Mon, Jun 17 2024 17 June, 2024

German imports contribute to U.S. LNG expansion

The push for gas supplies is leading to rapid construction of U.S. LNG export terminals on the Gulf Coast, threatening the coastal environment and climate targets, according to critics. Germany is playing a big role in the buildout.

LNG Tanker Coral Energice (Photo credit: Adobe Stock/Gestur)

Germany’s drive to import gas is contributing to a buildout of U.S. LNG infrastructure on the Gulf Coast, potentially locking in pollution for decades to come, while also threatening Germany’s own climate targets.

On June 22, Securing Energy for Europe GmbH (SEFE), a Berlin-based midstream company borne out of the nationalization of Gazprom’s operations in Germany, announced a deal to import LNG from Louisiana on the U.S. Gulf Coast. The 20-year sales and purchase agreement (SPA) for 2.25 million tonnes per year of LNG would see gas exported from the yet-to-be-built CP2 terminal, backed by a Virginia project developer Venture Global.

“By joining forces with Venture Global LNG, SEFE makes another important step on our mission to secure energy for German and European customers and meet the energy demand of the region,” Egbert Laege, CEO of SEFE, said in a statement.

The project would be constructed on flat marshlands on Louisiana’s coast, at the edge of the Calcasieu Ship Channel, a brackish waterway that connects the Lake Charles refining and petrochemical complexes — located 30 miles from the coast — to the Gulf of Mexico. Venture Global’s CP2 is sited at the very end of that ship channel.

CP2 would essentially be an expansion of Venture Global’s existing Calcasieu Pass LNG facility, and SEFE’s agreement takes the total volume of contracted cargoes of the project up to 9.25 mtpa, meaning that roughly half of the proposed 20 mtpa has been sold. Generally speaking, LNG facilities need around 80 percent of the capacity under contract in order for them to secure financing and feel confident enough to greenlight construction. Other buyers of gas from CP2 include ExxonMobil, Chevron, Japan’s JERA and INPEX, and Germany’s EnBW.

German interest in U.S. LNG, which it sees as a replacement for lost Russian gas imports, may be good news for American gas companies, but it poses environmental threats to coastal Louisiana.

John Allaire lives less than a mile from the existing Calcasieu Pass LNG, which started up a year and a half ago. He says the site has been flaring constantly since the facility began operations, as Gas Outlook previously reported. Calcasieu Pass has experienced chronic equipment malfunctions, and pollution levels routinely exceed limits set by state permits. The facility is also emitting methane from equipment that is going undetected by state and federal regulators, as documented by a longtime oil and gas regulator using optical gas imaging cameras.

Six months after Gas Outlook first reported on pollution spewing from Calcasieu Pass, the problems have not gone away. In an email on June 27, Allaire said that they are “flaring right now,” sending along a picture of large flames bursting from flare stacks.

Allaire is an environmental engineer, having spent more than 30 years working for BP and Amoco. In May, he conducted an analysis of pollution incidents at Calcasieu Pass, using filings by the company to Louisiana environmental regulators. The analysis was compiled and published by the Louisiana Bucket Brigade, a statewide NGO.

He found that Calcasieu Pass exceeded pollution limits more than 2,000 times since the start of 2022, and that out of the 343 days of operation last year, the facility was in violation of their permits for 286 days.

But rather than working to slash its air pollutants, Venture Global is asking the state to increase authorized pollution limits. Critics are crying foul.

“It would be as if I got pulled over by a cop for doing 80 in a 60 zone and rather than give me a ticket the cop agrees to just raise the speed limit to 80,” Anne Rolfes, the Executive Director of the Louisiana Bucket Brigade, said in May. “That’s the equivalent. They want to change the parameters by which they are judged rather than comply with the law and their permits.”

Also in May, eight organizations representing fishermen, former oil industry workers, religious communities, parents, and local Louisiana citizens sent a letter to the Regional Administrator of the U.S. Environmental Protection Agency (EPA), calling on the federal government to step in to deny Calcasieu Pass’ request for higher pollution levels on its state permit.

