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Germany’s energy crunch is forcing it to sign fossil-fuel contracts that last decades as the country balances keeping the lights on and homes heated against meeting environmental targets.
Energy providers from Uniper SE to RWE AG have signed long-term agreements with liquefied natural gas suppliers, especially in the US, with more deals expected. Until now, utilities had shied away from the 15- to 20-year contracts, wary of the commitment to an energy source that emits carbon and methane.
“There are a lot of transactions that are in the works with us and with other parties that are at various stages,” said Michael Sabel, the chief executive officer of Venture Global LNG, the US supplier that signed a 20-year pact with German utility EnbW AG earlier this year. “I would expect a lot of contracts to get done.”
The turnaround highlights Europe’s energy dilemma. As Russia throttles gas supplies to the continent in a move that threatens to push the region into recession, the only options for rapid replacement are fossil fuels that risk upending the path toward becoming carbon neutral.
Across Europe, governments are fast-tracking the use of floating LNG terminals that take a fraction of the time to set up than their onshore versions. Germany, which used to get more than a half of its gas via pipelines from Russia, is now chartering five of the floating storage and regasification units, or FSRUs, and two more that will be privately rented. Three are slated to start this winter.
RWE has “been very active in obtaining the FSRUs for Germany and we want help them fill the capacity that’s needed for those facilities,” said Dan Brouillette, the president of Sempra Infrastructure LLC, the US company that signed an LNG supply accord with the German utility earlier this year.
There’s “tremendous” interest in developing long-term relationships with Europe, Brouillette said at the Gastech industry conference in Milan this week.
Even so, Germany is sticking to its climate objectives. The country wants to become carbon neutral by 2045, and the government aims to generate all the nation’s electricity from renewable sources by 2035. Although natural gas pollutes less than coal, it’s still environmentally less sound and, until recently, was viewed only as a short-term fix.
“Natural gas will be needed for a while, Germany simply cannot replace it all as soon as it would want to,” said Ulrich Scholz, a partner at the law firm Freshfields Bruckhaus Deringer LLP.
Germany is currently in a situation where it needs a minimum of 40 million tons more of LNG, Venture Global’s Chief Commercial Officer Tom Earl said at the Gastech conference. And within the next seven to nine years, Europe will require as much as 200 million tons of additional supply, “which has to come not only from the US, but other global centers of LNG production,” he said.
