Editorial: Setting the stage [NGW Magazine]
The headlines about midstream activity appear to belie the reality downstream. Wholesale gas prices in Europe and Asia are low as liquefaction train after liquefaction train comes on line, and still the financing comes.
Gone are the days when LNG production and trade was a one-way bet: now it is possible to sustain losses, unless there has been some nimble hedging. The race is on to the cram the last molecules into storage next month and hope for a long, cold European and Asian winter.
Normally one should expect investments to slow down, amid warnings of a supply crunch just over the horizon. But rather than drawing in their horns, in what has become a generally precarious climate, finance houses the world over still seem keen to grab a piece of the long-term action, while the glut has only just begun. So much so in fact that Venture Global has just announced it has attracted double the capital needed for the first of its growing series of planned LNG plants.
Venture’s use of mould-breaking technology that depends on small modular trains might have been the final straw for wary lenders. But first, the terms of the financing have not been published and could be quite onerous; and second, the market risk lies with the off-taker, not the project developer.
And the US Federal Energy Regulatory Commission continues to issue approvals, the latest being for Gulf LNG, although there are caveats. The operator Kinder Morgan reminds the public that "there are still multiple factors that need to be met before reaching a final investment decision needed to begin this project."
One of those factors is finding buyers: the current situation is a mirror image of ten or so years ago, when the US was to be a major importer, and project developers were all chasing the same LNG producers around the globe, until the shale wave rendered the dozens of planned terminals redundant.
Qatar has awarded a slew of contracts for its North Field Expansion but not yet announced any upstream partner-ships; private Novatek is moving ahead with plans to build unspecified, sanctions-resistant heavy-tonnage liquefaction trains with engineering assistance from a subsidiary of state Rosatom; and of course Mozambique, Canada and Argentina will soon swell the ranks of exporters.
But if painful for the middlemen, the signals are good news for gas in the long term. Prospective investors in power plants can credibly bank on cheap, clean and reliable electricity for years to come. The multiplicity of sources points to the availability of affordable LNG on the water. Biomass and coal can be shown the door.
And not just electricity: gas itself, it has been realised, can be cleaned up, at a cost. Removing the carbon is key, so the more abundant and cheaper the gas is to start off with, the better the economics.
South Korea, among the world’s biggest LNG importers, is also the among the northeast Asian nations planning to be-come a major player in the hydrogen economy. It will import a chunk of its needs and derive the rest from electrolysis, while cutting coal substantially as the interview in this issue explains. Indonesia is also a country that needs to wean itself off coal, and the incentives to develop gas for liquefaction and for domestic use rather than export will help with that programme.
Germany has created a major fund to develop future proof clean technology for Europe’s biggest gas market. The short-list of projects that has got through to the final round includes a salt cavern developed by VNG to contain hydrogen, as part of a larger industrial energy supply project that includes Uniper and gas transporter Ontras.
Initially the hydrogen will be green – ie produced through excess renewable electricity – but proving that the storage is safe and commercially viable will be an important step towards the net zero carbon future. This was identified as an urgent European goal by the president-elect of the European Union, Ursula von der Leyen. Gas will be important in Europe, if less so than in the Asian transition, the IEA believes.
Depending on the composition of the new commission and the extent of any steps towards further integration between the members, whether 27 in number or 28, more discussion may be expected on the matter of generating capacity and red lines where energy and taxes are concerned. Does every country need to be able to meet its own demand at a national level, given cross-border trade and the smart and decentralised grids of the future -- not to mention the appliances and perhaps whole factories that we are told will turn themselves off for the right price?
This issue of national borders is equally pressing with gas grids, where each country has its own health and safety rules and regulations governing gas composition. Hydrogen levels are a matter for governments and so vary widely across borders. If such national rules stand in the way, then gas might lose the time-limited chance it has to prove itself a vital fuel in a low carbon world. Clear, harmonised rules and incentives are also needed for the entire suite of renewable gases, gas in transport and so on.
Raising the sights a little, can a pan-European grid become a reality under the next commission? This would eliminate the time-consuming and inefficient intra-regional competition for EU funding that thrives between LNG import terminals and interconnectors, for example. The gas can come, if the cost for end-users is low enough. The question in future has to be, what works best for the consumer, not the operator.