EUROPE’S ENERGY SECURITY SHAKE-UP

Last year’s invasion of Ukraine by Russia had a seismic impact on Europe’s energy markets when it was already preparing for a transition to greener energy. And the need to ensure energy security and diversity overnight became even more urgent than a lowcarbon future, with knock-on effects on the supply chain.

Alongside the impetus towards sustainable energy, plunging gas imports from Russia meant a scramble to secure supplies from other producers — chiefly as liquefied natural gas — and the infrastructure to import it. The International Group of Liquefied

Natural Gas Importers, or GIIGNL, described Russia’s invasion “a gamechanger,” with importers replacing Russian gas with supplies from the 19 international LNG producing countries.

Europe’s LNG regasification capacity, relatively flat for a decade, is set to increase by a third by 2024, with almost 50 billion cubic meters, or bcm, of capacity due online by end-2023. Much will be in the form of Floating Storage Regasification Units, or FSRUs, which can be quickly chartered and hooked up with minimal infrastructure.

This has been a major change for ports. “We see strong growth in LNG,”

By Neil Campbell

said Port of Rotterdam spokesperson Sigrid Hesselink. The port itself invested in a terminal dedicated to LNG (the Gate LNG terminal), which saw LNG imports rise by 63.9 percent in 2022, mainly from the U.S. The rise in LNG offset lower container trade, and throughput was similar to 2021 at 467.4 million tonnes.

Germany alone is installing up to five FSRUs by year end, said GIIGNL, to replace 58 bcm of Russian gas imports out of 90 bcm of annual consumption (2021 figures). Italy is adding three FSRUs over the next three years totaling 10 bcm per year of import capacity, as it seeks to replace 29 bcm of Russian gas. The Netherlands will have two FSRUs by end-2023, while France, Finland/ Estonia, Greece and Cyprus are committed to one each. Greece has four further proposed FSRU projects.

Reduced Russian gas has underlined the need for energy diversity, especially renewable or low carbon options giving greater energy independence. This has meant more emphasis on offshore and onshore wind power, a revitalized interest in nuclear power, and a fillip for battery storage, hydrogen production and e-fuels. Carbon capture and storage is also receiving more attention to reduce the impact of fossil fuel production and use, with European economies still heavily dependent on oil and gas.

The wind power boom will challenge the supply chain. Consultant McKinsey sees wind and solar projects that have reached final investment decision, excluding China, rising from 125 GW in 2021 to 459 GW in 2030. The speed of this growth “requires stable markets and resilient supply chains,” McKinsey said, but added that renewables have seen volatile prices and supply levels. Solar material polysilicon went up by 350 percent from 2020-23, while key wind turbine materials steel, copper and aluminum have seen prices double or triple. Rare earth metals used in magnets in wind turbines and electric vehicles are in short supply.

The Port of Rotterdam’s Hesselink said: “We see an increase in [demand for] products related to the renewable industry.” This is not just in offshore wind components such as “foundations, blades, tower sections, transition pieces, cables, nacelles” but also energy transition components such as cobalt, lithium and nonferrous metals. Throughput is also increasing for users such as refineries that are upgrading to become more sustainable, Port of Rotterdam said.

For wind farms, “growth will continue in terms of project size and equipment size,” Hesselink said. “Turbines are expected to be upgraded to generate more MW and will be bigger. Therefore the blades, tower sections, etc., will also increase. The same goes for the foundations.”

But companies are responding. Sif recently took a €328 million FID to build the world’s largest monopile foundation manufacturing plant at Rotterdam, for example.

Europe saw 16.7 GW of onshore and 2.5 GW of offshore wind installed in 2022, the Global Wind Energy Council, or GWEC, said. Total offshore wind capacity in Europe is now 30 GW, of which the UK has 46 percent. Europe leads the nascent floating offshore wind sector, with 171 MW or 91 percent of the world’s total.

But there are supply bottlenecks, GWEC said. Europe’s existing offshore nacelle assembly capacity will meet only European demand in 2026 and would have to double by 2030 to meet demand then. And GWEC said, “Europe could see shortages before the end of the decade” in vessels used in offshore wind installations.

Hydrogen developments are increasingly paired with offshore wind. The Netherlands in March announced plans to use output from a new 700 MW wind farm solely to produce green hydrogen at a 500 MW plant off the Netherlands. Shell last July announced the 200 MW Holland Hydrogen 1 in the Port of Rotterdam, with the electrolyzer powered by the Hollandse Kust Noord wind farm. Shell will use the hydrogen at its local refinery, partly decarbonizing production of petrol, diesel and jet fuel.

Fresh interest in the nuclear sector is perhaps unexpected, with COP26 driving its revival. Poland in late 2021 announced the site of LubiatowoKopalino for its first nuclear power plant, on the Baltic coast near Gdansk. Three units of 1,600 MW each will be

Wednesday 07 June 12:20 - 13:05 developed, and come online in 2033-37.

The UK government recently unveiled new pro-nuclear policies. It is consulting on recategorizing nuclear power as “environmentally sustainable” — opening up the same investment incentives as renewable fuels. The UK is targeting nuclear power to generate 25 percent of its electricity by 2050. The government also launched a competition for Small Modular Reactors (SMRs) and will co-fund viable projects.

Last autumn the UK announced “the first state-financed investment in nuclear for a generation” with a £700 million investment in Sizewell C. And construction is already under way at EDF’s 3,260 MW Hinkley Point C in western England — the UK’s first new nuclear power station in 20 years.

Oil and gas remain in the mix. “Demand is still there — mostly [for] steel pipes, jackets and smaller project cargo,” Hesselink said. “With the current oil price, we expect that this will not change.”

But while production will continue, carbon abatement is on the agenda, with the UK alone allocating £20 billion of support for the development of carbon capture use and storage to capture 20-30 million tons per year by 2030.

Europe’s reliance on fossil fuels will not disappear overnight, but it is now rapidly diversifying its supply sources — particularly in gas — and developing its own independent and sustainable energy industries, with the supply chain to match.