The Group of Seven (G-7) nations (United States, United Kingdom, Canada, Japan, Italy, France, and Germany) are bracing for a complete shutdown of Russian natural gas supply to the European Union (EU). In late June, state-owned Gazprom cut its gas exports to the EU by 60% as Russia strongarms Germany and other energy dependent EU countries. The EU imports around 40% of its natural gas from Russian pipelines, which have grown increasingly unreliable due to geopolitical tensions and the war in Ukraine.
On June 23, Germany’s Federal Ministry For Economic Affairs And Climate Action announced the country was moving from level one alert to level two alert for its Emergency Plan for Gas. The third and final level is emergency alert. Germany sited lower supply from Russia, which has been ongoing since June 14, as its main driver for moving to level two. As of late June, Germany’s natural gas storage levels are at 58%. The Ministry said it needs reserve levels to be upwards of 90% by November, especially if Nord Stream 1 pipeline imports remain at 40% or less. “Even if it is still possible at present to purchase and store volumes of gas on the market, the situation is serious, and the winter will come,” said Federal Minister For Economic Affairs And Climate Action and Vice Chancellor of Germany Robert Habeck. “We can’t pretend otherwise: the reduction in the gas supplies is an attack on our economy by Putin. It is manifestly Putin’s strategy to sow uncertainty, to drive up prices, and to split our society. We are defending ourselves against this. But we as a country must take a difficult path. Even if we don’t feel it yet, we are in the midst of a gas crisis. From now on, gas is a scarce asset. Prices are already high, and we need to brace ourselves for further increases. This will impact our industrial output and impose a great burden on many consumers. It is an external shock. We in the Federal Government are doing our utmost to mitigate the effects and to maintain security of supply. Filling the gas storage facilities is now our top priority. We are working on alternative gas supplies and are pressing full steam ahead with the construction of the necessary infrastructure. We are accelerating the expansion of renewable energy at an unprecedented rate. This task needs to be tackled by the entire nation. But we can cope with it if we pull together in a spirit of solidarity — Federation, Länder and municipalities, individual citizens, companies, civil society. Conserving energy is the priority for the coming months. All consumers — in industry, in public institutions, and in households — should continue to cut their gas consumption as far as they can so we can get through the winter. We as a government are pressing ahead with energy efficiency measures and are saving energy within our own Ministry.”
Using Coal As A Temporary Emergency Measure
On June 19, Germany announced that it will draw on its coal-fired power plants, which had previously been on security standby. The country has about 70 coal-fired power plants, 40 of which run on hard coal and 30 that run on lignite (brown coal). The recently proposed Act on the Maintenance of Substitute Power Stations allows Germany to call on coal power plant operators in the case of emergency power production. “We are bringing coal-fired power plants back to the market and cutting the volume of gas consumed,” said Habeck. “This is painful because coal-fired power plants are simply toxic for the climate. But we must do it for a transitional period in order to save gas and get through the winter.”
As the largest economy in Europe and the most outspoken EU member on climate change, it may seem counterintuitive that Germany is resorting to running coal-fired power plants. But, given that a complete shutdown of Russian gas could occur any day, the country has limited short-term options. Germany has earmarked around US$15.9 billion in funding to expedite production and fill its energy storage levels. “We are filling the gas reservoirs; they need to be full by the winter,” said Habeck. “If even more measures are needed on top of these, we will take them.”
Habeck is a member of Germany’s Green Party. Environmental protection continues to be its core policy. In the 1990s, the Green Party received around 5% to 10% of the vote. Today, it is one of the most dominant political parties in Germany. Habeck is scrambling to avoid the hypocrisy associated with ramping coal production. Talks between pollical leaders, the business community, and environmental organizations are meant to make the dependence on coal a necessary evil and chart a path toward phasing out coal and moving toward hydrogen and renewables.
