(Bloomberg) -- Europe has likely reached peak consumption of liquefied natural gas yet continues building import terminals and related infrastructure, raising the risk that those works sit idle and become stranded assets, according to an energy think tank.
Imports are on track for an 11% decline this year, and that drop should accelerate to 37% by decade’s end, the Institute for Energy Economics and Financial Analysis said in a new report. With some nations still planning more terminals, three-quarters of the continent’s import capacity risks being unused by 2030.
Europe plowed billions of dollars into LNG the last two years as it replaces once-dominant Russian pipeline gas supplies in the wake of the Kremlin’s war in Ukraine. But during the first six months of this year, half of the European Union’s LNG import terminals had utilization rates below 50%.
A prime example is Germany, which rented multiple floating terminals to bring in supplies from places such as the US and is now building onshore LNG facilities. Yet demand for that fuel is threatened by the nation’s simultaneous expansion into wind and solar production.
“The country’s LNG regasification capacity will almost triple by the end of the decade,” Ana Maria Jaller-Makarewicz, lead energy analyst for Europe at the IEEFA, said by email. “As increased electrification and renewables deployment help Germany continue to reduce gas consumption, it is unclear whether it will need so much.”
The nation’s gas demand fell 4% in the first half of this year, compared with a year earlier, she said. Outlook for industrial demand is also bleak as the energy crisis crippled operations and forced some plants to shut down or relocate where fuel is cheaper.
German politicians have said the buildup is necessary to ensure the nation’s energy security and to overcome a dangerous dependence on Russian gas.
The average utilization rate of the EU’s LNG import terminals fell to 47% in the first half from 63% a year ago, according to the think tank, whose mission is to accelerate the energy transition. The share of LNG in Europe’s gas demand slipped to 31% from 37%.
By 2030, IEEFA forecasts that Europe’s LNG import capacity will increase 21% to 414 billion cubic meters, meaning there may be more than 300 bcm of unused capacity.
To be sure, Europe’s LNG terminals are in place for security of supply, and their utilization throughout the year varies depending on weather, availability of pipeline gas and shifts in global demand.
Since Russia’s deal to transit Europe’s gas through Ukraine expires in December, LNG dependency in eastern and central Europe may increase.
“More capacities are needed to ensure that you have sustainable capacity over cycles, regardless of temperatures or what happens with Russian gas,” said Erik Nyheim, president and chief executive officer of Höegh LNG Holdings Ltd., which provided three floating terminals to Germany and one to France.
--With assistance from Ruth Liao.
(Updates with Höegh LNG comment in new last paragraph.)
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