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Germany secures LNG supply commitments as Russia eyes new gas price hike

  • Russia has drastically reduced gas flows through Nord Stream
  • Germany racing to get alternative gas imports
  • Floating LNG terminals are a stopgap until fixed units are built
  • Berlin says Moscow is using blackmail, citing Russia sanctions

FRANKFURT/BERLIN, Aug 16 (Reuters) – Germany secured a commitment from a major gas importer on Tuesday to fully supply two floating liquefied natural gas (LNG) terminals from this winter in a bid to cut dependence on Russian fuel. Skyrocketing gas prices may jump again.

Europe and Russia have been locked in a crisis over energy supplies since Moscow invaded Ukraine and the West responded with sanctions. Russia, which previously supplied around 40% of Europe’s gas needs, has cut flows citing equipment problems, while Berlin says Moscow wants to “blackmail” Europe.

Germany, Europe’s powerhouse economy, is more dependent on Russia than Russia, scrambling to find alternative sources of gas before winter if Russia cuts supplies further or stops them. Berlin has already warned of possible gas rationing.

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Under Tuesday’s memorandum of understanding with Uniper ( UN01.DE ), RWE ( RWEG.DE ) and EnBW’s ( EBKG.DE ) VNG ( VNG.UL ), two floating storage and resizing units (FSRUs) in Brunsb├╝ttel and Wilhelmshaven from an expected start of operation this winter. Fully supplied till March 2024.

German Economy Minister Robert Habeck said it was “part of efforts to make us independent and less susceptible to blackmail by (Russian President Vladimir) Putin and to give Germany a robust and resilient energy infrastructure, or in this case gas infrastructure”.

The floating units are a stopgap measure until Germany builds two permanent LNG terminals – the first such terminals built in the country – to receive gas shipped around the world instead of relying on Russian fuel supplied by pipeline.

The crisis sent Europe’s benchmark gas price to an all-time high of around 335 euros ($341) per megawatt hour (MWh) in the spring. They have eased since then, trading around 223 euros on Tuesday, but remain well above a year ago when they were around 46 euros.

Gazprom ( GAZP.MM ), the Kremlin-controlled company that monopolizes Russian gas exports through the pipeline, said prices could rise by 60% from current levels, inflicting more pain on European consumers. It said they could exceed $4,000 for 1,000 cubic meters this winter, up from $2,500 now. Read more

Uniper, which has faced a financial crisis as it struggles to meet supply commitments amid rocketing gas prices, was rescued by the German government in July with a 15 billion euro deal. Berlin has taken a 50% stake in a planned fixed LNG terminal at Brunsbuettel, co-owned by RWE and Gasunie ( GSUNI.UL ). Read more

‘New Challenges’

Before the crisis, Germany received most of its gas from Russia through the Nord Stream 1 (NS1) pipeline, majority owned by Gazprom. The pipeline used to supply 55 billion cubic meters (bcm) a year to Germany and others, but now runs at 20% capacity.

Moscow blames low flows on delayed repairs due to restrictions or faulty equipment. Berlin says these are pretexts to push back Europe in response to Western sanctions.

“The Russian president’s erratic actions, pretexts (on NS1) … I expect we will face new challenges again and again,” Habeck said.

Using the two FSRUs, Germany would be able to source 12.5 bcm of LNG per year, equivalent to around 13% of the country’s gas consumption in 2021, according to numbers from research firm Enerdata.

Uniper said it would buy 35% of the required gas volumes, while RWE and EnBW/VNG would contribute 35% and 30% respectively. These are firm delivery commitments and the agency agreement will be signed by the end of September, it said.

“It’s about quickly replacing part of the gas volume missing from Russia this winter,” said Niek den Hollander, Uniper’s chief commercial officer.

In addition to limiting supplies through Nord Stream, Russian supplies pumped through Ukraine have also been reduced. Gazprom said its gas exports fell by more than a third to 78.5 bcm between January 1 and August 15, and production fell 13.2% to 274.8 bcm compared with a year ago.

Global demand for LNG was already rising before the latest crisis as the world economy recovered from the COVID-19 pandemic, and Russia’s invasion of Ukraine helped boost LNG demand even further.

But German gas importers have so far been successful in procuring LNG cargoes from the global market, he said, putting it at 500 bcm a year, although talks between German importers and major LNG producer Qatar have failed. Read more

Talks with Qatar are continuing but importers are looking broadly for better deals, Habeck said.

“And if Qatar does not offer a cheaper offer, companies are advised not to take the more expensive offer in the interest of consumers,” he said.

($1 = 0.9830 euros)

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Reporting by Christoph Steitz and Rachel More; Additional reporting by Vera Eckert and Nina Chestney; Edited by Madeline Chambers and Edmund Blair

Our criteria: Thomson Reuters Trust Principles.

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