EU plans hydrogen imports task force, terminals amid split from Russia

The EU's executive is firming up plans for future hydrogen imports as Russia's war at its border forces it to take a hard look at its gas policies and strategy.

The plans were laid out in the European Commission's (EC) 22 March communication on security of supply and affordable energy prices.

It came a day ahead of its proposal for a new regulation to force member states to stockpile natural gas, following up on plans to phase out Russian fossil fuels within both the 11 March Versailles Declaration and the 8 March REPowerEU communication.

While the regulation's focus is on gaining enough natural gas imports for next winter, the EC said in the communication it ultimately wants to pivot to imports of net-zero aligned renewable hydrogen. It suggested states invest in hydrogen-compatible LNG import capacity and hydrogen infrastructure.

It backed this up with a 25 March joint statement with the US. The partners pledged to "undertake efforts" on the construction of a new "clean and renewable hydrogen-ready" LNG infrastructure.

According to the statement, new LNG infrastructure is being built to serve a natural gas supply deal that will see the EU become a much larger consumer of US LNG supplies through 2030, perhaps by as much as 50 billion cubic meters (bcm) per year.

The EU hopes to limit the emissions of methane caused by the LNG new infrastructure by pledging to lower its GHG intensity, including through electrification of processes and preventing leakage.

Some LNG infrastructure can be retrofitted to allow imports of hydrogen in the form of ammonia. US oil engineering firm Black & Veatch says LNG terminals can be retrofitted to handle imports of ammonia, a chemical that can be used as a hydrogen "carrier" to reduce the cost of shipping liquid hydrogen.

"As the world continues to shift towards decarbonization in chemical production, and strong market demand drives the transition to carbon-free energies, ammonia's role in the green energy economy continues to expand," wrote Mehran Ghasemi, a lead process engineer with Black & Veatch's Oil & Gas business.

Despite the rush to build new natural gas infrastructure, the EC says it is staying the course on its policy package aiming to reach net-zero for 2050. "Accelerating the green transition will reduce emissions, reduce dependency on imported fossil fuels, and protect against price hikes. However, the current geopolitical situation requires additional short-term measures to deal with the market imbalances for energy and for securing supplies in the years ahead," said the EC in the gas strategy communication.

EU looks to import cheap hydrogen

Aiming to tackle surging prices for natural gas and concerns around heating homes this winter, the EC proposes EU member states start to collectively purchase not only natural gas but also hydrogen.

This could be done through an EU-led task force for common gas purchases. "By pooling demand, the task force would facilitate and strengthen the EU's international outreach to suppliers to help secure well-priced imports ahead of next winter," said the EC's statement.

A team within the task force would also "[prepare] the ground for future energy partnerships" on hydrogen. The EC also suggested member states join in a "H2" hydrogen partnership to ensure stable hydrogen demand in the EU as well as stable investment conditions for infrastructure.

While the proposed EU gas strategy package in December gave states the option of jointly buying natural gas, the latest regulatory proposal requires that states "use all necessary" measures to reach storage targets, for example, working together on LNG purchases and sharing LNG.

The EU aims to domestically produce up to 1 million metric tonnes (mt) of renewable hydrogen per year by 2024, and 10 million mt per year by 2030 under its Hydrogen Strategy.

This target increased under the REPowerEU communication, which aims for EU hydrogen production and imports of 20 million mt per year by 2030 to replace 25-50 bcm per year of imported Russian gas.

The EU is expected to import about half of the hydrogen and hydrogen-based fuels it needs by 2050, according to a report by the UK charity World Energy Council.

US LNG lobby wins long-term security

The US-EU LNG export deal sees the US get EU "support" for long-term contracts for natural gas, the kind which Russian President Vladimir Putin had said he wanted last year.

The EU is looking to tame gas price volatility and prevent a looming supply crunch. "We are aiming to commit additional supplies for the next two winters," EC President Ursula von der Leyen said in a tweet.

Under the deal laid out in the joint statement, the US guarantees the EU 15 bcm of US LNG in 2022 at stable gas prices.

It will supply the EU with around 14% of the amount it needs from Russia this winter, and the EU has in exchange agreed to tap the US for up to 50 bcm of LNG per year through 2030.

This amount would make up the vast majority of the LNG the US currently exports and half of the natural gas that the EU needs to replace from Russia. Currently, Asia consumes the most US LNG, followed by Europe, according to the US Energy Information Administration.

The joint US-EU statement also pledged to "encourage final investment decisions on both LNG export and import infrastructure."

In the spring of 2020 when a Saudi-Russia price war and COVID-19 pandemic lowered oil prices, LNG projects were threatened or delayed, according to a report from non-profit Global Energy Monitor. For example, US infrastructure company Sempra Energy delayed a final investment decision to build the Port Arthur LNG terminal.

But at the end of 2020, LNG demand had rebounded to record levels particularly in Asia, according to Galia Fazeliyanova, energy economics analyst for the international organization Gas Exporting Countries Forum.

One US LNG association that had lobbied for the LNG deal hailed it as victory. "The agreement's central concept—a joint EU-US Task Force on Energy Security—is a direct response to the proposal put forward by LNG Allies, The US LNG Association, in our letter to President Biden on February 25 and our conversation with EU Energy Commissioner Simson earlier in the month," said Fred Hutchison, CEO of LNG Allies.

Even prior to the Russian invasion of Ukraine, the US and EU were announcing joint LNG and renewable procurement plans to prepare for conflict with Russia. The EU and US have previously agreed to share a trade in "green steel" produced using hydrogen.

Posted 25 March 2022 by Cristina Brooks, Senior Journalist, Climate and Sustainability

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.