Germany’s economy is already teetering on the brink of recession. The Federal Government has decided not to implement its price adjustment mechanism to safeguard citizens from rising energy costs. “This mechanism can be necessary in certain situations to stop the energy supply from collapsing,” said Habeck. “But it also has its downsides, so we are also working on alternative concepts. We need to keep the market up and running despite the high additional costs.”
Short-Term LNG Investments
In May, Germany announced it is investing US$3.11 billion in four floating storage and regasification units (FSRUs). FSRUs are an excellent way to flexibly import liquefied natural gas (LNG), whereas onshore LNG import terminals take years to construct and secure supply.
The first vessel is expected to be ready in late 2022, or early 2023, with the other three vessels entering service in 2023. Two of the vessels will be leased through German utility operator, Uniper, which will be chartered from Dynagas, a vessel supplier. Germany signed 10-year leases with Höegh LNG, a Norwegian vessel operator, which will be operated by RWE, a German utility. These two vessels are expected to be completed in fall 2022 and enter service in 2023.
|FSRU||Capacity||Share Of Total German Gas Demand||Operator||Vessel Supplier||Service Date||Port|
|Vessel 1||5.44 MTPA||8.5%||Uniper||Dynagas||Late 2022/ Early 2023||Wilhelmshaven
|Vessel 2||3.63 MTPA||5.67%||Uniper||Dynagas||2023||Wilhelmshaven/ Brunsbüttel
|Vessel 3||3.63 MTPA||5.67%||RWE||Höegh LNG||2023||Wilhelmshaven/ Brunsbüttel
|Vessel 4||3.63 MTPA||5.67%||RWE||Höegh LNG||2023||Wilhelmshaven/ Brunsbüttel
Data Source: Germany Federal Ministry For Economic Affairs And Climate Action
Niedersachsen Ports GmbH & Co. KG (NPorts) will take natural gas from the Wilhelmshaven port, located on the Jade Bight on the German portion of the North Sea, and transport it into Germany’s intrastate pipeline grid through new pipelines. OGE, a German regulated pipeline company, will build a connection line from the Wilhelmshaven port to long-distance gas transport pipelines and underground storage caverns.
Long-term, Germany expects the Wilhelmshaven port to be used for hydrogen imports. Uniper, which is investing US$68.8 million into the Wilhelmshaven port, said that it wants to import ammonia and build an electrolysis plant which can be used for clean hydrogen. It also wants to construct a clean hydrogen storage unit about 59 miles (95 km) away at Krummhoern on the North Sea.
Long-Term LNG And Hydrogen Investments
In addition to the four FSRUs, plans are in the works to construct longer-term permanent LNG import terminals and green hydrogen production facilities.
Green Hydrogen Hub
Tree Energy Solutions is accelerating plans to construct its green gas terminal at the Wilhelmshaven port. The project was initiated in 2019 and is expected to receive US$26.5 billion in total investment by 2045. It is part of the company’s Green Hydrogen Hub which uses LNG imports as a source to produce hydrogen.
Tree Energy Solutions is partnering with E.ON on the first phase, which is expected to be commissioned by winter 2025. The AvantHy terminal will have an import capacity of 25 TWh of green gas per year, but the total facility can be increased to 250 TWh of green gas imports and more than 5 MTPA of hydrogen in the final stage.
The idea is to produce synthetic methane, also known as blue hydrogen, which is expected to cost US$25 per MWh compared to US$70 per MWh for oil and US$80 per MWh for natural gas, thereby providing an inexpensive and sustainable form of renewable energy that further weens Germany off Russian supply.
Stade Energy Terminal
The Stade Energy Terminal has been loosely discussed for years. But since the Russia/Ukraine war, the project has received renewed interest. Nearing its final investment decision (FID) phase, the terminal has tripled from its initial planned regasification capacity of 2.9 MTPA to its current 8.7 MTPA of planned regasification capacity. Located in Stade, Germany on the Elbe River (which connects the North Sea to Hamburg, Germany), the project is expected to cost US$1.06 billion.
