The urge to end Europe’s Russian fossil fuel dependency as quickly as possible has put LNG in the spotlight. In the past few months, new LNG import terminal projects have sprung up all over Europe amid a surge in the push to diversify gas supplies, adding to several existing plans. Private finance is critical to enabling the construction of these new infrastructures, and many terminal projects have yet to secure financing and insurance coverage. Financial institutions must take account of the responsibility they hold and commit not to support these projects at the risk of compromising their own climate commitments.

A year ago, Europe’s gas supply was already causing concern as it entered the winter 2021/2022 with historically low gas storage levels. Since February 2022, the Russian war in Ukraine has significantly exacerbated the gas crisis, globally and especially in Europe, for which Russian gas accounted for more than 40% of total gas consumption in 2021 (1).

In response to the decline in Russian gas imports, a flurry of LNG import terminals projects have been popping up all avec Europe, with at least 16 new projects and 6 previously dormant plans reactivated (2), to increase current LNG import capacity, adding up to several already existing projects. In total, the sum of the proposed new import capacity could almost double the current capacity, from 235 bcm/year currently operational to 449 bcm/year.

However, what Europe needs today is neither to increase its gas import capacity in such a disproportionate way, nor to get stuck in a fossil fuel dependency for decades to come.

All these projects of new infrastructures are missing the point: new LNG importing capacity won’t solve the energy crisis. Indeed, these projects:

• Will not be operational for several years (with an average construction time for the last LNG import terminals in Europe of 3.5 years from final investment decision), and thus will arrive too late to solve the current short-term gas shortage,
• Wouldn’t allow Europe to import more gas due to the tightness of global gas markets – the gas it could import through these new infrastructures is simply not currently available on the global gas markets – given the increasing global gas demand.
• Moreover, if all of Russia’s pipeline import capacity were unavailable, the EU’s net import capacity would still exceed demand under various 1.5°C scenarios (3).
• Will strengthen dependence on the main countries exporting LNG to Europe, raising the question of energy security – in 2021, 3 countries supplied more than 70% of Europe’s LNG: Russia, the US and Qatar (4).
• Will have detrimental effects on energy poverty, in Europe as well as globally. Asian countries such as Bangladesh, Thailand and Pakistan are struggling to secure LNG imports as they are outbid by European buyers, thus risking energy shortages and power outages.

Not only are these LNG import terminal projects, which have been proposed in an atmosphere of widespread panic and lack of coordination, not an adequate solution to the current energy crisis, but they also carry terrible consequences for the climate.

Every single drop of LNG is fossil gas, composed mostly of methane, which is a greenhouse gas 86 times more damaging than CO2 over 20 years (5) and responsible for 30% of the rise in global temperatures since the industrial revolution (6). Because it has such a significant short-term impact, methane is one of the most important levers to limit global warming: methane emissions could fall rapidly, and would be out of the atmosphere within a few decades.

When it comes to LNG, its long and complex supply chain involves multiple potential leakage points. Using LNG instead of piped gas will likely amplify methane emissions, and therefore the global warming potential of European gas, which is all the more true as Europe is importing more and more US shale gas – one of the worst gas in terms of methane emissions.

With an expected lifespan of 30 years or more, these LNG projects are extremely likely to create a carbon lock-in. It will lock Europe in a continuing dependance to fossil fuel for decades to come, generating significant emissions that the EU cannot afford in order to reach its climate objectives to reduce emissions by 55% in 2030 and reach climate neutrality by 2050. If these infrastructures are built, the only way to avoid this lock-in risk will be to shut down those recently-commissioned terminals, resulting in a massive amount of stranded assets.

These LNG terminal projects represent significant financing requirements of several hundred million dollars. For example, the German onshore regasification terminal projects at Brünsbuttel and Stade require investments of $500 and $580 million respectively. While part of the investment required can be met by the states, private funds will also have a role to play.

LNG provides a perfect example of the need for financial actors to consider emissions from not only fossil gas production but also transportation and distribution in their policies, given the extent of methane leakage along the value chain. However, oil and gas policies regarding LNG infrastructures are virtually non-existent.

Private financial institutions committed to limiting global warming to 1.5°C, including GFANZ members, can no longer support destructive LNG projects. Funds for LNG terminal projects must be denied, and private finance must develop serious exclusions regarding LNG projects, as well as engagement practices with the utilities fueling Europe’s LNG dependence. 

Notes:

1. European Commission, In focus: Reducing the EU’s dependence on imported fossil fuels
2. Global Energy Monitor, European Gas Crisis 2022
3. Global Energy Monitor, Europe Gas Tracker Report 2022
4. US Energy Information Administration, Three countries provided almost 70% of liquefied natural gas received in Europe in 2021
5. Robert W. Howarth, Renee Santoro, Anthony Ingraffea, A bridge to nowhere: methane emissions and the greenhouse gas footprint of natural gas
6. International Energy Agency, Methane and climate change – Global Methane Tracker 2022