Allaire said if CP2 goes forward, it would “double their pollution load on the local community.”

Venture Global did not respond to questions from Gas Outlook.

Germany’s role in U.S. LNG expansion

On the other side of the Atlantic, Germany is keen to secure more LNG cargoes from American suppliers. But doing so cuts against Germany’s own climate policies.

Germany’s Climate Protection Act says the country needs to reach net zero emissions by 2045, but contracts to buy LNG that last for 20 years, beginning in 2026 or 2027, would push fossil fuel use beyond that date.

SEFE’s agreement to buy LNG from the proposed gas export terminal in Louisiana sends terrible signals to global gas markets, says Andy Gheorghiu, a German climate campaigner and environmental consultant.

“It basically says that the German state is ok with a direct support for devastating fracking in the U.S. and climate wrecking gas for the next 2-3 decades, locking us all in the fossil fuel dependency instead of pushing now for a radical phase-out,” he told Gas Outlook in an email.

He added that the deal with Venture Global is only the latest in a series of commercial agreements and financial relationships from German entities for U.S. LNG from the Gulf Coast.

Over the past ten years, German banks have offered $5 billion in loans for the construction of U.S. LNG projects, with $2.94 billion coming between January 2022 and April 2023.

And support seems to come from the very top of the German government. Venture Global and Sempra Infrastructure met with the German Chancellery in March of this year, just days before both companies announced final investment decisions for two separate LNG projects — Venture Global’s phase two of Plaquemines LNG in southeastern Louisiana, and Sempra’s Port Arthur LNG in Port Arthur, Texas.

German banks, including Deutsche Bank, LBBW, KfW IPEX-Bank, Halaba and DZ Bank participated in financing Plaquemines LNG. German energy company RWE is a partner in Sempra’s export project in Texas.

In that sense, German institutions are complicit in the environmental injustices occurring on the U.S. Gulf Coast, Gheorghiu argued, but that connection is something that the German government “completely ignores.”

SEFE did not respond to questions from Gas Outlook.

The consensus from climate scientists, the United Nations, and the International Energy Agency is that fossil fuel production and consumption needs to decline steadily with each passing year if the world is to have any hope of staying below 2 degrees Celsius of warming.

In addition to climate risk, the buildup of LNG is also a financial risk. Some experts believe that the European Union is overbuilding LNG import terminals, as both Germany and the EU have climate targets that require reduced gas use in the years ahead.

But despite the weak medium- and long-term outlook for gas use in Europe, the dealmaking continues.

“Europe does not intend to replace lost Russian import volumes on a 1 for 1 basis with LNG imports. Rather, Europe will lean into energy efficiency, solar/wind paired with storage, and green hydrogen to offset much of the lost 155 bcm/year of gas imports,” Evercore ISI, an equities analysis firm, wrote in a June 26 note to clients. “However, European contracting for long term LNG has finally started to increase and now represents a larger portion of global SPA volumes than the EU did in 2022.”

In just the last few weeks, other European companies have inked deals for U.S. LNG. France’s TotalEnergies agreed to buy (and invested equity in) Rio Grande LNG in south Texas. Norway’s Equinor signed a 15-year deal with Cheniere Energy’s expansion at Sabine Pass, the largest LNG facility in the country.

A new analysis from the U.S. Energy Information Administration finds that U.S. LNG exports drove the bulk of increased demand in the country over the past decade. In Texas and Louisiana, demand for gas grew 116 percent between 2012 and 2022, and exports accounted for “most of the growth.”

John Allaire sees the rush to export gas as shortsighted. “It is all about the push to monetize the [natural gas] and put American consumers and industries in competition with the rest of the world,” he said. “One of our big domestic advantages should be low-cost domestic energy reserves, and we are rushing to sell that to the highest bidders, friend or foe.”