Germany's Nuclear Volte Face Opens Doors for Dutch LNG
Germany is likely to become the biggest customer for the Netherlands' first liquefied natural gas (LNG) terminal within two to three years as the country replaces shut down nuclear reactors with new gas-fired power plants.
The 800 million euro Gas Access to Europe (Gate) terminal in the port of Rotterdam, built by Gasunie and Koninklijke Vopak and due to open in September, was initially seen as a small contributor to help provide a stable gas supply in north-west Europe.
It received an unexpected shot in the arm when Germany decided, following Japan's Fukushima crisis, to immediately close 40 percent of its nuclear capacity and entirely phase out atomic energy by 2022.
The capacity will need to be replaced by 10 gigawatts of new power stations, which will mainly be fuelled by gas as it is considered to be a less carbon-intensive alternative to coal.
"If Germany wants to import more LNG, it will go through Gate," said ABN Amro Energy Analyst Tim Boon Von Ochssee, adding that slow but steady economic recovery will also add to European demand for gas.
German utilities have already turned to Russia to secure additional gas supplies, but the Dutch LNG terminal will be a welcome alternative, reducing Europe's dependence on Russian supplies.
"But in light of the high LNG netback difference between Qatar-Asia and Qatar-Europe, I think it will take a while before Gate will reach a substantial utilisation rate."
Netback is the profit shippers make for sending gas from one country to another, after deducting the cost of shipping.
The latest netback data from LNG analysts Waterborne showed that Qatar, the world's top LNG exporter, makes almost twice as much money sending cargoes to Japan than to Britain.
Gate managers plan to expand the terminal to 16 billion cubic metres per year in a second phase, a decision they said they will finalise next year.
"We will start expansion plans as soon as we have enough customers," said Stefaan Adriaans, commercial manager of the terminal.
For now in the tightening global market for LNG spot cargoes, the new terminal will play a small role in competing for Europe-bound LNG, which has over the past six months has mainly been shipped to the UK.
The Rotterdam facility will be able to take around 8.8 million tonnes of LNG per year, roughly one quarter of the amount Britain's three main LNG terminals can absorb.
UK terminal owners are linked mainly to Qatari suppliers through contracts that span several years.
By contrast, only one out of four capacity holders at Gate has so far announced a long-term supply agreement. Danish utility Dong will receive 1 billion cubic metres of LNG per year from Iberdrola for 10 years, which equals around four deliveries per annum.
If the Netherlands does manage to draw spot LNG supply away from Britain, the UK gas market still is likely to receive plenty of gas supplies.
For one thing, it could benefit from the cargoes by receiving gas imports via the Dutch-British BBL pipeline.
"It could mean an extra supply source in theory as we could get to a point where we are taking extra cargoes not only through the (UK-Belgium) Interconnector but also through the BBL pipeline," said Andrew Horstead, head of research at consultancy Utilyx.
Additional supply to the Netherlands could also mean that the country needs to import less from Norway, which would leave spare supply to send to Britain, which is linked to Norway through two pipelines.
But higher exposure to continental gas prices could mean that British gas prices (NBP) move up, in line with other European gas contracts, which are calculated based on oil prices.
"It probably further underpins the link between NBP and oil pricing as it makes us more reliant on competing with those gas markets in mainland Europe," said Jason Durden, an energy trader at EnergyQuote JHA.
Investment bank Goldman Sachs last week lifted its UK gas price forecast for the next six months to 77.20 pence per therm -- compared with current prices of 71.90 pence for winter 2011/12 -- as it expected UK prices to close the gap with higher oil-indexed gas contracts in continental Europe.
"We believe that a tighter physical balance in the UK gas market will ultimately require UK NBP prices to rise more in line with continental oil-indexed natural gas prices and Asian spot LNG prices in order to compete for LNG cargoes and guarantee enough gas supplies for the winter months," Goldman Sachs analysts said in a research note.