Tag Archives: Energy

Germany backs small-scale LNG import terminals despite opposition [my King’s College/EUCERS paper]

Here is my detailed analysis of the decision by Angela Merkel’s government to begin “small-scale” Liquid Natural Gas (LNG) imports to address greenhouse gas emissions and competitiveness issues in Germany’s heavy-road transport and maritime-shipping sectors.  Read it below (via Scribid) or go directly to EUCERS.  [This peer-reviewed paper appears in the King’s College-London, Newsletter of the European Centre for Energy and Resource Security (EUCERS), Issue 77, July 2018.] – Tom O’D.

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Germany’s Real LNG Policy [My BPJ analysis]

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“Natural gas instead of Diesel” © REUTERS/Hannibal Hanschke

My latest at: Berlin Policy Journal (German Council on Foreign Relations), June 28, 2018:

Germany’s Real LNG Policy
Germany’s government has endorsed imports of liquid natural gas for the first time—but not because of Russia and Nord Stream 2. 

The German federal government has decided in favor of building liquid natural gas (LNG) import terminals and infrastructure. In March, Chancellor Angela Merkel’s CDU/CSU-SPD government, in its “coalition contract,” pledged to “Make Germany the site for LNG infrastructure.” This is a notable policy change, because in Germany the opposition to LNG imports and use has been so much stronger than anywhere else in Europe.

The aim of this new endorsement is to reduce maritime and roadway heavy-transport emissions. However, many in Germany argue that using “small-scale” LNG in this way, as a “bridging” fossil fuel, is “wasted investment”. They contend that Energiewende-mandated electric vehicles can and will rapidly de-carbonize heavy transport. Still others oppose LNG imports on the grounds that they would unnecessarily diversify Germany’s gas suppliers with the aim of offsetting increasing reliance on Russian pipeline gas. They insist that Russian pipeline gas has been “historically reliable” and is cheaper for Germany than building large-scale import terminals for LNG.

Though the federal bureaucracy had been advancing this policy change for over a year, top government officials did not make any particular effort to bring the issue to public attention or to drum up support. Accordingly, media and public understanding of the federal government’s motivations has been less than ideal.

Small-Scale Imports for Cleaner Transport

There are two main points to understand. First, the aim of the new policy is clearly to address long-standing environmental and competitiveness problems in German marine and heavy road transport: compared to diesel, LNG as a transport fuel is much cleaner, emits less CO2 and is generally cheaper. Second, the approved small-scale LNG import facilities will not reduce German dependence on Russian pipeline gas, which is used for conventional purposes. The new policy is not intended to reduce dependence on Russian gas and the controversial Nord Stream 2 pipeline, contrary to various press reports.

The first facility to win approval from Berlin (and previously from Brussels) is planned for the North Sea port of Brunsbüttel, near Hamburg. The initial focus on the Hamburg region is logical. From there, LNG can be shipped up the Elbe River as an inland-shipping and road-transport fuel. In addition, there is access to the Kiel Canal, the world’s busiest artificial waterway, where LNG can be used or delivered into Scandinavia and the Baltic region. Hamburg is also Germany’s major container port, and the shipping industry has begun converting engines to LNG fuel globally.

However, as well as facilities for fueling ships and trucks in the immediate port area with liquid natural gas, and shipping some gas onwards, the plan also includes an onshore regasification unit and connections to the existing gas-distribution network for conventional gas applications—heating, electrical generation, etc. Experts feel this will provide the project’s developers with flexibility, as it will take time for LNG road-transport infrastructure to develop in Germany. Currently, it is almost nonexistent.

The €500 million terminal will have facilities to transfer, store, and redistribute the liquid for use as maritime-bunker fuel, road-transport fuel, and various industrial applications. Such direct use of LNG as a liquid fuel, without regasification, is known as “small-scale” LNG. This is distinct from “large-scale LNG,” which involves much-higher volumes that are re-gasified in huge facilities and injected into the gas grid for conventional uses.

