Wilhelmshaven can be operable by the end of 2022.
The U.S. energy company “ExxonMobil” has signed a preliminary agreement on regasification capacity booking. Details about the length of this contract and the booked volumes will likely be negotiated in the coming months. ExxonMobil operates LNG projects around the world, with a growing focus in the US. The second company that has booked regasification capacity at Wilhelmshaven is a Qatari LNG company; volumes and contract length remain unknown. Uniper is amongst Germany’s two largest gas companies and known to be a major investor in the Nord Stream 2 pipeline. It increased involvement in the LNG business occurred because>>>>>>. The company has booked substantial gas export capacities from the US LNG terminal “Freeport” and secured LNG shipping capacity from Mitsui. It is, however, unclear whether Uniper intends to utilize regasification capacities at its LNG Wilhelmshaven terminal.
LNG Wilhelmshaven has a promising prospect to be one of the two LNG terminals to be built in Germany. Despite the fact that LNG Wilhelmshaven does not catch the media nor public attention as much as other LNG projects in Germany do, the terminal has the most realistic chance to come to a realization. The project’s plan reaches back to 2005 when Uniper’s predecessor company “E.ON” announced to build an LNG terminal at Wilhelmshaven. The construction did not happen, as, by this time, Germany opted for the construction of the Nord Stream pipeline. Uniper claims to have the best infrastructural conditions at Wilhelmshaven. The Jade-Weser-Port is Germany’s only deep-water and tidal independent port. The connection to an already existing gas storage facility as well as the existing pipeline-network is of short distance. Additionally, Uniper has plans to build another LNG terminal onshore at Wilhelmshaven, with a capacity of 40 bcm annually.
As of November 2020, the project’s realization is under review by Uniper. Due to a lack of interest in firm capacity booking by suppliers, in the best case scenario the LNG terminal will be constructed on a later date or its size and focus altered. The company called potential hydrogen import capacities as alternatives to LNG into play. The operator has hoped for more interest from the US as an ascending LNG supplier, especially since political pressure on the German government increased over the last year to establish LNG import capacities and to prevent Russia from becoming the country’s sole gas supplier.
2. German LNG GmbH (Brunsbüttel, Hamburg)
The LNG terminal at Brunsbüttel is located near the city and harbor of Hamburg. The terminal will be constructed, owned and operated by the joint venture named “German LNG GmbH”. The three shareholders of the joint venture are the Dutch companies Gasunie LNG Holding B.V., and Vopak LNG B.V., as well as the German company Oiltanking GmbH, a subsidiary of Marquard & Bahl A.G. in Hamburg. German LNG GmbH offers regasification services, storage capacities, and transmission to the gas network.
The terminal will have two landing docks for LNG carrier with a capacity of up to 265,000 cubic meter each. The total annual capacity of the terminal at Brunsbüttel will be 8 bcm. The investment costs of German LNG are estimated between $500-530 million. German LNG expects the final investment decision by the end of 2019. According to this plan, the terminal would then be operable by 2022.
There are three Spanish (Cobra Instalaciones, Sacyr Flour, Tenicas Reunidas) and one Korean (Hyundai Engineering) companies competing for construction of the terminal. A decision on the winner is expected in April 2020.
At least two companies have already booked a “significant” amount of regasification capacity. The first is a German major energy supplier and trader “RWE”. Although not confirmed, it is likely that RWE has booked 5 bcm of the terminal’s capacity, leaving at least 3 bcm to the second company. RWE has secured an LNG supply agreement with the Australian LNG producer “Woodside”, which is potentially expected to supply the German LNG terminal. However, the contracted LNG will not be produced and delivered from Australia, but from the US LNG export terminal in Corpus Christi, Texas. The US LNG terminal is operated by US energy company “Cheniere Energy”. RWE also held talks with the world’s largest LNG supplier “Qatar Petroleum” about a possible supply contract, but neither’s accomplishments, nor details are available.
The second company that has booked regasification at German LNG GmbH is the Swiss-owned energy trading company “Axpo”. The company likely accomplished an LNG supply deal with the Canadian LNG producer “Pieridae Energy” and will purchase LNG from “Goldboro” LNG terminal in eastern Canada.
Next, to LNG Wilhelmshaven, the LNG Brunsbüttel has a promising prospect to be realized in the coming years. It has an advanced investment structure and pre-booked regasification capacity by leading energy companies. The project is also favored by the German Minister of Economy. It is noticeable that the LNG terminal’s interconnection to the German gas grid has been excluded from the German network connection plan in late 2018. This decision, however, was revoked by the German government in early 2019, in order to politically support the development of LNG in Germany.
