How can Europe increase its access to gas?

With Europe rushing to end its dependence on Russian gas, attention is rapidly focussing on how supplies of replacement volumes can be delivered into Europe from other sources.

Once pipelines bringing Russian gas are eliminated from the equation, the options for increasing piped gas from other origins are very limited as expanding existing routes or the fields that feed them – from Norway, Algeria and Azerbaijan – would take many years to complete.

For this reason, LNG is seen as the best option for increasing supply in the short- to medium-term.

With the effects of Russia’s reduced supply having been a reality for many months now though, all of Europe’s existing LNG import infrastructure has found itself used either at close to maximum rates or – in the case of Spain and Portugal – underused because of a lack of onward export infrastructure. This has focused attention on building new capacity.

FSRUs to the rescue?

The search for ways to bring in more LNG has therefore been zeroing in on Floating Storage and Regasification Units (FSRUs), which have emerged in recent years as the quickest way to develop a gas import infrastructure.

The technology – which involves using a modified LNG tanker that is moored in or just outside of a port to receive, store and regasify LNG – is already well-established. Italy has long used one in addition to imports into its two fixed land-based import terminals, while in Croatia and Lithuania, FSRUs represent the only import route for LNG. New projects are also planned for Cyprus and Greece.

Following Russia’s attack on Ukraine and subsequent European commitments to phase out Russian gas imports, mothballed projects are seeing the light of day again, too.

In Germany, on top of a standard land-based 8bcm/year import project at Brunsbuttel called German LNG, another, a previously-announced 8bcm/year FSRU-based project at Wilhelmshaven backed by Germany’s Uniper and Japan’s Mitsui OSK Lines (MOL), is also being looked at again. It would likely be much quicker to get operational because of the fact an FSRU would be employed. A more embryonic 12bcm/year scheme near Hamburg called Stade LNG was also previously considered.

In Italy, a land-based project at Porto Empedocle in Sicily backed by electricity incumbent Enel is back under consideration, but would likely take several years to build. An FSRU-based project proposed by the country’s TSO, SNAM, for Sardinia may be easier to get off the ground in the shortest amount of time, although it would be limited to meeting Sardinian demand only, due to the lack of a link to the mainland.

More developed projects include FSRUs at Vassilikos in Cyprus, due to enter operation this year, and another at Alexandroupolis in Greece due online next year.

Other options?

Given the new urgency though, it would not be a surprise if other projects sprang into existence.

Typically, interest in FSRUs is a lagging indicator to low global prices – that is to say interest is usually at its highest after a period when, globally, LNG is perceived as being cheap. If markets like Europe look to develop further FSRUs now, it will be unusually counter-cyclical, since high prices usually tamp down demand. In theory therefore, it could reduce interest from some of the markets that have been looking at developing new FSRU infrastructure beyond Europe.

Indeed, given current high pricing and an outlook that does not look to promise a drop in LNG pricing for at least a couple of years, it remains to be seen whether projects scheduled in markets like Brazil, Panama, Nicaragua and Sri Lanka are already in development will become unviable.

FSRUs cannot fill the Russian pipeline gap…

However, with a typical FSRU being able to bring in perhaps 4-6 million tonnes per annum (mtpa) of LNG – equal to about 5-8 billion cubic metres (bcm) of natural gas a year – Europe would likely need multiple FSRUs to fully backfill missing Russian pipeline gas – without even factoring in new sources of supply. A global slowdown in the scale of development of new LNG liquefaction projects means that even taking into account all the new projects coming on stream this year and next, supply will likely be very tight.

…but they could potentially help mitigate the effects

All projects are different, but if delays are kept to a minimum, new FSRU projects that are backed quickly as Europe flees its dependence on Russian gas could be up and running within a couple of years, based on previous FSRU project completion times. Alongside the leasing or acquisition of a vessel equipped with regasification technology, FSRUs require a permanent jetty and pipelines connected to the grid.

Given how much gas needs to be replaced, especially in a market like Germany, it is likely that large FSRU vessels would be needed. The latest generation of LNG tankers tend to be around the 170,000cbm of capacity mark, representing around 6mtpa of potential LNG imports, equal to around 8.5bcm of natural gas. If replacing Russian gas volumes is the aim, older FSRUs, such as the outgoing Jamaican FSRU, Golar Freeze, would likely be too small at around 2.4mtpa.

Ordering a new FSRU

Any country seeking an FSRU would then have to decide whether to commission a brand new vessel – incurring a wait time of at least two or possibly three years – based on current lead times: new build LNG vessels are currently being offered with delivery times into 2025 and beyond. Last year, one vessel owner changed down the specification of an FSRU it had ordered to be just an LNG carrier (LNGC) though, so in theory a vessel on order could potentially be upgraded to FSRU spec, if the money is there and the vessel is speculative.

Existing stock

The quickest option may be to charter an existing vessel, if charter availability permits. ICIS calculates that there are around fifty vessels capable of being used in this capacity, with about half already employed as FSRUs. A handful more are already tied down and will soon start operations as new FSRUs, while a couple are more specifically FSUs – meaning they just store the LNG, with the regasification done on shore. This means there are about a dozen FSRUs currently trading simply as LNGCs. If time is of the essence, these could represent the quickest option.