Dow, which has a chemical site in Stade, became a shareholder of the project in April. It plans to contribute the land and infrastructure services needed for the terminal’s construction. The project’s consortium includes Hanseatic Energy Hub (HEH) as the project owner and developer, Belgian gas infrastructure company, Fluxys, as an industrial partner, Buss Group as an investor, and Partners Group as a private equity investor. The project is expected to enter service in 2026.
Brunsbüttel Energy Terminal
The Brunsbüttel Energy Terminal is located upstream of Stade in the town of Brunsbüttel on the mouth of the Elbe River. Owned by German LNG Terminal (GLT), investors include a 50% equity stake by Kreditanstalt für Wiederaufbau, a 40% stake by Gasunie, and a 10% stake by RWE. Initial planned capacity is 5.8 MTPA with an estimated cost of US$1.06 billion and a start year of 2025.
The project’s investors have changed since 2017 and delays have prevented it from getting off the ground. However, like other LNG projects, Brunsbüttel is now being fast-tracked by the German government. Earlier this year, Shell signed a memorandum of understanding (MoU) with GLT for long-term booking of the vast majority of the terminal’s capacity. “It is absolutely clear that we need to make our energy supply climate-neutral, to rigorously cut our gas consumption, and to press ahead with the expansion of renewables and the production of hydrogen,” said Habeck. “But we will need gas during the transition. Here, we need to reduce our dependence on imports from Russia as quickly as possible; Russia’s war of aggression against Ukraine is now making this imperative. An LNG terminal in Brunsbüttel will increase the possibilities to import gas to Germany. LNG terminals could be described as an extra bypass for this. They help us to boost energy security in Germany and Europe. At the same time, our plans are factoring in the switch to green hydrogen and its derivatives from the very outset of the project. This also goes for the construction of hydrogen infrastructure. In this way, we are setting the course for climate neutrality and shaping the transition.”
LNG’s Role In Germany’s Energy Mix
The four FSRUs will give Germany an additional 16.33 MTPA of LNG regasification capacity within a year. Longer-term, investments at the Stade and Brunsbüttel would add another 14.5 MTPA of LNG import capacity using modern facilities and lower emission specifications.
The United States will likely be Germany’s main LNG supplier. On May 27, Habeck and US climate envoy, John Kerry, signed an energy and climate partnership that aims to boost Germany’s LNG and hydrogen imports. The United States pledged an additional 10.9 MT of LNG volumes to Europe in 2022 and 36.3 MTPA of additional LNG by 2030 at prices that reflect long-term forecasts. On May 25, RWE signed a preliminary agreement with Sempra Energy for 2.25 MTPA of LNG from the Port Arthur LNG project. The LNG will go toward RWE’s two commissioned FSRUs.
Despite the investment, Germany said that it doesn’t want LNG contracts to last for longer than 15 years given that its 2040 climate laws prohibit projects with emissions that exceed 90% of 1990 carbon dioxide (CO2) levels. In addition, the United States and the EU have a joint climate pledge that aims to cut global methane emissions by 30% between 2020 and 2030.
In addition to the United States, Qatar could be a source for German LNG imports. Since completing its 14th LNG train at RasGas 3 in 2010, Qatar’s LNG growth has been relatively muted. The country hasn’t constructed an LNG train in 12 years. However, Qatar has plenty of untapped reserves left in its North Field cash cow.
Known as the North Field expansion, Qatar plans on increasing its capacity from its current 77 MTPA to a staggering 126 MTPA by constructing four trains by 2025 and then adding two more by 2027. In October 2020, Qatargas, which is 100% owned by Qatar Energy (QE), reaffirmed its intention to expand North Field production, receiving final proposals from engineering firms in September 2020. In 2021, QE began accepting bids from various engineering, procurement, and construction firms, as well as bids for financing. In early June, ExxonMobil, Shell, TotalEnergies, and ConocoPhillips won bids for the North Field expansion. The expansion is estimated to cost US$30 billion. The North Field expansion will boost global LNG supply and reduce Russia’s grip over European and Asian buyers. In this vein, the successful and timely completion of the North Field expansion can provide leverage for the EU to sustain sanctions on Russia and a longer-term ban on importing Russian oil and natural gas.