A sense of scale is important. The Brunsbüttel facility will receive LNG equivalent to 5 billion cubic meters (bcm) of gas per year. In 2016 Germany consumed 80.5 bcm of gas. So the Brunsbüttel facility’s capacity to re-gasify a portion of the LNG could help replace a part of the gas Germany now receives from the Netherlands, whose Groningen field is mandated to close soon. But the small scale of the new facility’s means it cannot significantly diminish Germany’s great dependence on Russian and Norwegian pipeline imports.

Indeed, despite a spate of articles claiming the contrary in major media outlets, including Der Spiegeland Bloomberg, the goal of the federal government’s new LNG policy is not to cut dependence on Russian gas. The entire regulatory and ministerial review process clearly focused on fueling maritime and heavy-road transport. Clearly, this small-scale facility provides no serious counterweight to Germany’s Gazprom imports, which are projected to rise from current levels of 55 bcm via Nord Stream 1, to 110 bcm of gas per year when Nord Stream 2 is complete, or about 60 percent of total German gas imports. At present, Germany receives 31 percent of its gas from Russia and 24 percent from Norway. Reversing this reliance on Russia would require multiple large-scale LNG regasification terminals capable of fueling a major portion of the country’s conventional gas demand for electricity generation, heating, etc.

Stalled Transport Cleanup

So what is the motivation for the new LNG policy? 46.1 percent of German GDP is dependent on exports (2016 data), compared to 26.9 percent for OECD states overall. Therefore, it is especially important that Germany be competitive in its maritime and heavy road transport to move all those goods. Yet despite having pinned the nation’s commercial future on the success of the Energiewende, actors from government, industry, political parties, and climate/environmental institutions have, embarrassingly, accomplished virtually nothing when it comes to cleaning up air-pollution and carbon emissions from transport. The so-called Verkehrwende (transport transition) is going nowhere. The ongoing diesel scandal is but one aspect of this, involving passenger vehicles. However, in maritime and heavy trucking, Germany has fallen disconcertingly behind many other European states and the United States.

For example, in California, after some 15 years of efforts, in 2015 fully 60 percent of all buses were running on compressed natural gas (CNG), as were 17 percent of all U.S. buses. This means their engines were emitting about 99% less particulates and sulfur dioxide, 70% less nitrogen oxides, reducing noise pollution about 50% and emitting from 12 to 20 percent less CO2 than diesel fueled engines, which remain ubiquitous in most German cities. Using LNG in buses would bring similar environmental benefits to Germany.
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Putin’s OPEC tactics: Iran sanctions and the Saudis [IBD cites me]

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June 2018 OPEC meeting’s key players (AP)

Last week, Gillian Rich at Investor’s Business Daily (Washington), asked me (Berlin) and others about the OPEC’s 20-21 June meeting. Below here, I give my views in more detail, including the tie-in to the Trump project to isolate Iran and my comment about Putin likely betraying the Iranians again.  The IBD piece is here: Trump Could Make OPEC’s Next Meeting As Dysfunctional As G-7 Summit. 15 June ’18.

We spoke about market and geopolitical aspects. On the latter, I emphasized both the Trump Administration’s evolving plan to sanction and isolate Iran, and Russia’s new role as a central player with OPEC ever since the 2016 joint Russian-OPEC decision to raise production.

That’s when Putin played a new role for any Russian leader. Not only did he coordinate Russian oil policy with OPEC’s, he got personally involved in heated discussions, getting on the phone late in the last night with Iranian and Saudi leaders to get the deal sealed.

This new Russian role was clearly foreseen by al-Naimi, Saudi oil minister from 2014, before al-Falih replaced him as minister, to serve the new king, Salman, and his son Prince MbS.

