Europe’s LNG Expansion: A Surge in Capacity Faces Underutilization Concerns

In the wake of the war in Ukraine, Europe has dramatically increased its capacity to import liquefied natural gas (LNG), adding 85.15 billion cubic meters of import capabilities since 2021. This rapid expansion aimed to safeguard against potential disruptions in Russian gas supplies. However, recent data reveals a notable underutilization of these terminals, raising questions about the long-term viability and economic prudence of these significant investments. A new report indicates that the average utilization rate of European LNG terminals has fallen to 42% in 2024, a sharp decline from 58% in 2023.

LNG Terminals Across Europe: Capacity Outpaces Demand

the Institute for the Energy Economy and Financial Analysis (IEEFA) has highlighted the growing disparity between LNG import capacity and actual usage across Europe. The average utilization rate of 42% in 2024, down from 58% the previous year, signals potential inefficiencies and financial risks associated with these large-scale infrastructure projects. This decline prompts concerns about the possibility of stranded assets, where the infrastructure’s value diminishes due to lack of use.

While the construction of new terminals continues, the pace of expansion has slowed. Between 2021 and 2023, import terminal capacity in Europe grew by 22%. However, in 2024, the increase was only 9%, attributed to construction delays and postponements.

Disparities in LNG Terminal Usage Among European nations

The utilization rates of LNG terminals vary significantly across different European countries. Spain,Greece,and Germany report annual usage rates below 30%,indicating substantial unused capacity. In contrast, Poland and Croatia utilize more than 80% of their LNG capacity, demonstrating a more efficient use of their infrastructure. The Netherlands operates at approximately 60%.

The Czech Republic, for example, receives LNG via the terminal in Eemshaven, Netherlands, where energy group CEZ holds capacity. Other companies with stakes in the Eemshaven terminal include Shell and Engie. According to CEZ spokesman Roman Gazdík, Most ships with LNG for the Czech Republic arrived during the hot part of the energy crisis, roughly in the first year after the start of the terminal, when the gas price was high and the supply was most needed. He added that gas imports continued, albeit at a reduced rate, even after the initial surge.

Over two years of operation, the Eemshaven terminal has facilitated the transport of 4 billion cubic meters of gas for the Czech Republic via 45 ships.Other nations, including France, italy, and Belgium, utilize approximately half of their LNG import capacity.

Seasonal Variations and Strategic Oversizing of LNG terminals

Michal Kocůrek, a consultant at EGU Brno, notes that LNG terminal usage fluctuates seasonally. Imports LNG to the EU in january 2025 compared to the months of relatively low imports during the second and third quarter 2024 is 30 to 40 percent higher. In general, however, the rate of use of around 50 percent does not mean low use.

Kocůrek also suggests that some countries deliberately maintain oversized terminal capacities to ensure sufficient supply during peak winter demand. In many countries,the capacity is oversized to cover all demand even in winter peak hours. this applies to countries with low storage capacity and limited connections to neighboring states, where LNG is the main source of gas supply, especially Spain.

Economic Factors Influencing LNG Imports

The price of liquefied natural gas also plays a crucial role in import decisions.Recently, traders have reduced gas purchases due to high prices, opting instead to utilize existing reserves in storage plants. It is therefore more economically advantageous for them to supply gas to customers to a large extent by gas mining from the magazines. Compared to last year, the situation is quite the opposite. At that time, on the contrary, prices were falling on the market, and therefore it was more advantageous for traders to maximize purchasing on the market, instead of mining from magazines, Kocůrek explained.

High storage levels at the end of the last heating season also contributed to decreased LNG imports in 2024. Despite the Czech Republic’s gas storage facilities being at 31% capacity as of February 26, the overall trend reflects a decline in LNG imports across Europe.However, current LNG import capacity is sufficient to meet existing demand.

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Europe’s LNG Gamble: Is Overcapacity a Recipe for Disaster?

Is Europe’s massive investment in LNG import capacity a strategic triumph or a costly miscalculation? The answer, it seems, is far more nuanced than a simple yes or no.

Interviewer: Dr. Anya Petrova, welcome to World today News. Your expertise in global energy markets is highly regarded. Europe’s recent surge in LNG import capacity has understandably generated significant debate. Can you shed some light on the current state of affairs concerning Europe’s LNG infrastructure?

