Germany locks onto more US natural gas as it shuts off Russian supply

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Germany has signed another long-term deal to import more US liquefied natural gas, as Berlin moves to replace Russian energy in its economy amid Moscow’s war in Ukraine.

SEFE, or Securing Energy for Europe – a company born out of Berlin’s effective nationalization of the German operations of Russia’s state-owned Gazprom – will buy 2.25 million tonnes of super-chilled gas per year from Venture Global LNG, a US developer of exports. Terminal along the Gulf of Mexico.

The 20-year duration of the supply contract signals that Germany – which began importing LNG just seven months ago – expects its economy to use gas despite a target of cutting net carbon emissions by 95 percent by 2045. Consumption will continue. SEFE is wholly owned by the German state.

Egbert Legge, SEFE chief executive, said the deal was “another important step on our mission to secure energy for European customers” and would “contribute to the further diversification and stability” of the continent’s supply.

Mike Sabel, chief executive of Venture Global, hailed the “strategic partnership” with Germany, saying that his company is “honored to support a major US ally”.

The companies did not disclose the price at which the gas – equivalent to about 5 percent of Germany’s demand – will be sold.

The deal is Germany’s second 20-year agreement with Venture Global, following a 2 million tonne per year agreement signed by utility EnBW, which is largely owned by the southwestern state of Baden-Württemberg. These agreements will make Venture Global the largest LNG supplier to Germany.

Germany’s RWE last year agreed a deal to source Qatari LNG for 15 years – far short of the Gulf state’s demand, having in recent months signed deals with Chinese companies for up to 27 years. This week Norway’s Equinor also signed a 15-year deal with US-based exporter Cheniere Energy.

U.S. LNG exports to Europe soared last year as the energy crisis deepened and gas prices rose, with shipments of more than 40 million tons easing a supply shortfall. The additional flows have helped Europe build up enough gas reserves as it prepares to enter the winter of 2023.

Germany, which has built up an industrial sector dependent on cheap Russian gas for decades, has suffered supply deficits, especially after Moscow’s full-scale invasion of Ukraine and mysterious explosions last year that killed the Nord Stream from Russia. Parts of the pipeline system were demolished.

Prior to the energy crisis, Germany was the only major economy in Europe without LNG import capacity, thus its dependence on pipeline gas from Russia.

But in the past 18 months, it has ramped up work on several floating LNG import facilities. The country has taken in a total of 2.4 million tonnes of LNG since December, with more than 70 percent coming from the US, according to Refinitiv.

America’s lower forty-eight states only began producing LNG in 2016, but Gulf Coast projects under construction by companies including Cheniere, Venture Global and ExxonMobil will make the country the world’s biggest exporter by far. According to S&P Global, US exporters have signed contracts for more than 70 million tonnes/year for future supplies through early 2021.

Just weeks after Russia’s latest invasion of Ukraine last year, US President Joe Biden and European Commission President Ursula von der Leyen announced a strategic agreement under which EU companies would seek to guarantee more demand for US LNG – Bid to encourage creation of more export capacity.

Venture Global said the LNG will be exported from a new plant, CP2, at Calcasieu Pass on the Louisiana coast, which is expected to begin construction later this year. The company’s first plant began production at Calcasieu Pass in January 2022, and in April Venture Global moved forward with another project that will eventually ship 20 million tons/year of LNG.