In 2014, as prices were crashing, al-Naimi said that there was no way  nowadays that OPEC alone could cut sufficient production to reverse this. Indeed, he met with Russia and Mexico, at the insistence of Venezuela, before the late-2014 OPEC summit to see what these two  non-OPEC states were willing to do to help out.  At that time, the Russians (much less the Mexicans) were still unwilling to join with OPEC. So, instead of implementing cuts, al-Naimi led OPEC to increase production, declaring a (ultimately unsuccessful) price war against US shale producers, whose new cheap oil had been driving down prices.

Finally, in 2016, after almost two years of crushingly low prices, Russia was finally willing to come onboard late in the year, joining in the first-ever coordinated OPEC-Russian production cuts, and in the process Putin (and Rosneft’s Igor Sechin) personally played an essential role inside OPEC by cajoling the Iranians to go along with the Saudi-Russian plan – as per the aforementioned late-night phone  calls.

So, here we are another two years later, in mid-2018:  the Russia-Saudi, or OPEC/NOPEC combo has finally gotten the previous global oil glut and low-prices somewhat under control.  Aided by growing global demand for oil, their cuts have gotten storage in the USA and elsewhere down, and they have gotten lucky as long as US shale producers face temporary limits on getting their rapidly growing production to market for a lack of pipeline capacity to USA ports.

Now that they’ve begun to get some leverage over prices, Russia and the Saudis want to reign in prices from overheating.  At the same time, they have to make up for the death spiral in production caused by the Chavez- and Maduro-led collapse of the Venezuelan oil industry, and an expected decline in Iranian exports due to the Trump administration’s campaign to impose the “strongest sanctions in history” (Sec. of State Pompeo).    Continue reading

“Neue Neue Ostpolitik” My BPJ piece on German fury at Senate NS2 sanctions

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The US Senate’s decision to expand sanctions against Russia triggered indignation in Berlin, throwing Germany’s geopolitical ambitions over the Nord Stream 2 project into sharp relief.  Read below or get the App.   My other articles at Berlin Policy Journal  

“Neue Neue Ostpolitik”  

Berlin – July 21, 2017    By: Thomas O’Donnell —  On June 15, the US Senate approved an act to sharply expand sanctions imposed on Russia in retaliation for its intervention in eastern Ukraine and annexation of Crimea in 2014. The broadly bi-partisan move that enshrined Barack Obama’s earlier executive orders – intended as a response to Moscow’s alleged cyber interference in US elections – was a stunning rebuke to US President Donald Trump’s Russia policy, essentially taking a broad swath of foreign policy out of his hands. Continue reading

Trump’s promise to “stay totally independent” of OPEC is populist hype [My IBD interview]

eia_apr15_us_oil_prod-importsContrary to his campaign hype (see article below), Trump-as-president will not do anything to interfere with the free flow of oil or gas to or from the USA.  As I pointed out in the Investors Business Daily interview (Gillian Rich’s story is below), people central to Trump’s administration – such as Rex Tillerson, his designated secretary of state and former CEO of Exxon, and Harold Hamm, Trump’s fracking billionaire friend he wanted for secretary of energy – are global-market-oriented businessmen who would never agree to disconnect the USA from global energy markets.

The free flow of petroleum through the unified global market traded in US dollars – what I call the “Global Barrel” – is central to the business model of every private as well as every national oil company.  Today there is essentially one, global oil price. If you break up the global market by limiting imports or exports, you get national markets with national prices.  Then what?

If the US price went higher than the global price due to keeping out cheap foreign oil, Trump’s popular approval would dive. And, if the U.S. price went lower due to a domestic production glut of fracked oil, then his support among business would tank.

