​The idea that Europe may face over-investment in liquefied natural gas (LNG) terminals is gaining ground. After analysts from Reuters who argued that there could be an excess of liquefied gases and excess infrastructure, it was the turn of experts from the Institute for Energy Economics and Financial Analysis (IEEAF) to raise the question of the risk of over-investment, especially in the context in which the EU proposed massive cuts in gas demand and replacing it with renewable sources. In just two years, the EU doubled its LNG imports.

Two weeks ago, Reuters analysts hypothesized that Europe may have overstated its energy security strategy by rushing to expand its network of LNG terminals following Russia’s attack on Ukraine. If all the projects started are completed, the capacity of the LNG terminals will exceed the entire gas demand at the EU level.

This is also in the context of EU policy to reduce gas demand to make way for renewable energy. From the beginning of the war until August 2023, six new terminals appeared, 21 already existing, increasing the capacity of liquefied gases by 36.5 billion cubic meters. By 2030, there could be 19 more terminals in the EU than in 2022, which would mean a doubling of the number of terminals.

Excess infrastructure raises questions about the financial viability of all LNG terminals that will appear in the EU, writes Reuters.

In two years, the import of liquefied gas has doubled

The energy situation in Europe changed dramatically after Russia’s invasion of Ukraine. In 2021, 41% of EU gas imports came from Russia via pipelines, 40% from other suppliers, also via pipelines, and 19% was liquefied natural gas. After 2022, this mix has changed completely, especially after the European Commission launched the REPowerEU plan, which aims to diversify energy supply sources, IEEAF analysis shows.

Thus, in 2022, about 9% of gas imports came via pipelines from Russia, 40% from other suppliers via pipelines, and 41% from LNG. And in 2023, the share of LNG in gas imports to the EU remained at the level of 41%.

In 2021, Europe imported about 105 billion cubic meters of liquefied gas, in 2022 – 167 billion cubic meters, in 2023 – 167 billion cubic meters.

The US plans more LNG terminals in Europe, but their capacity will exceed European demand

In recent years, the US has become the main supplier of liquefied natural gas to Europe, accounting for 28% of imports in 2021, 43% in 2022 and 46% in 2023. The USA plans to build new terminals and increase export capacity. Taking into account the LNG terminals already under construction, the American export potential will reach about 238 billion cubic meters by 2030. This indicator is 76% higher than the European demand for liquefied gas, estimated at the level of 2030.

In addition, if all the LNG terminals planned by the US are built, the capacity will reach 465 billion cubic meters by 2030, which is more than the estimated gas demand for all of Europe of about 392 billion cubic meters.

It should also be taken into account that the USA is not the only exporter of liquefied natural gas in Europe, Qatar, Algeria, Nigeria and even Russia also occupy a significant share of the market.

Gas demand in Europe has fallen significantly over the past two years, mainly due to the REPowerEU policy, energy efficiency programs and increased production of renewable energy. If this policy continues, European gas demand could fall below 400 billion cubic meters by 2030.

It is time to reassess proposed LNG projects to reduce the risk of over-investment, IEEAF analysts conclude.

Photo source: Misha Keyser / ImageSource / Profimed

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