German LNG Terminal Faces Headwinds

German LNG Terminal Faces Headwinds
The facility near Hamburg is facing hurdles.

A proposed liquefied natural gas terminal in Germany is at the risk of never being built, with several headwinds having already prompted one of three backers to write down its investment. 

The facility near Hamburg is facing hurdles including delays in obtaining environmental permits and an unusual requirement for a part of its imports to be sold in the spot market, said a person familiar with the matter. Vopak LNG Holding BV last month said it was stepping back from the project, a move that led to an exceptional loss of about 11 million euros ($12 million). 

The Brunsbuettel import terminal was initially expected to be operational at the end of 2022, and the difficulties in getting the project off the ground are a setback for Germany, which has been trying to reduce its reliance on Russian gas. The obstacles for one of the three LNG terminals planned for Germany also add to increased scrutiny of new projects as Europe seeks to reduce its fossil fuels usage to become carbon neutral by 2050.

“Vopak will be a passive shareholder,” German LNG Terminal GmbH, the company responsible for the project, said in a statement to Bloomberg. “The financial participation will therefore remain, while the active personnel participation will not continue.”

Vopak declined to comment beyond its earnings statement on Nov. 12, when it said it had decided to discontinue its active involvement in the project.

One major stumbling block in the terminal’s progress is a requirement for 10% of its capacity to be reserved for short-term access, according to the person, who asked not to be identified because the information is private. The obligation was imposed by the German regulator in order to provide tariff exemptions, the person said.

LNG terminal developers typically aim to book all the space in the terminal under long-term contracts to ensure stable proceeds for investors. 

Environmental permits are also taking longer than expected, making the start of the project unlikely before 2025, the person said. 

At a conference in Rome last month, Marcel Tijhuis, head of business development at German LNG Terminal, said the project faced “big challenges” ahead. 

The terminal-- also backed by NV Nederlandse Gasunie and Oiltanking GmbH -- isn’t the only one in Germany that’s hit obstacles. Uniper SE decided earlier this year to ditch an LNG terminal project in Wilhelmshaven in favor of turning the site into a green hydrogen hub.

Germany will need more gas in the years to come as it phases out nuclear and coal. To close the gap, the new coalition government plans to invest more in natural gas-fired power plants.

--With assistance from Anna Shiryaevskaya.


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