Europe: scrambling to adapt

Gas prices surge

Without a doubt, the Ukraine war and the subsequent sanctions against Russia have had the most profound impact on natural gas. While resurgent demand after COVID-19 had already driven prices up to almost US$50 per thousand ft³ by late 2021, the invasion of Ukraine in February 2022 resulted in further turmoil, culminating in the sabotage and destruction of Nord Stream, a major conduit of natural gas from Russia to Europe.

The problem was exacerbated by a lack of storage. While North America has in excess of 5 trillion ft³ of natural gas, primarily in immense salt domes, Europe has been quietly closing storage over the last decade due to poor summer/winter price spreads. The UK, significantly, had only 10 days reserve capacity when the crisis hit.

European governments announced severe conservation efforts that saw major industrial users suspending capacity and citizens turning down the thermostat. Fortunately, a mild winter and conservation efforts resulted in a drop of almost 20% of average winter consumption, avoiding catastrophe.

Longer-term solutions are now underway. In 2017, Centrica closed the Rough gas storage facility in the North Sea (which held over 30 billion ft³), significantly paring the UK’s reserve capacity. In October 2022, it announced that it was reopening the facility and intended to fill most of the capacity for the winter season. In June 2023, the company revealed that it planned to expand total capacity to over 50 billion ft³, which is sufficient to heat 2.4 million homes throughout the winter.

LNG

LNG is also seen as a solution to shortages. Germany, which had relied on Russia for virtually all of its gas imports, rushed to install floating storage and regasification units (FSRUs). In early 2023, Germany welcomed its first LNG tanker at the Wilhelmshaven terminal, sent from the Calcasieu Pass export facility in the US Gulf Coast. Several weeks later, the Deutsche Ostsee terminal in Lubmin, located on the German Baltic Sea coast, began receiving LNG from TotalEnergies. In all, Germany has plans for 10 FSRUs, some of which will be replaced by onshore regasification facilities once they are built. Total installed capacity is expected to exceed 70 million tpy by 2030 (although there is a distinct possibility that several may be cancelled).

Refineries

The European refining sector has been in turmoil for over a decade. In the early 2010s, the continent had approximately 16 million bpd of capacity. Since then, tight refining margins have eaten into capacity, reducing the total by over 10%. With the advent of COVID-19, the pace accelerated; ExxonMobil permanently shuttered its Slagen refinery in Norway, Gunvor closed two crude processing units in Rotterdam, the Netherlands, and mothballed its refinery in Antwerp, Belgium, and Neste has discontinued operations at its Naantali refinery in Finland. Capacity now stands at around 14 million bpd.

This article was originally published in the November 2023 issue of Hydrocarbon Engineering magazine. To read the full article, sign in or register for a free subscription.

Written by Gordon Cope, Contributing Editor.

Read the article online at: https://www.hydrocarbonengineering.com/special-reports/08112023/europe-scrambling-to-adapt/