Race to secure gas for Europe’s future winters has already begun | Popgen Tech
Although Europe has filled its reserves of natural gas for this winter, the clock is already ticking to secure energy for the coming years, which are expected to remain plagued by threats of severe shortages,
The European Union’s gas storage is about 95% full, and many analysts say the continent can avoid an energy disaster this winter. But sourcing gas for coming winters is expected to become more difficult for European countries now that they are mostly cut off from Russian supplies and global competition for finite cargoes of liquefied natural gas is growing.
There is little additional LNG coming to market until around 2026, when planned projects in the US and Qatar come online, and Europe is likely to compete for tight supplies over the next few years.
Some companies in Germany, Europe’s manufacturing engine, worry about having enough energy for the latter part of the decade. German companies, including chemical producer BASF SE and bailout Uniper SE, have held talks with U.S. LNG exporters and others in recent weeks about possible gas supply deals likely to begin after the middle of the decade, according to people familiar with the discussions.
After Russia’s invasion of Ukraine, some European companies signed contracts for US LNG. Now businesses that rely on gas say the continent will need more of it for years to come.
The negotiations signal heightened concerns about energy security, the people said, but are complicated because while many in Europe are looking for gas for five to 10 years, some company and government officials are reluctant to sign long-term supply contracts. Germany and other European countries have set ambitious targets to dramatically reduce fossil fuel consumption, and companies worry they could be on the hook for gas they no longer need.
BASF and Uniper are looking for ways to obtain more natural gas, including through LNG, spokespeople for the companies said.
German government officials are monitoring the discussions on gas supplies, including separate talks with Norwegian oil and gas company Equinor AS
A, which sometimes suggests companies to contact exporters, said some of the people familiar with the discussions.
A spokesman for Germany’s Ministry of Economy and Climate said that gas purchases are the responsibility of companies.
Equinor CEO Anders Opedal said in a recent interview, “We are working closely with German industry to find common ground for potential future investments,” in oil and gas as well as low-carbon energy.
EU officials have proposed forming a collective of European companies to coordinate gas deals and buy fuel jointly, bidding against each other for the same gas. In October, German Finance Minister Christian Lindner expressed support for the idea. But some company executives and government officials doubt such a program would work because of gas market complexities and different needs between countries, and some companies are going it alone in negotiations.
“We are not completely convinced of the advantages and benefits that can be achieved by bundling the gas procurement at a European level,” said a spokesperson for RWE AH
, a German utility that signed a non-binding 15-year deal with US LNG exporter Sempra Infrastructure in May. She said RWE is calling on government officials to support long-term gas contracts.
German companies are not alone in obtaining gas. Countries including France and the UK face threats of power shortages, and US LNG executives have appealed to European governments seeking deals. A subsidiary of the British chemical company Ineos Group AG signed a non-binding supply agreement with Sempra earlier this year, as did the Polish energy company Polskie Gornictwo Naftowe i Gazownictwo SA.
A UK government spokesman said it was working with local and international suppliers to explore contracts that could increase the security of energy supply.
Political opposition remains in some corners to long-term gas deals that some say could derail climate goals aimed at lowering greenhouse gas emissions. “It’s hard to see how they are compatible with decarbonization plans,” said Jill Duggan, executive director for Europe at the nonprofit Environmental Defense Fund.
German officials have previously said they expect the country’s demand for natural gas to peak around 2030, then gradually give way to more renewable energy.
The tension between Europe’s immediate energy needs and long-term climate aspirations creates a complicated market for European buyers as well as American sellers. Developers of LNG projects must sign long-term contracts with customers to finance multibillion-dollar plants that convert gas into liquid for export.
Some Europeans are looking for ways to satisfy exporters while maintaining climate goals. One option being considered is to sign long-term deals and resell a portion of the gas in later years in foreign markets, which most U.S. LNG contracts allow, according to company executives, bankers and others briefed on the talks. Another option being discussed is for buyers to invest directly in LNG projects and sign shorter-term supply contracts, allowing them to offload the equity stake later, some of the people said.
People involved in deal talks said gaps still exist between buyers and sellers. European buyers want lower prices from American sellers, arguing that they have already benefited greatly from Europe’s energy crisis. US sellers say buyers do not appreciate the inflation and transport costs and financial risks the companies bear, noting that prices are expected to rise again in coming months and years.
Commonwealth LNG, which is developing a new US LNG facility in southern Louisiana, is open to 10-year contracts, but at a higher price compared to a 20-year deal, Paul Varello, the company’s executive chairman, said. A shorter contract would require an exporter to amortize debt over a shorter period of time.
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“It is safe to say that companies that can offer flexibility [contract duration] and flexibility around prices” will sign agreements with Europeans, Mr. Varello said.
Disagreement over the urgency of potential gas shortages is a sticking point. Some German officials have recently suggested in private discussions that they feel less pressure to reach gas supply deals before year-end, citing lower prices and better-than-expected storage volume, according to people familiar with the discussions. Some European business executives worry that the cushion is only temporary, and a lack of political will creates risks for future winters.
The Paris-based International Energy Agency warned this month that Europe was at risk of not meeting its energy needs next year and urged it to do more to conserve the gas it has and switch to other, renewable energy sources link. Europe’s natural gas shortfall in summer 2023 could reach 30 billion cubic meters, according to IEA estimates, or a good chunk of what the bloc needs to refill its gas storage network before winter returns.
“Europe basically has to do everything it can,” said Keisuke Sadamori, the IEA’s director for energy markets and security.
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