Liquefied natural gas: Europe's alternative for strengthening its short-term energy security
The ongoing war in Ukraine has deepened the deterioration of relations between the European Union (EU) and Russia. The EU's high dependence on Russia for natural gas has made energy security an existential priority for its member states, especially after the recent acts of sabotage against the Nord Stream 1 and Nord Stream 2 pipelines. Added to this convulsive scenario is the fact that the EU's energy strategy does not solve the supply problems of its member states in the short term, as it is a shared competence, where national interest has traditionally prevailed.
This has meant that Member States are currently trying to secure as much energy supply as possible (each on its own) by implementing their respective national strategies and prioritising the sources and suppliers that have the greatest impact on their energy consumption patterns. However, among EU member states there is no doubt that liquefied natural gas (LNG) represents the most solid alternative they have to mitigate the effects of an eventual total cut-off of Russian natural gas supply or new and potential sabotage to critical energy infrastructures.
In the context of the debate on European energy security, a recent report by the US Congressional Research Service1 has been pointing out the potential of so-called "floating storage and regasification units" (FSRUs) to reduce Europe's dependence on Russian gas in the short term. In essence, these storage units function as tankers designed to store, transport, regasify and have the capacity to inject LNG directly into domestic pipelines.
The most remarkable element of these units is that, depending on the case, they can operate as tankers to transport LNG or as floating platforms with the flexibility to be located and relocated at strategic points, close to existing pipelines where LNG is subsequently introduced, without the need for the complex and costly physical infrastructure of LNG terminals. For example, in 2021 the existence of these units was put at 48. Four of these units were located in Europe. Specifically, in Italy, Croatia, Lithuania and Russia (Kaliningrad). Three units were built in 2021 and 21 units are currently under construction. One part of these is expected to be operational by the end of 2022 and the other during 2023.
While demand for floating units has only increased since 2021, Russia's recent suspension of gas supplies to Poland, Finland, Bulgaria, the Netherlands and Denmark has led to a considerable new boom in demand for these units. Several EU countries have now placed purchase orders or requested leasing services for floating units. Germany is in advanced negotiations for the purchase of five floating units. Poland is in the process of developing a floating unit for its own supply and is exploring the possibility of building a floating unit to transport gas to the Czech Republic and Slovakia. Finland and Estonia also have a jointly operated leased floating unit.
The construction of one of these floating units can take three years and cost up to $300 million. However, production times and costs can be significantly reduced when converting an LNG tanker to a floating platform (the capacity of LNG tankers and floating units is the same, 170,000 cubic metres). The lead times and costs in cases of retrofitting are also considerably reduced.
The construction time for these units is between one and a half and two years and the cost of these units is between 100 and 150 million dollars. However, the construction capacity of these units is a limiting factor. South Korean shipyards, followed by Singaporean and Chinese shipyards, are the main builders of this type of floating infrastructure. Booming demand and tight supply may well create a bottleneck in this area, which, in practical terms, would limit the ability of the EU and its Member States to import more LNG in the short term.
In any case, both the US and the EU are aware that a substantial increase in LNG supply to Europe will depend in the medium to long term on their ability to build a larger number of floating units. In fact, the US is encouraging EU countries to invest in the construction of these units in order to expand their LNG exports to the EU. It is logical to consider at this point that, after the acts of sabotage against the Nord Stream 1 and 2 pipelines, and given the fear that this situation could spread to other critical gas infrastructures, more than a few EU countries will try to increase their capacity to equip themselves with floating units to reduce risks and strengthen their energy security.
From the perspective of Spain, a country seeking to turn its regasification capacity into a comparative advantage and thus become the main LNG distribution hub - it has a third of all regasification capacity in the EU - the lack of interconnection infrastructures with neighbouring countries could be a handicap. Although Spain has the support of several EU partners (including Germany, Italy and Portugal) to increase the capacity of gas interconnection infrastructures, it also has detractors. France is the main one.
Without France's support, the European Commission (EC) will not take sides. With a favourable position from the EC, Spain could use European funds to increase the capacity of gas interconnection infrastructures with neighbouring countries. Thus, in the event of the establishment of an eventual joint gas purchasing scheme in the EU, the LNG terminals located on the Spanish coast would play a crucial role in the reception and distribution of gas to the rest of Europe. However, the absence of such interconnection capacities will frustrate Spain's objective of becoming the main hub for the distribution of LNG from the south to the centre of Europe, whether partially or completely, remains to be seen.
- Paul Parfomak y John Fritelli. “LNG Exports to Europe: What are Floating Storage Regasification Units (FSRUs)?” Congressional Research Service (22.06.2022).
Youssef Louah Rouhhou, international political analyst