The operator of the project, RWE, postpones the construction start date of the terminal to mid-2021, due to a lack of interest in capacity booking. The project management believes that with the possible cancellation of LNG Wilhelmshaven, LNG Brunsbüttel becomes more attractive for suppliers. The temporary lack of interest is according to the operator caused by the Covid-19 pandemic.
3. LNG Stade GmbH
The third possible German LNG terminal would be built at Stade, a small town at the Elbe River with direct access to the North Sea, and is in close proximity to Hamburg. The “LNG Stade GmbH” was founded by “Umwelttechnik & Ingenieure GmbH”, an independent German consulting and project development company. The company signed a memorandum of understanding with the Australian investment group, “Macquarie Group Ltd.” and the Chinese infrastructure development company “China Harbor Engineering”. US chemical company “Dow Chemical” is supporting the LNG project development as well. Dow already owns a chemical site at Stade and has offered an area on its site for the potential LNG terminal. The Dow chemical site is already connected to the German gas grid via pipelines, which saves time and money and likely ensures the most likely partner choice—is this true, then add.
The total annual capacity of LNG Stade will be 4 bcm, but could be upgraded to between 8 and 12 bcm. The investment costs are estimated at $567 million. If approved by investors and the German regulators, construction could start in 2021 and completed in 2023. There is no evidence of capacity booking at this stage, but the head of the LNG project is seeking for a long-term supply deal with a US LNG supplier.
LNG Stade does not belong to the two most prospective LNG projects in Germany, although its realization is still possible. The problem is its later construction schedule; other LNG terminals are likely to be operable before 2023. The investor profile of the LNG Stade terminal is different from other projects. There is no natural gas company involved in this project, unlike Uniper in Wilhelmshaven or Gasunie in Brunsbüttel, for example. The LNG Stade investors are involved either in the commodity market or gas infrastructure construction and operations. Especially China Harbor Engineering has global experience in LNG terminal construction. The company is involved in several African and Asian LNG projects. Dow Chemical has been involved in oil and gas markets worldwide and is known for its technology in LNG processing. Similar to the other projects, the involved companies complement each other. While Macquarie Group Ltd. provides the financial investments, China Harbor Engineering will build and potentially operate the terminal, while Dow Chemical provides the location and infrastructure and is likely to become a consumer of LNG and a potential operator of the terminal.
4. Rostock LNG GmbH
The fourth possible option for an LNG terminal in Germany is at the Baltic Sea port in Rostock. “Rostock LNG GmbH” is a joint venture comprised of the Russian gas company “Novatek”, with 49% shares, the Belgian gas infrastructure and service “Fluxys”, with 51% shares of the joint venture. Both companies are experienced in the LNG business and will complement each other in different segments of the project.
The total annual capacity of 300,000 cm of the terminal is a lot less than all other projects. The investment costs are approximately $100 million. An expansion of capacity is possible, according to Rostock LNG. Other media sources reported that Rostock LNG would have a capacity of 700,000 cm per annum. The higher number of capacities might reflect the expansion of Rostock LNG. Rostock LNG expects the terminal to be operable by 2022.
Fluxys already operates an LNG terminal in Zeebrugge, Belgian along with several pipelines across Europe. Novatek operates several LNG export terminals across Russia and competes as a main Russian LNG exporter with Russia’s state-owned gas company, Gazprom. Novatek is a private company, however, leadership is closely linked to Russian President Vladimir Putin. Critics argue that Russia will further enhance its control over the German gas market with Novatek involved in the Rostock LNG terminal. The size of the company is rather small, especially when compared to other LNG terminals at the German North Sea coast or with the Polish LNG terminal at Swinoujscie. There is no regasification capacity and pipeline connection planned for the Rostock LNG terminal. The LNG supplies will be entirely used either as a transport fuel for ships and trucks at the local harbor at Rostock, or for distribution as a liquid by trucks and rail. Novatek most likely will become the main supplier of LNG to the terminal. The company operates an LNG export terminal in Vysotsk, near St. Petersburg.
The Rostock LNG terminal only fills a market niche and does not directly compete with other terminals on the German and European gas market. Also, the supplier composition will certainly differ as Rostock LNG will receive most of its LNG from Russia. Both the LNG terminals at Wilhelmshaven and Stade also intend to sell LNG as a transport fuel for ships and trucks. In this sector, all three LNG terminals would compete for market shares. As Rostock LNG’s focus is solely on fuel supplies for the local harbor, the project will possibly be realized, regardless of the LNG terminals in Wilhelmshaven, Brunsbüttel, and Stade.
All four terminals are excellent prospects, but LNG Wilhelmshaven and German LNG at Brunsbüttel appear to be the most likely to be completed. Both projects also have a convenient geographical location and stable ownership. Whilst the German government supports the construction of an LNG terminal with financial incentives, it has not ruled out financial support for another terminal.