LNG exporters face risks of stranded assets despite booming current demand

In its desperate quest for supplies of non-Russian gas to maintain lighting and heating this winter, Europe is leading an increase in LNG imports and prices. The short-term economics of LNG projects are attractive. But if the European Union is about to achieve it targeting To reduce overall gas consumption by 30% by the end of this decade, some LNG infrastructure – in both importing and exporting countries – could become stranded assets. Rather than supplying LNG for decades to come, some projects may not be needed anymore, especially if the LNG market turns into surplus after 2026, as some analysts predict, when many major export facilities are currently being set up in major exporters. Qatar and the United States. Enter online.

Reducing the demand for gas

Higher prices, energy conservation and shutdown of factories or production lines are set to drive Europe’s gas demand lower this winter compared to the five-year average. Lower demand could help prevent European gas storage levels from fully depleting by the end of next winter, according to analysts at Wood Mackenzie. He said advance this month.

Low gas consumption in Europe, due to demand destruction and energy savings – and a growing possibility Energy rationIt will help store gas this winter and next, says Wood Mackenzie.

However, low demand alone cannot guarantee adequate supply. European economies, including the largest – Germany – already Suffering from a growing energy crisisespecially after Russia’s Gazprom closed the Nord Stream pipeline indefinitely.

However, gas remains an essential part of the EU’s energy mix, both in heating homes, generating electricity, and fueling industrial processes. That’s why Europe is racing to build LNG import terminals to receive more gas from sources other than Russia.

Floating LNG Import Facilities

Currently, the quickest and cheapest option for obtaining more LNG import facilities is to lease floating gas-to-gas regasification units (FSRUs), said Kushal Ramesh, senior gas and LNG analyst at Rystad Energy, financial timesAlan Livesey.

“There are few use cases that are more appropriate for FSRUs than the European situation at the moment,” Ramesh told the Financial Times.

Onshore LNG import facilities are more expensive, take years to build and, ultimately, could remain a stranded asset if Europe (“a big “if”) achieves its goal of reducing gas consumption by 30% by 2030 and at least greenhouse gas emissions. 55% by 2030, as an interim target on the path to net zero emissions by 2050.

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So countries in Northern Europe are now looking to lease an LNG import FSRU to secure gas supplies for the next few winters until the EU makes concrete progress in reducing gas consumption through energy efficiency measures and promoting the use of hydrogen and renewable gas.

For example, on the day in May that Gazprom said it would do so Cut off all gas supplies to Finland Effective immediately, in Finland Transportation network company Gasgrid Finland Oy and US-based Excelerate Energy have signed a ten-year lease agreement for the LNG Terminal Ship Exemplar to ensure adequate gas supplies in Finland.

“Leasing a LNG terminal vessel is critical, as it ensures the security of gas supplies in both Finland and Estonia,” Gasgrid CEO Olli Sipila said at the time.

In the Netherlands, gas supplier Gasunie is building a floating LNG terminal in Eemshaven in the Groningen region and this terminal is expected It should be fully operational by late November or early December. In the long term, Jasoni says, this plant could be reused to store green hydrogen.

Germany, for its part, has already done so Five FSRUs rented Since May, with two of these, in Wilhelmshaven and Brunsbüttel, operations are expected to begin as early as the end of this year.

For the EU and its members, it currently seems logical to meet the short-term needs for gas, while working to reduce gas consumption and rely more on renewable gas and hydrogen and to replace gas in heating and power generation. Therefore, most choose to lease FSRU terminals cheaper than spending billions of dollars and years to plan, design, permit and build more expensive onshore LNG import terminals.

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After all, these utilities can become stranded assets within a decade or two.

The same applies to LNG export terminals as well. The two largest exporters – the United States and Qatar – have announced major expansions in production capacity that are due to come into effect after 2026.

While Europe’s energy crisis has reinforced the argument for a rush to build new LNG export infrastructure, the EU’s plan to reduce gas consumption and cut emissions may be problematic for LNG investments that have come too late for the party.

Investments in new LNG infrastructure set to increase to $42 billion annually in 2024, Rystad Energy Research Show last month. But 2024 will be the peak of new investment in LNG infrastructure — “project approvals are expected to decline after 2024 as governments transition away from fossil fuels and accelerate investments in low-carbon energy infrastructure,” the energy research firm said.

If Europe moves away from LNG to achieve low-carbon pledges under the EU REPowerEU scheme, “there is an increased risk of an LNG glut and price collapse after 2026 as new volumes hit the market,” said Simon Flowers, Chairman and Chief Analyst. In Wood Mackenzie, He said At the end of August.

By Tsvetana Paraskova for Oilprice.com

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