Page 4 - EurOil Week 47

EurOil COMMENTARY EurOil
Germany’s rising gas demand attracts exporters
German’s gas demand is growing, and exporters of the fuel – both by pipeline and as LNG – are increasingly targeting the country
GERMANY
WHAT:
Germany’s demand for natural gas is rising.
WHY:
The country is phasing out coal-fired and nuclear power generation.
WHAT NEXT:
New LNG terminals in the country are still some time away from being built, making Germany more reliant on pipeline gas imports in the shorter term.
Germany currently imports gas mainly from Russia, Norway, the Netherlands and Denmark via pipeline.
GERMANY’S natural gas imports are rising, buoyed by the closure of coal-fired power gen- eration capacity, among other factors. Accord- ing to official trade data, the country imported 25.6% more natural gas in the first nine months of 2019 than it did in the same period of last year. This equates to 117bn cubic metres. Germany’s import bill, meanwhile, rose 8.8% year on year to €18.6bn ($20.5bn).
The rise reflects a broader trend whereby Europe is importing more gas, with surging LNG shipments making a significant contribution. Meanwhile, several major new pipeline projects are preparing to enter service. However, Ger- many is Europe’s largest consumer and importer of natural gas.
Storage inventories across Europe are full ahead of winter, including in Germany. Accord- ing to infrastructure group GIE, German gas stocks were at 98.7% of available storage capacity this week, up from 83.1% a year ago.
Germany currently imports gas mainly from Russia, Norway, the Netherlands and Denmark via pipeline. It is also building at least two – or up to four – LNG import terminals over the com- ing years. The move comes partly in response to US pressure over the Nord Stream 2 pipeline, which will carry 55 bcm per year from Russia to Germany. With Germany already buying over a third of its imported gas from Russia, Nord Stream 2 could easily double the European coun- try’s Russian imports. The US, meanwhile, has been promoting its LNG as an alternative to Rus- sian gas and as a means of reducing Gazprom’s dominance in Europe.
However, the US is not the only country trying to sell LNG to Germany. A German trade delegation is due to visit Qatar by the end of November to discuss energy co-operation between the two countries, among other issues. If talks are successful, German companies will be able to buy LNG directly from Qatar, while state-owned Qatar Petroleum (QP) may invest in new LNG import infrastructure being developed in Germany. Currently, any Qatari LNG that reaches Germany arrives indirectly via Belgium and the Netherlands.
Gas-to-power
Germany’s rising gas consumption is now being
spurred by a shift away from coal-fired power plants, and back towards gas-fired plants, some of which were previously mothballed when mar- ket conditions were less favourable.
Earlier in November it was reported that Ger- many’s Uniper – one of Europe’s largest utilities – was preparing to bring up to 3.5 GW of gas-fired power generation capacity back online, or almost a third of its gas-fired capacity. The move comes amid a shift in the economics of power owing to higher costs for carbon allowances, which have made coal-fired generation less attractive.
“Carbon markets have shown they work,” Uniper’s CEO, Andreas Schierenbeck, told Bloomberg in mid-November. “This summer, carbon prices were very high and gas is very cheap, very competitive. The logic is clear: you need as much as double [the] carbon certificates for coal than for gas,” he said.
The shift away from coal-fired generation is also in line with Germany’s plan to phase out coal by 2038. Details of how the country will achieve this – either making coal-fired power plant closures compulsory or allowing operators to shut down plants voluntarily, spurred by vari- ous incentives – are still under debate. However, the phase-out has previously been estimated to cost at least €40bn ($44bn).
Meanwhile, Germany has also committed to phasing out its nuclear reactors by 2022. These efforts to phase out both coal and nuclear power are anticipated to cut the country’s generation capacity by about half. Germany is pursuing an expansion of renewable capacity, but there are challenges involved in this. As a result, the use of natural gas – whether as a bridge fuel or as a longer-term part of the energy mix – is viewed as an increasingly attractive option.
What next?
Under these circumstances, it is not surprising that Germany is committed to Nord Stream 2 despite US opposition to the latter’s start-up. The project is now due to enter service around the middle of 2020, providing a considerable boost to Germany’s gas imports.
Meanwhile, new LNG import terminals in the country are not expected to come online until 2023, making pipeline imports all the more important in the meantime.™
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w w w . N E W S B A S E . c o m Week 47 28•November•2019