Moreover, the unified global market serves as the key element in the world’s collective energy-security system by guaranteeing equal access and prices to all suppliers and consumers.   Continue reading

Pipe Dream? Polish ruling complicates Nord Stream 2 pipeline for Gazprom & EU partners [My Berlin Policy Journal piece]

bpj_online_odonnell_nordstream2_cutHere’s my latest analysis in Berlin Policy Journal (German Council on Foreign Relations -DGAP).Pipe Dream? The Nord Stream 2 pipeline project is in danger of being derailed.
THOMAS W. O’DONNELL , SEPTEMBER 22, 2016 

A pipeline project to double Gazprom’s export capacity to Europe has always been controversial. A recent ruling by Poland’s competition authority could seriously undercut the support it has accrued, leaving its European backers at odds.

The proposed Nord Stream 2 pipeline project has bitterly pitted European states that back the project, including Germany, the Netherlands, Austria, and France, against project opponents, including Ukraine, Poland, and other former Soviet-bloc states. The project aims to double the capacity of the existing huge, 55-billion-cubic-meter-per-year Nord Stream 1 pipeline, running in parallel to it under the Baltic Sea from near St. Petersburg in Russia directly to Greifswald in Germany.

This dispute has exposed two very different views of Gazprom, Russia’s state-owned gas-export monopoly, and of Vladimir Putin’s Russia itself – one side sees it as a “necessary” and “reliable” energy supplier, the other a dangerous and manipulative adversary. This dispute is but one more collision inflicting lasting harm on the European Project.

Polish competition authority rejects project

The latest row involves a ruling in late July by the Polish Office of Competition and Consumer Protection (Urzed Ochrony Konkurencji i Konsumentow, or UOKiK) rejecting an application by five private western European energy firms proposing to partner with Gazprom to build and operate Nord Stream 2. The firms are Germany’s E.ON (soon to be Uniper) and Wintershall, Austria’s OMV, Anglo-Dutch Shell, and France’s Engie.

Shortly before the Polish announcement, the five companies agreed to withdraw their association proposal to avoid UOKiK initiating a legal process against them. The commission’s president, Marek Niechcial, declared categorically on August 12 that the Polish rejection was definitive, asserting “This will stop the [Nord Stream 2] deal.” The five firms have nevertheless made it clear they are seeking a strategy to work around the decision, and expect to proceed as planned. Gazprom has said the same.

So why go through this proceeding in the first place? To understand these events better, I spoke with several experts and diplomats working on these matters in Moscow, Berlin, Washington, Paris, and Warsaw.

Commercial Arguments

An often-heard line of argument is that at least some of the five companies might actually have little commercial interest in the project, but need to preserve their relationships in Russia where they have large investments in energy projects. After all, the Kremlin has a track record of taking over projects from foreign partners with whom it has fallen out. A further theme in this vein is that Nord Stream 2 is not really needed in northwestern Europe, even though the Groningen field in the Netherlands and Norway’s reserves in the North Sea are declining, because future demand in northwestern Europe is overestimated and Liquefied Natural Gas (LNG) will be available from the United States. This view led to press speculation that the five firms likely welcomed the Polish decision, allowing them a graceful exit.

However, virtually all the experts I spoke with had no doubt Nord Stream 2 would be a lucrative commercial enterprise over the long run, and that the five firms seem genuinely enthusiastic. Continue reading

“Energy independence” won’t free the USA from global oil market & geopolitics [I’m cited: CNNMoney]

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Credit: CNNMoney, 9 August 2016

Mr. Trump promises he’d use the USA’s shale-oil revolution to deliver “complete” independence from foreign oil, telling voters in May: “Imagine a world in which our foes and the oil cartels (sic) can no longer use energy as a weapon. Wouldn’t that be nice?” But, he is confusing two quite distinct things:

“Energy independence” – in the sense of the USA producing more oil than the country consumes – is indeed possible, even “tantalizingly close” as this CNNMoney article (Aug. 9, 2016, by Matt Egan) makes clear, citing myself and other experts.  For clarity, I’ll call this “net oil-exporter status.”

However, Donald Trump asks us to “imagine” he can use this net oil exporter status, to make the US independent of the global oil market and oil in geopolitics where our “foes” and “cartels” have leverage. Continue reading