• Russia stops gas supplies to some countries
• Expansion of LNG network
• Power grid threatened?
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Several countries affected by delivery stop
Europe is currently still largely dependent on Russian gas supplies. But this should change as soon as possible. The Russian group GAZPROM has already turned off the gas supply to Poland, Bulgaria, Finland, Denmark, the Netherlands and France because most of these countries did not want to open ruble accounts with Gazprombank to make payments to Russia. With the exception of France, the affected countries are less dependent on Russian gas supplies due to lower delivery volumes and existing alternatives, as ICIS analyst Andreas Schröder emphasized to the Tagesschau. And France is also compensating for the missing gas volumes with deliveries from Spain. In addition, the Grande Nation already relies on liquefied natural gas.
Gas deliveries to Germany come to a standstill due to Nord Stream 1 maintenance
In Germany, the situation is currently particularly explosive. In mid-June, GAZPROM reduced the gas flow through the Nord Stream 1 pipeline by 40 percent, officially because a Siemens Energy turbine was transported to Canada for maintenance but could not be moved back to the site due to sanctions against Russia. In a letter from mid-July, the Russian group even spoke of “force majeure”, which is said to be responsible for the lower delivery capacities to Europe, as the Reuters news agency reported. Maintenance work on the Baltic Sea pipeline began on July 11. As a result, Germany was left dry for ten days. There was great fear that Russia would not resume gas supplies afterwards. Russia is now pumping gas through Nord Stream 1 again, but the gas flow has continued to fall.
So far no operational LNG projects in Germany
In contrast to France, Germany does not yet have LNG terminals. According to information from the specialist magazine “CHEMIE TECHNIK”, the failure of such projects is likely to be primarily due to the regulatory provisions. In addition, liquefied natural gas has so far been more expensive than Russian pipeline gas, which is likely to have deterred private investors in particular. Since the beginning of the war in Ukraine, however, four floating LNG terminals have been commissioned and are to be completed as soon as possible. Two of the chartered branches are scheduled to become operational between late 2022 and early 2023, the magazine said. So far, however, Germany has had to rely on LNG imports.
LNG imports are increasing
Liquefied natural gas has the advantage that it simplifies the transport of the heating fuel: while gas could only be transported through pipelines for a long time, it is now possible to cool the raw material to minus 162 degrees Celsius, which liquefies it. Once the LNG has arrived at its destination, it can be converted back to gas using terminals.
As the “Neue Zürcher Zeitung” reports, citing data from the analysis company Bernstein, imports of liquid gas in Europe between January and May 2022 increased by more than 50 percent compared to the previous year. European countries are currently working flat out to secure the gas supply: since March, more than 20 LNG projects have been announced or accelerated in Europe. Their total volume is intended to replace the lion’s share of Russian gas. So can Europe stock up on liquefied natural gas until the winter and use it to substitute Russian supplies? According to the NZZ, industry experts consider the tight schedules for LNG projects to be very ambitious. According to the newspaper, a retailer expects that the floating terminals that Germany is currently planning will only be usable in the second or third quarter of 2023.
Import capacities cannot be increased in the short term
In addition, the prices for liquefied natural gas have increased significantly. According to the NZZ, the raw material in its liquid version was previously mainly delivered to Europe when there was a drop in demand in Asia. In the meantime, however, significantly higher prices are being paid for LNG in Europe due to a lack of alternatives. According to industry experts and strategists, the high price level is not likely to change in the near future. This is partly because, while demand for LPG has skyrocketed, new stocks have been slow to bring to market. Although some suppliers recognized the need in good time and announced new projects that could increase the gas volume, it will probably take a few more years for them to be completed. For example, capacity is to be increased in Qatar: Shell, Exxon Mobil, TotalEnergies, Eni and ConocoPhillips are involved in the billion dollar project. However, it will probably take until 2027 before liquefied natural gas is actually produced in the new production facility. Temporary increases in production are also not easily possible, the NZZ continues. In order to recoup the high costs of building such projects, they usually have to be operated for around 20 years. This is likely to conflict with government emissions targets in some countries.
