LNG too expensive for Germany?: "Gas bills will remain twice as high by 2030"

The Russian pipelines are history, natural gas will in future be delivered to Germany via several LNG terminals on the coast. A mistake, say Maria Pastukhova and Mathias Koch from the E3G think tank. In a study, you argue that Germany should reduce its gas consumption and not restore the old capacities. That has to happen anyway if we want to achieve our climate goals, as they explain in ntv’s “climate laboratory”. But it would also save a lot of money: “We’re not talking about a two-year crisis. That’s why we should ask ourselves: Wouldn’t it be more profitable if we made the savings now?” ask Pasthukova and Koch. Because they are convinced that Russian gas, which has disappeared from the global market, will never come back – and prices will therefore remain high for years to come.

ntv.de: After the Russian attack on Ukraine, six floating terminals for liquefied natural gas (LNG) are currently being built in Germany, with three more on land to follow later. In a new study, you say that we don’t actually need many of these terminals and could save many billions of euros. How, please?

Mathias Koch: In the case of natural gas, the two major consumption sectors are industry and the building sector. Even before the current energy crisis, it was clear that consumption must be reduced by 30 to 40 percent within this decade if we want to meet our climate targets. We can’t get around that.

The federal government believes that this is also possible with LNG terminals.

Mathias Koch: We have to save gas, the only question is when? The federal government is proposing to push many savings far back. But you could also say: wait a minute, we have a completely new situation. Gas prices are much higher and will remain so. That is the key thing we show in our study. We’re not talking about a two-year crisis and then everything will be fine again. And if prices stay high, we should ask ourselves: wouldn’t it be more profitable to save now? Then we would need the terminal capacities that the federal government is currently planning, but not in the same quantity.

But we need natural gas, it has to come from somewhere.

Mathias Koch: Russia accounted for about half of Germany’s natural gas imports. But there are also imports from Norway or the Benelux countries, which have had LNG terminals for some time. They remain. Will we then need our own LNG capacities? In the end it is very simple: in the current situation, you can replace the lost imports or reduce demand. If we go too much towards new imports, it will be very, very expensive at current world market prices. If, on the other hand, we reduce demand, it will be correspondingly cheaper. We have to reduce demand anyway if we want to achieve our climate targets. So we could do that now too. The potential is enormous, especially in the building sector.

Maybe you can explain why it’s getting so much more expensive.

Mathias Koch: In the last decade, Germany has paid around 18 billion euros a year for natural gas imports. We assume that the average import costs will be 15 to 25 billion euros higher per year in the coming years. That’s a doubling of annual costs for the rest of the decade. These import prices translate into higher prices for German households, but also for industry. A family that uses 20,000 kilowatt hours a year for heating will have to pay 1,300 euros more every year until the end of the decade. So gas bills will remain double until 2030.

But why is it so expensive?

Mathias Koch: A large amount of gas was withdrawn from the world market as a result of the Russian withdrawal. This is missing from this equilibrium of supply and demand and means that world market prices are higher than in the past.

But Russia continues to produce gas and wants to continue selling it. How can it just be gone?

Maria Pastukhova: The gas that Russia does not send to Europe stays in Russia. Unlike oil and coal, which can be shipped by ship or rail, gas supplies require pipelines. Nord Stream 1 and Nord Stream 2 were two of several that served the European market. In total, around 155 billion cubic meters of gas were delivered in 2021. More than half of these were taken off the market by Russia itself, first stopping supplies through the Yamal pipeline, which runs through Poland to Germany. Then came the closure of Nord Stream 1 and then the explosions. This completely removed 80 billion cubic meters from the global market. There is no infrastructure that would allow Russia to divert this gas to other markets.

But you always hear that Russia wants to sell its oil and gas to Asia in the future if the EU stops buying. That doesn’t work at all because Russia lacks the appropriate pipelines?

Maria Pastukhova: That’s right. Russia supplies China with the Power of Siberia 1 pipeline. This pipeline is currently delivering about 19 billion cubic meters per year. Russia plans to increase exports to China to 25 billion cubic meters next year. Then it would be about half of what Nord Stream 1 transported. By 2025 it should be 38 billion cubic meters. This is not a substitute for the European market. After the annexation of Crimea, planning for a second pipeline began. A memorandum of understanding with China was signed. The Kremlin has repeatedly claimed that it will be fed from the same gas fields as the European pipelines. He then wanted to arrange his deliveries according to demand and send the gas either to Europe or to China. But that was some time ago, so far nothing has happened. Most likely, the reason for this is that Chinese companies do not have a great need for this gas. Second, they lack investment security. These are very large and long-term investments. Under the current sanctions regime, there is probably no willingness to pump more money into this pipeline.

So you think it is unlikely that Russia will find other buyers for its gas?

Maria Pastukhova: Highly unlikely. Even if China and also Mongolia, which, like Ukraine, would have to act as a transit country, agree to the immediate construction of this pipeline, the gas will be flowing in maybe ten years. Because the construction of a pipeline takes an extremely long time. The Power of Siberia 1 was built over a period of ten years. The new pipeline is longer and is said to have more capacity. So more time would have to be planned for the construction – and that in times of war, not a normal investment climate.

But you can see in Germany that LNG capacities can be built up relatively quickly. This is not an option for Russia? Are pipelines and liquid gas terminals missing?

