- NORDSTREAM IS AT THE CENTER OF THE CURRENT ENERGY DEBATE IN EUROPE. AT PRESENT, THERE ARE DIFFERENT VIEWS ON THE NECESSITY OF NORSTREAM 2 AND TO WHAT EXTENT NORSTREAM CONTRIBUTES TO THE ENERGY SECURITY OF GERMANY AND EUROPE.
- FEW ALTERNATIVES FOR ENERGY CONSUMPTION EXIST IN CENTRAL EUROPE AND GERMANY. THIS IS BECAUSE THE CENTRAL EUROPEAN REGION HAS VERY FEW DOMESTIC ENERGY RESERVES. ONLY LIGNITE AND SOME HARD COAL ARE EXTRACTABLE. URANIUM AND LITHIUM ARE AVAILABLE IN SMALL AMOUNTS.
- WESTERN EUROPE CAN RELY ON LNG, WHICH IS IMPORTED FROM THE USA AND THE MIDDLE EAST. WHILE THIS REMAINS AN OPTION FOR THE CENTRAL EUROPEAN REGION, IT CANNOT FULLY MEET LOCAL ENERGY NEEDS. THE ABANDONMENT OF NORD STREAM 2 MAY UNDERMINE GRID STABILITY WITHIN GERMANY.
1. How to run the supply chain for LNG shipments: Potential pitfalls and long-term cost benefits.
Nevertheless, we should not forget that other countries in the Central European region also need energy supplies in the form of natural gas. Many of these countries, such as the Czech Republic, Hungary, and Austria, are cut off from LNG trade by LNG terminals that would have allowed them to trade LNG internationally with gas-exporting nations, as nations in Western Europe currently do. To some extent, they are also dependent on the energy policies of their neighbor. In this case, Germany influences the energy security of other nations in the Central European region. Germany is weighing different interests and trying to find a balance that works both at home and for nations in the Central European region. To achieve this, a special focus has been placed on LNG supplies.
German companies have been working with the United States and the Gulf States to develop new ways to import LNG. There is a consensus that the Gulf States can meet this energy demand for the foreseeable future and supply the LNG needed. Major infrastructure upgrades were made in the years leading up to the talks between the companies. This should ensure timely delivery of LNG when and where it is needed. On the German side, decisions should be made on where to build German LNG ports. Otherwise, Germany would be more dependent on natural gas supplies from the Netherlands. Wilhelmshaven has been suggested in advance as a possible candidate where an LNG port should be built. Much of the money is expected to come from the government(s) to alleviate some of the financial burden associated with building LNG import terminals.
Several other medium-sized ports have been proposed, including the city of Rostock. Rostock already has an LNG import terminal that receives natural gas from St. Petersburg Oblast in Russia. If Rostock port also received LNG from the United States, it would contribute to energy security in Germany and other countries that receive natural gas supplies in the form of LNG from Russia and the United States through Mecklenburg. This would effectively make Rostock and Mecklenburg-Western Pommerania a major distribution hub for pipeline natural gas and LNG in northern Europe. Mecklenburg-Western Pommerania would supply a significant share of the natural gas to the south and west. In addition, Mecklenburg-Western Pomerania is the terminus of the Nord Stream pipeline. The Nord Stream 2 pipeline would further increase total natural gas supplies through Mecklenburg-Western Pomerania to central Germany.
Due to the complexity of handling LNG deliveries, significant investments are made upfront. The problem is, of course, technical. LNG has to be stored at temperatures that are much colder than normal. The process is quite complex. It involves transporting the liquefied gas across the oceans, which in itself is an energy-intensive process. While traveling across the ocean, the LNG ship consumes natural gas to propel it through the seas. But the ships are designed for such a process. The logistics don’t stop there. LNG ships cannot call at every port. Port infrastructure must be upgraded for LNG deliveries. Moving the liquefied natural gas from the ship to the port infrastructure is a major undertaking in itself. The liquefied natural gas can be heated. It then passes from the liquid to the gaseous state. LNG can be transported either by truck or through a network of pipes. If the process involves delivery by truck, this adds another layer of complexity. It also adds another cost.
