On 25 March, as he attended an EU summit in Brussels, US President Joe Biden announced that 15 billion cubic metres (bcm) of liquified natural gas (LNG) would immediately be redirected and delivered to the EU to help replace the 100bcm of Russian gas the EU aims to drop by the end of the year. The plan is to scale this up to 50bcm of US LNG per year starting in 2023. The problem? The EU does not have enough LNG infrastructure to receive all this gas.
Three things are needed to receive LNG – natural gas that is liquified for shipping and then regasified at the destination – a liquefication export terminal, a gasification import terminal and pipelines at either end to get the gas to and from where it needs to go. Most US export terminals and EU import terminals are already operating at maximum capacity, and those that are not do not have the pipeline infrastructure to get the gas to where it needs to go.
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By GlobalData
The European country that has built the most LNG import terminals to date, Spain, suffers from a lack of pipeline connections to the rest of Europe. Just ten of the EU’s 27 member states, plus the UK, import LNG and three of them (Spain 25%, France 21%, UK 18%) account for two-thirds of it. Germany, which has the most urgent need for LNG – Russian gas made up 65% of its gas imports in 2020 – has no LNG terminals.
The race to build
European countries have already been ramping up their LNG imports over the past years, hitting a record high in January 2022. Over the past months the European Commission has been rushing to strike new LNG deals with countries like Qatar, Norway and Japan (the latter selling LNG its already purchased). Some of the EU’s existing 28 large import terminals do have some spare capacity. But they have it for a reason: they are not connected to potential end-use destinations.
“There’s additional capacity on the EU side to import LNG but of course if you look at the import capacity as a whole, there would still be problems related to interconnection,” says Simon Dekeyrel, a climate and energy analyst at the European Policy Centre, a Brussels-based think tank. “The additional LNG imported via Spain might not reach other parts of the European market.”
So the race is on to build the infrastructure necessary to accommodate these new LNG imports. Biden said the US will help with that effort. The EU will “build more infrastructure to receive LNG and to take steps to increase the efficiency of gas [power plants]”, he said in Brussels.
“But a big LNG import terminal takes around five years to build and come online,” notes Dekeyrel. The pipelines connecting that terminal also take several years to build – well beyond the short-term urgency of replacing Russian gas imports, which the Commission wants to reduce by two-thirds by the end of 2022.
“What we’re seeing right now is a flurry of new announced projects across EU member states,” Dekeyrel says. “Germany has announced two LNG import terminals. Italy is also considering a new terminal. It’s a huge rush […] which might really lead to unnecessary investments in fossil fuel infrastructure which would be much better spent elsewhere.”
Beyond the infrastructure capacity problem, this LNG import rush is also facing headwinds from the market. Right now Asian markets are paying the most for LNG, which has meant that US LNG exports have mostly gone there. Having the LNG go to Europe instead will require market intervention by the US government, something Biden suggested he can do but for how long? That intervention isn’t going to come cheap, raising the price tag for all of these LNG import efforts.
“These investments in new LNG import terminals are very substantial investments,” Dekeyrel adds. “You’re talking about $1bn. That would mean when they come online, they would stay in operation probably for decades to come. There’s definitely a risk for carbon lock-in.”
Fossil fuel lock in – or stranded assets
Esther Bollendorff, senior gas policy coordinator at the NGO Climate Action Network Europe, says there is a real danger the mad dash for LNG as a solution to Europe’s dependence on Russian gas not only risks locking fossil gas into the EU energy system for decades, it is also not an efficient solution because of all the time it takes to build this infrastructure.
“Every cent, be it public or private, that is invested in gas infrastructure isn’t going to be invested into energy savings and renewables,” she says. “Building new LNG infrastructure takes at least two to three years , and with 30 to 40 years payback time, you’re obviously going towards a lock-in and stranded asset scenario. You could have used that money to kick start a program to renovate houses, for example.”
That same money invested in energy efficiency measures would not only deliver a faster result (less Russian energy needed), it would not lock in fossil fuel infrastructure. Alternatively, investing in a massive ramp-up of renewables, especially where they are already connected to the grid, would yield results faster than the five-year wait for an LNG terminal and associated infrastructure to come online.
Not everyone is enthusiastic about the LNG push. A growing chorus of NGOs and lawmakers are making the case that replacing Russian gas with American gas, most of which is now shale gas from fracking, is not the best solution given time constraints and the climate crisis. In early April, 102 members of the European Parliament signed a statement saying natural gas should be removed from the EU's taxonomy list of energy sources that count as sustainable investments given the security risk presented by Russian gas.
