IMG.gif

Viewpoint: Bridge Over Troubled Water

Copyright © 2022 Energy Intelligence Group All rights reserved. Unauthorized access or electronic forwarding, even for internal use, is prohibited.
ss549347761-Reichstag building-German Parliament-Berlin- Germany

Germany is going all out to become a big-time LNG importer. Long dependent on cheaper pipeline gas — the bulk from Russia — Europe’s largest gas market is eyeing four floating LNG import terminals plus two onshore facilities as it moves to wean itself off Russian gas by 2027. It is introducing legislation to cut the approval process for regas terminals to a tenth of the typical timeframe, with the push likely reinforced by the Kremlin's imposition of sanctions on Gazprom subsidiaries in Germany over which Berlin seized control in April.

But the need to weigh short-term concerns over energy security against longer-term climate goals appears to be complicating German efforts to nail down LNG contracts. Talks with suppliers in the US and Qatar have reportedly become bogged down by disagreement on contract duration. Germany wants relatively short deals — reports suggest five to 10 years — to ensure renewables-focused decarbonization efforts don’t veer off track, and the terminals can later be used to import zero-carbon fuels. Suppliers, particularly in the US, need longer commitments to get projects off the ground.

A combination of geopolitical tensions, fears of energy shortages and price volatility saw long-term contracts return in a big way last year. A total of 46 medium- and long-term deals were agreed, up from 22 the year before, according to global LNG importers’ group GIIGNL. Many were with Chinese firms willing to sign up for 20 years' supply. The average contract length was 13.6 years, GIIGNL said — longer than Germany envisages. US suppliers nailed down 13 deals with an average contract length of 16 years-plus. Qatar signed nine for an average of almost 13 years each.

Other climate-conscious European buyers looking to pivot away from Russian gas are likely encountering the same mismatch over contract length. LNG portfolio players have the heft to offer a solution. The top two players among the Western majors, Shell and TotalEnergies, together sold 106 million tons of LNG last year (Shell 64 million tons and Total 42 million tons), or nearly 30% of the 372 million tons in global trade recorded by GIIGNL. By comparison, the world's No. 1 supplier Australia sold 78.5 million tons, Qatar almost 77 million tons and the US more than 67 million tons.

LNG producers won’t be able to commit to investing in new supply if a country like Germany is looking for only a stopgap arrangement, Shell CEO Ben van Beurden said last week. But portfolio players like Shell can “mix and match” supply and demand. "And we can just say: 'Fine, we're going to layer in a few relatively short-term contracts because we don't necessarily need that one contract from Germany to underpin a new LNG plant in country — it will just come from our portfolio.'” Shell itself doesn’t have “everything signed up on long-term contracts,” he said. Around one-third is short term — often spot or a few cargoes at a time. “And many of our long-term contracts are 10 years.”

Topics:
LNG Supply, LNG Projects, LNG Demand, LNG Contracts
#
The boss of Russia's Gazprom has announced a "paradigm shift" in gas trade with Europe, claiming greater control of the market through supply cuts.
Tue, Jun 21, 2022
The EU is reviewing gas market designs after setting up a joint purchasing platform while it seeks alternative suppliers to Russian gas.
Sat, Jun 25, 2022
The Malaysian state firm is aiming to unlock the potential of the country's sour gas fields.
Fri, Jun 24, 2022