All of this had to be done to supply natural gas to the economy. Considering that this process is quite energy intensive, this clearly shows that LNG continues to have a hard time competing with pipeline gas, as it does in most cases. We have to ask ourselves if this is our goal, as the complex supply chain reduces the energy return on investment (EROI) of LNG compared to pipeline gas supplies. In logistics, every kilometer counts. This is especially true for truck deliveries. The further you are from the coast, for example in the Netherlands, the more operating costs are added. The further you get from the coast, the more energy you lose. That’s because you’re traveling farther away from the port to deliver the gas to where it’s needed.
On the other hand, LNG allows greater flexibility. The distributor can decide where to send the gas. You can potentially cover a larger geographic area very quickly. The importer also enjoys more flexibility in terms of its supply arrangements and finds it easier to switch suppliers and procure better gas contracts.
2. How to run the pipeline: Potential pitfalls and benefits
The main advantage is that you have a reliable trading partner. The second advantage is that you can procure gas for a long period with relative price certainty. This can lead to lower prices when procuring natural gas. Supply chain costs may also be lower, but you lose out in terms of alternative options. You are also committing to a specific supplier contract for a long period of time. Pipeline gas can make sense if you are a large customer that can procure a significant amount yourself. This gives you more leverage in price negotiations.
LNG will be a likely competitor to natural gas for short-term contracts and delivery options. It is more likely to be accompanied by a price increase.
3. What alternatives to Nord Stream does Europe currently have?
There are few alternative gas supplies from Europe that could compete with Nordstream 2. This becomes clearer when we look at the amount of natural gas that has been supplied consistently for many years. We must also take into account that one such pipeline has already been built and has constant delivery volumes. This pipeline is Nord Stream 1.
We are facing diminishing oil and gas reserves in the North Sea. The options that present themselves to us are rather limited. LNG would rather not be able to cover the energy demand in the long term. Just about all North Sea littoral states have seen a drastic decline in their oil production rates and consequently lower oil revenues. Oil platform decommissioning has become a major issue in the UK oil industry. Decommissioning costs have skyrocketed. That alone poses major challenges to the business model of oil producers. The importance of natural gas is becoming increasingly clear. This is especially true in light of the increasing volatility of oil prices, which is reminiscent of the early 20th century. Back then, oil prices fluctuated wildly. It was the time when oil replaced coal as an energy source.
It is unlikely that North Sea gas reserves will remain sufficient to meet the energy needs of even the countries bordering the North Sea, let alone the countries of Central Europe and Germany. Even if new pipelines are built to deliver gas from the North Sea as an alternative to Russian gas exports to other countries within Europe, it is unlikely that they will remain sufficient. The only other option is to procure LNG from outside Europe.
The best option may be to procure energy via both routes. One option is to procure energy via various new LNG terminals, possibly in Poland and Germany. This has already been realized to some extent. This will provide energy security for both Central Europe and Germany, whenever it is needed and at the right price. There will also be more room for maneuver in price negotiations and independence to procure more or less energy at a given time. It will be easier to make short-term supply agreements. Germany, in particular, will be able to receive supplies from three different sources.
Germany would obtain natural gas from Russia through various pipelines and LNG from the United States and the Middle East. Qatar would be a major supplier of natural gas in this scenario. If Germany and the Central European countries increase the share of LNG in primary energy consumption, energy procurement will most likely become more expensive.
The question is whether German industry is able to maintain its profitability and remain a likely competitor for manufacturing in a globalized world. A constant energy supply and low energy costs are indeed important components in the manufacturing process. Nord Stream 2 shows us that there is a general shift in the market from oil to natural gas. This is a long-term process, and natural gas companies will adapt to meet the increasing demand for natural gas.