Germany will “rapidly” build two LNG import terminals and bolster its strategic reserves of both gas and coal as it looks to secure its energy supplies amid the crisis triggered by Russia’s invasion of Ukraine, Chancellor Olaf Scholz said on Sunday.

The government said in late February that it would not certify the Nord Stream 2, which runs from Russia directly to Germany, in response to the invasion. Germany imports about 60pc of its natural gas from Russia.

“We will change course in order to eliminate our dependence on imports from individual energy suppliers,” Scholz says. “After all, the events of recent days and weeks have shown us that responsible, forward-looking energy policy is not just crucial for our economy and our climate. It is also crucial for our security.”

60pc – Approximate German reliance on Russian gas

The new LNG terminals are planned for Brunsbuettel and Wilhelmshaven in the north. Dutch state-owned gas pipeline operator Gasunie says it hopes to start construction of the Brunsbuettel terminal before the end of the year. Gasunie, which is a shareholder in the Nord Stream project, also says its plans to freeze all non-operational relations and contacts with Russian companies, such as gas exporter Gazprom.

The details of the Wilhelmshaven terminal are less clear. Energy company Uniper had previously planned to develop a regasification terminal at the north German port, but it abandoned the plan last year in favour of a new project to for a clean hydrogen production and import hub.

Belgian grid operator Fluxys, together with German port logistics company Buss Group and Swiss private equity firm Partners Group, is developing an LNG terminal at Stade in northern Germany. Permitting for the terminal has been finalised, but the developers said last week that they are waiting for changes to gas market regulation to allow the project to advance.

Hydrogen imports

The recently installed coalition government, which has ramped up Germany’s targets on renewables and clean hydrogen compared with those set by the previous administration, has been careful to stress the potential to use the new LNG terminals to import hydrogen.

“Our current short-term needs can dovetail with what is already needed long-term for the transformation to succeed. An LNG terminal that today receives gas can tomorrow be used to import green hydrogen,” Scholz says. Germany’s strategy to build a hydrogen economy includes projections that it will rely on imports for at least half its demand for the clean fuel.

Gasunie, which is heavily involved in European efforts to develop a hydrogen economy, also stressed the potential dual purpose of the Brunsbuettel faculity. “In addition to LNG, this terminal will be made suitable for importing (green) hydrogen as well,” says Han Fennema, CEO of Gasunie.

Scholz’s government, which is committed to phasing out both nuclear and coal, has acknowledged the role of gas in the energy transition as a flexible power source to balance the country’s growing share of intermittent renewables, which it aims to raise to 80pc by 2030 from just over 40pc currently. It has backed the proposed inclusion of gas in the EU’s green finance taxonomy and is expected to present proposals for the investment framework for hydrogen-ready gas-fired power plants later this year.

A joint study by management consultancy Boston Consulting Group and industry body the Federation of German Industries estimates Germany will need 60 new gas-fired power plants with a total capacity of 40GW by 2030.

Back to coal

The government’s decision to boost its strategic stocks of gas to 2bn m³ is no surprise as it looks to cushion itself against supply shocks. But its decision to bolster coal stocks highlights the severity of the crisis facing Europe’s largest economy, which has pledged to reach net-zero emissions by 2045. The government remains committed to phasing out coal by 2038 at the latest, but consumption of the fuel has been rising recently because of the surge in gas prices, a trend exacerbated recently by deepening uncertainty over Russian gas exports.

“Forward-looking energy policy is not just crucial for our economy and our climate. It is also crucial for our security” Scholz, German chancellor

Dieter Helm, professor of economic policy at the University of Oxford, says Germany and other countries have turned back to coal as the energy crisis deepens, despite the fuel emitting more CO₂ than gas. “Security of supply, and especially consumer prices, turns out to be more important than carbon emissions,” he says in a recent paper on the impact of the Ukraine crisis.

The challenge for the US, the EU and the UK is how much climate change dominates energy security concerns, Helm says. “The trouble is that the populations have all been fed a political, lobbyist and media narrative that decarbonisation is low-cost. In this first net-zero energy price crisis, they are discovering that this is not true.”

---

Author: Stuart Penson