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Germany signs MOU with utilities to ensure LNG supply for two FSRUs

Highlights

Preliminary agreement signed with Uniper, RWE, EnBW/VNG

Concerns supply to FSRUs at Wilhelmshaven, Brunsbuttel

To ensure two FSRUS will be fully utilized until March 2024

Germany's economy minister Robert Habeck signed Aug. 16 a memorandum of understanding with utilities Uniper, RWE, and EnBW/VNG designed to ensure the supply of LNG to the country's first two LNG import terminals at Wilhelmshaven and Brunsbuttel.

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Under the new agreement, the declared goal is to fully utilize the two FSRUs immediately from the date of their commissioning, with the utilities guaranteeing the necessary delivery volumes.

"The MOU ensures that these FSRUs will be filled with gas until March 2024," Habeck said at a webcast press briefing.

Germany's efforts to guarantee LNG volumes for its new import terminals come as European gas prices continue to surge on winter supply concerns.

The Dutch TTF month-ahead price reached a new all-time high of Eur221.48/MWh on Aug. 15, according to Platts price assessments from S&P Global Commodity Insights.

Germany has no LNG import terminals at present, but Berlin is moving to fast-track the development of LNG import infrastructure, including the deployment of four state-backed FSRUs.

It is hoped the first two FSRUs at Wilhelmshaven and Brunsbuttel will be ready to begin operations at the turn of the year.

The two terminals will be operated by Uniper and RWE on a transitional basis until a special purpose vehicle takes over the operation, the ministry said.

Supply security

In addition to Uniper and RWE, EnBW and its subsidiary VNG will be tasked with ensuring the supply of LNG to the FSRUs. Corresponding legally binding contracts are now being drawn up, the ministry said.

"This will make an important contribution to the security of gas supply from the turn of the year 2022/23," it said.

"In order for this contribution to be as large as possible, their capacity must be fully exploited from the time of commissioning," it said.

The two terminals combined will have a regasification capacity of up to 12.5 Bcm/year, and will enable Germany to access the global LNG market directly for the first time.

"With the import of LNG, we are making ourselves less dependent on imports of Russian pipeline gas," Habeck said.

"The MOU offers the necessary assurance that these FSRUs will be fully utilized for the next two winters and thus make a maximum contribution to the security of supply in Germany and Europe," he said.

Two more state-backed FSRUS -- at Lubmin and Stade -- are expected to be ready for operation from the end of 2023, while a fifth privately-backed FSRU is expected to be deployed at Lubmin by year-end.

Global LNG market

Habeck said the new MOU reflected the confidence Germany had in building out alternative gas supply infrastructure and ensuring new LNG deliveries this winter.

The global LNG market is big -- with an expected trade volume of some 500 Bcm in 2022 -- and is fully functional, Habeck said, adding that German companies were already active on the LNG market.

Habeck also said an additional 200 Bcm/year of LNG production capacity would be available around 2026/27, which Germany could target for additional imports.

Asked whether the LNG volumes would be enough to avoid having to move to the third and final level of its emergency gas plan this winter, Habeck said: "I am seeing progress."

But, he said, there could be new challenges, pointing to the sharply reduced Nord Stream capacity as an example.

"For the next winter, there are no guaranteed scenarios," he said, adding, however, that by building out the LNG infrastructure, filling gas storage sites and carrying out gas savings, Germany could increase the resilience of the country's gas sector for the coming winter.

Germany is currently at the second of three alert levels in its emergency gas plan and has said it needs to cut gas use by 20% to make it through the coming winter.