Liquefied natural gas is only suitable as a short-term solution
In the long term, liquefied gas may not be the right way for Europe, the NZZ continues. Although LNG deliveries are currently necessary in order to emancipate oneself from Russia, the coming winter is unlikely to be carefree. Because even if you could fill the gas storage tanks until the cold months, the deliveries would have to be maintained at the same time. Some production companies are likely to be shut down – at least partially.
Energy expert recommends the “ASSA” formula
However, the all-clear was recently given by energy economist Claudia Kemfert from the German Institute for Economic Research. “We will also get over 60 percent of our gas in winter,” is the assessment of the expert, who shared it with “BR24”. “It is very unlikely that all gas suppliers will now fail, which means that we will have filled the storage tanks well.” However, in order to prepare for a possible emergency, the federal government must position itself promptly and take measures. “The first thing is to dodge, that is, you have to get gas from other countries,” says Kemfert. Although Germany already receives gas from Norway and the Netherlands, other countries could also export gas to Germany. “The second thing is saving: the storage tanks have to be filled, as full as possible by winter,” she continued. “The third is saving, saving, saving.” This affects both the industry, which in this case can be compensated by the government, but also budgets would come to austerity measures. “And the fourth thing is expansion, namely renewable energies must be expanded much more quickly,” demanded the economist. She summarized this catalog of measures as the “ASSA” formula. Kemfert expects discussions about gas triage at the end of winter at the earliest, should it be particularly cold.
Hope for a short, mild winter
However, Egbert Laege, Managing Director of Securing Energy for Europe (Sefe) – previously known as GAZPROM Germania – is less optimistic. Lage took over the management position at the beginning of April, a few days after the Russian state-owned company unexpectedly sold its German subsidiary. “In any case, we have to arm ourselves for the scenario that nothing works anymore,” the Sefe boss recently warned the “manager magazin”. It is also crucial how cold and long the coming winter will be. “We can only hope that the heating season will start late this year and not last very long,” emphasized Laege.
Power grid under pressure due to lack of gas?
With the shortage of gas, however, the fear of power shortages or even an overload of the power grid is growing. Although an analysis by the Ministry of Economic Affairs states “that reliable operation of the electricity supply network is guaranteed in winter 2022/23”, the federal government now wants to carry out another stress test for the electricity network – under “further tightened conditions”. According to the RND, the state of the nuclear power plants in neighboring France is considered a risk factor. Some of the plants are currently undergoing maintenance or review and are not supplying electricity at all. If the reactors are not connected to the grid again soon, German suppliers could lose out, warned Thorsten Lenck from Agora Energiewende and Christoph Maurer from the energy consulting company Consentec to the German Press Agency. In France in particular, a lot of heating is done with electricity, so the capacities are probably primarily used for the home country. A weather period in which the sun hardly shines and it is not particularly windy could also prove to be problematic. This means that solar and wind power plants would not be able to produce electricity for several days, according to Tobias Federico, managing director of the consulting firm Energy Brainpool. The supply of gas-fired power plants could also suffer from the fact that the little gas available is mainly used for heating. Although the share of gas-fired power plants in the entire power grid is relatively small, according to Lenck, supplying the plants could prevent the grid from being overloaded in case of doubt.
Overload by consumers conceivable
The high demand for fan heaters and convector heaters in recent weeks showed that consumers are also preparing for a gas shortage. However, if heating with gas were to be completely replaced by energy-intensive alternatives, this could affect the entire power grid. “This is a scenario that must be prevented at almost any cost,” Maurer warned. The risk that both the generation and the transport of electricity would be made more difficult is too great. Should these risks not occur, however, there should not be any major bottlenecks in winter, according to Maurer and Federico. Lenck, on the other hand, considers temporary restrictions to be possible: “According to our previous analyzes, it is quite possible that it could be tight in a few hours in winter,” the expert told the agency.
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