Liquefied gas offers Germans alternative to Russian pipeline

By Jean-Baptiste Piggin Jun 30, 2006, 4:00 GMT

Hamburg - After years of receiving all their gas by pipeline from the North Sea and Russia, the German gas-distribution industry is mulling a plan to diversify supply by building a terminal that could offload liquefied natural gas (LNG) from ships.

Not only is a site available in the North Sea deep-water port of Wilhelmshaven - where a desire for scarce jobs outweighs any environmentalist hesitations - a planning permit also exists.

The permit was obtained back in the 1970s by Ruhrgas, now a subsidiary of German electricity and gas utility Eon, with a view to importing Algerian gas - a project that was later shelved.

Importing gas by sea from places that are too far away to connect by pipeline fits in with EU policy on diversifying sources. Brussels says this will prevent any single supplier holding Europe at gunpoint.

'We want our supply to be broadly based,' said Wulf Bernotat, chief executive of Eon, the principal backer of the LNG proposal with a 78-per-cent stake in the Wilhelmshaven project company, DFTG.

Eon owns just under a quarter of the North European Gas Pipeline (NEGP) currently being built under the Baltic Sea from Russia to Germany. As North Sea supplies dwindle, 'there is no other pipeline via which we can buy gas,' he said. 'LNG remains essential.'

Eon is conducting a feasibility study on the Wilhelmshaven proposal and is planning a similar-scale project in Croatia, he said.

But not everyone in the German gas industry is enamoured of the project, which would cost more than half a billion euros.

Rainer Seele, chief executive of Wingas, a joint venture between German chemicals group BASF and Russia's Gazprom, warns that Germany may be too late, with a raft of new LNG import sites around the world outstripping the capacity of export nations to supply them.

Wingas had studied LNG and decided not to invest in it at present, said Seele.

The reluctance of Eon to overly rely on Russia, despite owning 6.5 per cent of Gazprom, has led to friction this year with BASF, the other partner in the 27-billion-cubic-metre-per-year NEGP pipeline.

The debate over the LNG project also reflects the geopolitics of gas at a time when Russia is resisting the European Union's vision of a free gas market.

Moscow declines to ratify an EU-led Energy Charter because of demands that Gazprom pipelines be opened for use by Central Asian gas exporters.

That issue may come to a head at the G8 summit in St Petersburg on July 15-17.

One industry insider explained, 'It is a fundamental of Russian policy that third-party gas shall not complete with Russian gas.'

Seele, head of Wingas, almost half of which is owned by Gazprom, says fears that Russia might suddenly cease pumping gas to western Europe in favour of big-spending Asian customers are unfounded.

The insider agreed, saying, 'The assumption is that if pipelines are built, they will be used. If one switches off supply through a pipeline, one loses the investment. So even if Russia builds pipelines to China, it will not abandon pipelines leading to Europe.'

Russian Energy Minister Viktor Christenko also sought to allay such fears in an interview with a German weekly, Wirtschaftswoche, this month.

'We are not going to play one customer off against another. Without cooperation with foreigners, we can't survive as oil and gas exporters. And we're not suicidal.'

While Russia's geographical location would enable it to pipe gas to most parts of the Eurasian landmass, liquefying natural gas is the only practical way of exporting it from nations such as Qatar, Nigeria or Trinidad and Tobago to world markets.

The gas is cooled to minus 160 degrees Celsius so it condenses as a liquid. Eon data lists 17 LNG liquefying sites in the world.

The LNG is then transported in huge tanks on cooled ships. At an LNG terminal, it is warmed up again and 'regasified.' Major current buyers of LNG include Japan and the southern European nations, with China and India adding to demand.

The expansion of the LNG trade to northern Europe would allow the marketplace to set the prices for gas.

'After a cargo leaves for a purchaser in Europe, it might be diverted during the journey, if the United States for example were to offer a higher price,' the insider explained. 'Some people think this is a dangerous thing.

'It is a question of whether you prefer a more market-based mix or one with greater security of supply.'

A key issue at Wilhelmshaven will be whether Germany's only LNG plant, if the 10-billion-cubic-metre-per-year site is built, will be available to users other than Eon and its partners, Exxon, Shell and smaller gas companies.

EU policy calls for third-party access to LNG plants, but allows for exemptions.

Other German gas vendors, such as RWE, are not waiting to see what regulators decide. RWE said this month it planned to acquire a throughput capacity of 3 billion cubic metres of gas at a plant likely to be built by 2010 in the Dutch port of Rotterdam.