Germany’s first own floating LNG terminal was completed in a hurry. The traffic light registers this as a success. But there are still many problems lurking to ensure security of supply. Where Germany currently stands and what still needs to be done.
In thick neon yellow jackets, with the sea behind them and with big words, Federal Chancellor Olaf Scholz, Finance Minister Christian Lindner and Economics Minister Robert Habeck opened Germany’s first own LNG terminal on Saturday. “This is now the new Germany pace,” said Scholz on the Lower Saxony North Sea coast in an icy breeze. Again and again the Chancellor spoke of the “new Germany speed”, of a “world record”.
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And indeed, the construction of the special ship, which can receive liquid natural gas from LNG tankers, store it and convert it back into the gaseous state, took place at record speed. The approximately 300 meter long ship called Höegh Esperanza required just under ten months of planning and construction. It is intended to feed around five billion cubic meters of natural gas into the German gas grid every year. That is around six percent of German gas requirements and around eleven percent of former gas imports from Russia.
But Germany has by no means eliminated all construction sites in order to be secure in the long term. Which problems still have to be eliminated in order to put Germany’s gas supply on a secure footing and where the train has already left:
With the opening of the first terminal for the import of liquid gas, an important step towards security of supply has been taken. Overall, Germany plans to install up to eleven LNG import terminals in the next few years, including three permanent terminals. The import capacity would amount to around 73 billion cubic meters of gas per year and could overcompensate for the around 50 billion cubic meters of gas imported from Russia before the start of the Ukraine war. However, Germany’s energy supply cannot be secured by the import capacities of the LNG terminals alone.
The terminal in Wilhelmshaven opens Germany up to the global LNG market. However, how many ships will ultimately call at the terminal remains to be seen. In any case, the German merchant fleet does not have a single gas tanker that could transport LNG over long distances. Most recently, the general manager of the Association of German Shipowners, Martin Kröger, conceded.
Other international shipowners, on the other hand, recognized the trend towards LNG earlier and increased their fleets. Norway and Greece in particular have invested in new gas tankers and thus control around a fifth of global capacities. Germany failed to do this.
The 693 LNG transport ships that exist worldwide, which could deliver the precious commodity to Wilhelmshaven or Brunsbüttel, for example, are booked out for years and are more likely to go to India or China. The great thirst for LNG in Europe is also causing the cost of chartering tankers to explode. In November, for example, the price for an average tanker was $144,000 per day. In December, the average price rose to around $154,000 a day.
If the federal government wants to get liquefied gas to the German coasts, it first has to queue at the end of the queue or dig deep into its pockets. The uncertainty that can be felt today will therefore remain in the future.
Germany also overslept the moment when it came to concluding long-term supply contracts. One searches in vain for contracts concluded by German energy companies over longer periods of time. So far, Germany has only one supply contract of this kind – with Qatar. The US group ConocoPhillips acts as a buyer and ships the LNG to northern Germany. The gas will then be sold to the two large energy groups Uniper and RWE. The crux of the matter: The gas should not be delivered until 2026 – but then over a period of 15 years.
On the other hand, the gas that rushed constantly through the Nord Stream 1 pipeline for years came reliably and the prices were stable. The import-export relationship between Germany and Russia was permanent. Until February 24, 2022. Russia’s aggressive war in Ukraine changed everything. The once reliable gas supply through the tube has dried up, forcing Germany into a dynamic LNG market.
The prices there fluctuate extremely. In addition, the transport of liquefied gas across the world’s oceans from country A to country B is contested on the one hand because the ships are rare. And on the other hand, the arrival of those ships in the destination country is not guaranteed. It is not uncommon for the destination of an LNG transport ship to change halfway. The price dictates the route here. Whoever pays the most gets the gas in the end. It is quite common for LNG ships to leave their exporting countries without a destination. LPG market prices are heavily dependent on developments in different countries.
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Purchasing on the short-term LNG spot market, as Uniper and RWE have been doing up to now, is therefore very price-intensive and the delivery quantities also fluctuate. Long-term contracts would stabilize both prices and quantities, thus ensuring security of supply in Germany. This would provide relief and planning security, especially in the industrial sector.
In order to buy time to tackle these core problems, Germany is still dependent on being careful with the available gas for the time being. Current data from the Federal Network Agency show that this has worked so far.
This shows that, despite the lack of pipeline deliveries from Russia and without the connection of the first German LNG terminal, Germany currently has a lot of gas available, as it was last in April. This is due, among other things, to a decline in export volumes since the beginning of November.
Ultimately, however, the Federal Republic must concentrate on long-term contracts in the future. In particular, the USA, which is continuously expanding its LNG production capacities, is coming into focus. Cooperation with German energy companies should be sought. As long as there is no progress in the area of supply contracts, Germany will continue to be dependent on pipeline deliveries from other European countries and purchases on the spot market. So it still applies: Whoever pays the most gets the chance to deliver LNG. The federal government has recently shown that money is not a problem. With a lot of money, Germany filled its gas storage tanks to the brim to get through the winter.