Maria Pastukhova: Of course there is Russian liquid gas. That’s going a bit under the radar, but Europe has actually increased its LNG imports from Russia by 50 percent since January. But that gas is mostly managed by the private company Novatek. This has been largely ignored in sanctions because it doesn’t bring in as much tax and barely fills the Russian war chest. That is changing now. The Kremlin has already decided to tax liquefied gas exports more heavily. So these too are politicized. We have to see how Russia and the European market react to this.

Novatek’s capacities are also not comparable to Gazprom’s pipeline capacities. It will also be difficult to set up new terminals because the technology for this has predominantly Western origins. It is already being discussed whether Chinese companies could supply similar technologies. There are even Chinese or Russian alternatives, but they are less efficient and have much smaller capacities. It will take several years to catch up on this backlog.

And then ultimately Gazprom will go bankrupt?

Maria Pastukhova: Gazprom will still play a significant role in Russia, but it will no longer be a significant player in the global market. They will export some more gas to China and try to build up their own liquid gas capacities. But prospects on the international market are bleak because Gazprom is likely to have lost its most lucrative market forever.

Mathias Koch: It is of course relevant whether and to what extent Russia can supply other countries in the future. But the question is: do we even want that? Not me. Because we not only want to accelerate our energy transition, but also the Chinese one. With the high world market prices for natural gas, two timelines intertwine: We need gas in the short term because every second apartment in Germany is heated with it. In the medium term, however, we want to get away from it because we want to achieve our climate goals. So we should not encourage new investments in gas production.

Maria Pastukhova: Not only will world market prices remain high, they will also be very volatile because there are many factors beyond our control, including technical failures such as the explosion at the Freeport LNG terminal in the US. As a result, prices have also risen. There is also “political blackmail” as with Nord Stream 1 and the gas turbine. That was already interrupted before the explosion.

There is also the huge factor of China. Gas prices are currently falling, in large part because China is stifling its own economy with its zero-Covid policy. However, China was already the largest LNG importer in the world last year and actually wanted to consume even more this year. We don’t know how this will develop in the future. But when China springs up and ramps up, gas prices will skyrocket. So when we say we need the LNG infrastructure to ensure our energy security, that’s only partly true. In the coming years we will be exposed to a very uncertain market.

The climate arguments are obvious when it comes to natural gas, but they are often ignored. Do you think that this economic argument in Germany will convince some people to say goodbye as soon as possible?

Mathias Koch: The federal government needs a clear concept of what prices and what consumption it expects in the future. This is what the LNG infrastructure should be based on, not the other way around. The terminals have already doubled in price, we are now talking about 6.6 billion euros. This is made available without communicating how much gas is actually to be imported and consumed. This calculation would be needed to show the space for alternatives that should actually be talked about: decarbonization of industry, renovations, heat pumps and so on.

So how confident are you? The FDP and Christian Lindner have no plans to reduce consumption. On the contrary, they even want to promote new gas – in Germany with fracking.

Mathias Koch: The FDP is obviously trying to pull new things out of a hat at the moment in order to distract attention from their political situation. That’s what Mr. Lindner said openly after the state elections in Lower Saxony. In the summer we had a huge argument about nuclear power plants, which account for three percent of Germany’s primary energy consumption. That was totally disproportionate. Now comes fracking, which even the gas industry says will take three to five years before it can start. By then we could have reduced gas consumption long ago. This distracts the FDP from the actual solutions.

One argument of the natural gas advocates is that in the future this infrastructure can also be used for hydrogen or substances based on hydrogen. Still an advantage, right?

Mathias Koch: That is a very misleading argument. I’m not aware of an easy way to convert LNG terminals to carry hydrogen instead. However, the crucial question is not whether this is technically possible. The crucial question is: Where is this hydrogen supposed to come from and at what price? That will not be answered. Not even from politicians like Federal Minister of Economics Robert Habeck, who say: Hydrogen is great for our future!

Hydrogen will remain a very expensive product globally until at least 2030 and probably well beyond. Green hydrogen, mind you. If we talk about other types of hydrogen, the question of climate protection has already been resolved. People will probably only buy it with subsidies. But build a complicated natural gas infrastructure so that we can then import subsidized hydrogen? Wouldn’t it be better if we put the money directly into decarbonization? We have it in our hands. Then we will no longer be dependent on world markets.

But for decarbonization, from everything you read and hear, hydrogen plays the crucial role. You have to build up this infrastructure before you repeat the mistakes of the past and suddenly realize that it is missing.

Mathias Koch: The main burden of decarbonization is borne by electricity. Hydrogen can be used at some points where it does not work with it. This applies above all to energy-intensive industry. But even then it is unclear to what extent. More and more studies are showing that electrification might also be the more profitable option in industry. In the end, these are business decisions in which the price decides. In the building sector, where most of the natural gas in Germany is used for heating, hydrogen will not play a role at all.

There is also another argument: the countries that export hydrogen only have limited renewable capacities. If they use it to produce hydrogen to export, the transformation of the industry there will be slowed down.

For example in Angola, where a hydrogen partnership has been concluded? Solar and wind energy would be used there to produce green hydrogen for Germany, while domestic industry would continue to rely on natural gas or coal?

Mathias Koch: Yes. How can we justify that to these countries? I can’t see any argument for that. When it comes to hydrogen, there is a whole range of questions that are not addressed at all. But of course it’s easy to hype up hydrogen as a solution to justify LNG terminals. It would be better to invest now in the solutions that we definitely need: the expansion of renewable energies and energy efficiency.

Clara Pfeffer and Christian Herrmann spoke to Maria Pastukhova and Mathias Koch. The conversation has been shortened and smoothed for better understanding.