Hydrogen’s Role In Germany’s Energy Mix
Germany’s long-term goal is to replace coal and nuclear power with hydrogen to help it become greenhouse gas-neutral by 2045. In March, Germany updated its carbon neutral goals. It now expects renewable energy to account for 80% of its electricity needs by 2030 and 100% by 2035 compared to a previous goal of 2040. Germany’s Economy Ministry announced its intention to speed up the passage of its Renewable Energy Source Act, which came into force earlier than expected in July 2022. The act extended solar subsidies and tax credits while boosting onshore wind energy volumes to bring Germany closer to renewable energy dependence.
Germany’s National Hydrogen Strategy, which is part of its Climate Action Plan, calls for the rapid increase of domestic production and imports. Germany already has a 20% global market share of electrolyzer production. Yet domestic production is expected to account for a fraction of total hydrogen consumption, meaning Germany needs to ramp imports. “The Federal Government expects that around 90 to 110 TWh of hydrogen will be needed by 2030,” said Germany’s Federal Government in a statement. “In order to cover part of this demand, Germany plans to establish up to 5 GW of generation capacity including the offshore and onshore energy generation facilities needed for this. This corresponds to 14 TWh2 of green hydrogen production and will require 20 TWh of renewables-based electricity. It needs to be ensured that the demand for electricity that is created by the electrolyzers will not lead to an increase in carbon emissions. The Federal Government has included a monitoring mechanism in the National Hydrogen Strategy which will be used to track the development of green hydrogen demand in detail. An additional 5 GW of capacity will be added, if possible, by 2035 and no later than 2040.”
Hydrogen, whether imported or generated domestically, is a more expensive option than fossil fuels or even LNG. Germany believes the value of hydrogen’s environmental impacts are worth the added costs. It also expects costs to come down as hydrogen compression and associated technologies mature. “The current framework does not allow hydrogen to be generated and used in an economically viable manner,” said Germany’s Federal Government in a statement. “Fossil fuels continue to be much cheaper as the cost of carbon emissions is not included in their price. For hydrogen to become economically viable, we need to continue to bring down the price of hydrogen technology. To drive forward technological progress and economies of scale and promptly obtain the critical mass of hydrogen needed, the production and use of hydrogen need to be sped up globally.”
The Clock Is Ticking
The full extent of Germany’s hydrogen economy will take decades to come to fruition. Meanwhile, longer-term LNG import facilities will take years to construct. In the meantime, nuclear plants, coal-fired power plants, and LNG FSRUs are needed to build energy reserves in time for winter.
Germany is in a race against time to make sure it has the infrastructure and contracts in place in case geopolitical tensions escalate and Russia tightens its grip on the European market. Climate advocates may raise their eyebrows at Germany’s decisions to rely on coal and natural gas. However, you could also argue that the war in Ukraine has effectively accelerated Germany’s long-term low-carbon goals. LNG import projects have gone from ideas to action. The hydrogen economy went from a gradual long-term plan to a fast-tracked program prioritized by German policymakers.
Now more than ever, it is clear that renewable energy is only part of the solution. Germany’s investments in solar energy have largely been a failure. Offshore wind energy in the German portion of the North Sea can have lasting impacts. But renewables can only be part of the solution. Blue and green hydrogen, and to an extent LNG, are needed for Germany to sustain its energy-intensive heavy manufacturing, automotive, chemical, and electrical industries. Lacking natural resources across several key industries, the German economy relies on the large-scale production of goods and then trading for food, energy, and consumer products.
Without coal, nuclear power, LNG, and hydrogen, Germany’s economy would grind to a halt and fall into a deep depression if Russia turned off the gas. The rapid rise of Germany’s hydrogen and LNG investments are a win for its economy, for the American economy, and for the environment down the road.