Dr. Petrova: Thank you for having me. the situation is indeed complex. Europe’s dramatic expansion of LNG import capacity, driven largely by the need to diversify away from Russian gas, represents a significant shift in the continent’s energy landscape. However, the current underutilization of these new terminals raises serious questions about the long-term economic viability of these investments. The fact that average utilization rates have dropped considerably highlights the risk of substantial stranded assets. We must carefully consider whether this expansion was truly necessary or if it represents a case of overestimation of future demand.

Interviewer: Many are concerned about the implications of underutilized LNG terminals. could you elaborate on the potential consequences of this overcapacity?

Dr. petrova: The economic consequences of overcapacity in the LNG sector are multifaceted. Firstly, we face the very real prospect of stranded assets. Billions of euros invested in infrastructure, including regasification terminals and pipelines, could yield significantly lower returns than initially projected, leading to potential financial losses for investors and potentially impacting energy security policy. Secondly, this mismatch between capacity and demand may distort market signals, leading to inefficient allocation of resources. Furthermore, the existence of significant idle capacity might discourage investment in other, potentially more sustainable and efficient, energy solutions. there’s a geopolitical implication: over-reliance on LNG as a solution to energy diversification could increase Europe’s vulnerability to price volatility in the global LNG market.

Interviewer: The utilization rates vary considerably across European nations. What accounts for this disparity?

Dr. Petrova: The differences in utilization rates across European countries reflect a variety of factors,including geographical location,existing energy infrastructure,domestic energy consumption patterns,storage capacities,and interconnectivity with neighboring states. Such as, countries with well-established pipeline networks and substantial underground gas storage may have lower reliance on LNG imports, resulting in lower terminal utilization. Conversely,countries with limited pipeline access or storage capacity,like some Southern European nations,might understandably have higher utilization rates.The diverse energy mix strategy adopted makes a significant difference. This highlights the importance of considering a nation’s specific energy context when assessing the success of LNG expansion projects.

Interviewer: Some argue that the seasonal nature of gas demand explains the fluctuating utilization rates. To what extent is this a valid argument?

Dr. petrova: Seasonal variations in energy demand certainly play a role. Winter months usually see a surge in natural gas consumption for heating, while milder seasons witness reduced demand. Therefore, we have to expect fluctuations in LNG terminal utilization rates. Though, the significant drop in utilization rates observed in some locations suggest that seasonal fluctuations alone cannot fully account for the underutilization problem. Strategic oversizing, coupled with market dynamics and price fluctuations, likely plays a much larger role. It’s vital to distinguish between normal seasonal swings and persistent underperformance that points towards longer-term challenges.

Interviewer: The price of LNG is a significant factor influencing import decisions. How does price volatility affect the situation?

Dr. Petrova: The price of LNG is a highly volatile commodity, influenced by global supply and demand dynamics, geopolitical events, and weather patterns. High LNG prices discourage imports, and consumers or energy traders may favor utilizing cheaper gas stored in underground facilities. Conversely, low prices can incentivize increased imports, making efficient storage strategies crucial. Effective energy planning must account for this price volatility, enabling flexible responses to changing market conditions without undermining the long-term energy security of the European Union.

Interviewer: What measures can european nations take to address the challenges posed by overcapacity in the LNG sector?

Dr. Petrova: Effective strategies to mitigate risks associated with overcapacity include:

Diversifying energy sources: Relying less on a single energy source is crucial for energy independence.

Optimizing storage capacity: Adequate storage facilities can buffer against supply shocks and seasonal demand fluctuations.

Strengthening regional energy cooperation: Coordinated resource management can improve efficiency.

Investing in renewable energy: Transition to greener sources can permanently reduce dependence on fossil fuels.

* Developing clever energy grids: Adaptable infrastructure can better respond to changes in energy demand.

Interviewer: In closing, what’s the key takeaway here regarding Europe’s LNG expansion?

Dr. Petrova: Europe’s large-scale investment in LNG infrastructure demonstrates the continent’s commitment to energy security and diversification, a move spurred by the geopolitical instability of the past few years. However, the extent of this expansion should have been calculated more accurately against the background of a rapidly increasing use of renewable energy and the development of energy storage facilities across Europe. Careful planning, accounting for evolving market conditions, and a long-term outlook are paramount to avoid the pitfalls of overinvestment and ensure the ultimate success of the energy transition. The debate will undoubtedly continue, and careful policy responses based on accurate data and long-range planning strategies are essential. We encourage readers to join the conversation in the comments below – your insights on effective strategies for energy security in Europe are valued.