A recent analysis by think tank Ember found the EU could end imports of all Russian gas by 2025, two years earlier than the Commission’s target of 2027 in its Repower EU strategy, simply by fully implementing the measures in its Fit for 55 climate and energy package. In other words, no new gas import infrastructure is needed. Indeed, that is sooner than any new LNG import terminal could be built. The calculation factors in only replacing gas for gas that the existing infrastructure can handle within the next years – 50 bcm. The rest is achieved through an increase in renewables and energy efficiency improvements.
"The largest use of gas in Europe is for heating buildings,” says Jan Rosenow from the Regulatory Assistance Project, which assisted with the Ember report. “Insulation and switching out gas boilers for heat pumps are key for reducing gas demand in buildings.”
“The building of additional LNG infrastructure is not actually required to really diversify away from Russian gas,” says Dekeyrel. “If these Fit for 55 measures were fully implemented, then by the time these new LNG terminals and pipelines enter operation they would already not be needed anymore.”
Retrofitted for hydrogen?
The oil and gas industry disputes the idea that new LNG infrastructure locks Europe into a gas future, because the infrastructure could be used for renewable hydrogen later. The Commission made developing a pan-European hydrogen market and infrastructure a key aspect of its gas market reform proposal in December 2021. The Commission envisages natural gas as a transition fuel on the road to net zero in 2050, because it is less carbon-intensive than oil or coal. Industry association Eurogas has been promoting this concept, with the future use of gas infrastructure for hydrogen at its centre.
A Eurogas 2050 scenario published in 2020 found that more than 80% of the investment needed in gaseous energy networks to get to net zero will be to adapt existing infrastructure to hydrogen use. “While we can certainly achieve carbon neutrality, we will need gaseous solutions to do so,” said Eurogas secretary general James Watson at the time.
But NGOs are suspicious this idea of eventual retrofit for hydrogen is just an excuse to build natural gas infrastructure now. “We hear this argument a lot, such as with the €5bn heavy EastMed project because it’s supposed to become hydrogen-ready at some stage [by 2036],” says Bollendorff. That €6bn project was meant to ship gas from deposits offshore Israel and Egypt through a pipeline running via Cyprus and Greece to European markets. It’s now on ice after the US pulled support, but the precedent was set that such projects can get European money. “It’s a bit of a mirage that the industry wants us to believe, but it requires a lot of technical adjustments as transporting hydrogen requires conditions of high pressure, impacts on the coatings, the compressors, etc. It’s better if you just built a hydrogen pipeline to start with.”
Converting an LNG terminal into a hydrogen facility would be even more complicated. In its Repower EU strategy, the Commission said it ultimately wants terminals to pivot to imports of net-zero aligned renewable hydrogen, and suggested that any new LNG terminal should be hydrogen-compatible. Similarly, the EU-US joint statement on LNG on 25 March says construction will be focused on "clean and renewable hydrogen-ready" LNG infrastructure.
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Some LNG infrastructure can be retrofitted to allow imports of hydrogen in the form of ammonia, a chemical that can be used as a hydrogen carrier – and fuel for ships – to reduce the cost of transporting liquid hydrogen. However retrofitting is a complex process and would only be part of what is needed for hydrogen imports.
The Commission set a goal in its 2020 EU Hydrogen Strategy of domestically producing up to 1 million metric tonnes (mt) of renewable hydrogen per year from now to 2024 and 10 million mt per year from 2024–30. That target was increased in last month’s Repower EU strategy to 20 million mt per year by 2030, replacing 25 to 50bcm per year of imported Russian gas. According to a report by the World Energy Council, about half of the hydrogen and hydrogen-based fuels needed in the EU by 2050 will have to be imported.
Bollendorff says she understands why there is so much focus on energy security at the moment given Russia’s invasion of Ukraine, and why for many policymakers replacing Russian gas with LNG is the first impulse. But she and others will be working to convince them the first impulse is not always the right one.
“We need to make the case for how investing in renewables and energy savings is going to increase energy security, create jobs and contribute to solving climate change,” she says. “Diversification from fossils to fossils, will not be helpful. We need a different type of diversification. And we can dig out examples from the previous oil crisis 50 years ago which triggered quite important behavioural changes. We need to see that again."
