Critics accuse the EU Commission of lacking the necessary insight and knowledge to properly assess state aid applications for major gas projects.

The responsible directorate-general simply does not have the capacity to assess whether the additional liquefied gas (LNG) is needed or whether it will be redundant and in conflict with the EU’s climate goals, an NGO asserts.

Recently, EU Matters Media reported that demand for LNG has dropped dramatically between 2023 and 2024. In fact, the expected EU supply in 2030 is far greater than the estimated demand.

READ THE STORY: Risk of overinvestment in LNG could gamble with the EU’s climate goals and energy prices

A particularly vocal critic of the Commission’s decision, the environmental NGO ClientEarth, has sounded the alarm, fearing that such investments could jeopardize the EU’s climate targets by binding countries to fossil fuels.

» Under the justification that this promotes security of supply, we think this will lead to significant overcapacities of LNG infrastructure, which will not only be bad for the climate, it will lock in the use of future fossil gas far beyond what climate targets would allow, « warns Thomas Burman, energy and environmental attorney at ClientEarth.

The crux of the issue is the Commission’s approval of state aid for a land-based LNG terminal in Brunsbüttel. The NGO finds the approval problematic for two reasons in particular.

FEAR OF A MORE GAS-FRIENDLY GERMANY
ClientEarth fears that the political winds in Germany will change and allow prolonged use of the LNG terminal. Back in 2022, Germany passed a law—the LNG Acceleration Act—which prohibits using LNG terminals to import natural gas after 2043.

However, even before the 2024 election for the European Parliament, some Member States began to push for policies related to climate and energy to be postponed or amended.

» We see political winds changing in Europe and in Germany. Those can certainly continue to change in a direction that would weaken the ambition behind these [climate] targets. It is certainly credible to think that this [trend] will continue and that it will then result in a prolonging of the 2043 target, « argues Thomas Burman, emphasizing that it will depend on the economic situation at the time.

Recent remarks by the expected winner of the February election could signal a substantial change in the country’s climate policy.

The CDU party leader, and likely next German chancellor, Friedrich Merz, vowed to put the economy before climate, according to Politico.

EU COMMISSION ACCUSED OF LACKING INSIGHT
ClientEarth also highlights concerns about the Commission’s ability to assess the actual need for LNG projects and the potential to use LNG infrastructure for more climate-friendly gases.

The Commission’s approval of state aid relies on the promise to use the LNG terminal for alternative gases, such as hydrogen or ammonia, after 2043.

Still, the NGO doubts the Commission’s capacity to assess whether converting the terminal is realistic. Decisions on state aid are made by the Commission’s Directorate-General for Competition (DG COMP).

Burman alleges that officials of DG COMP are experts on state aid and competition law; yet, their role and expertise are limited to assessing whether state aid disproportionately distorts competition, taking into account the functioning of the energy market.

In Burman’s opinion, officials of DG COMP are neither charged nor equipped to assess whether certain energy sources or infrastructure are necessary.

» Lack of capacity within institutions is a key reason why some projects are approved. Approvals are made on the basis of imperfect information, « Burman states and elaborates:

» You have individual projects being approved on the grounds that they will probably use hydrogen someday without any robust analysis as to whether it's possible or whether it makes sense to do that. «

He emphasizes that such assessments should include energy policy and environmental considerations » that are not within the ordinary wheelhouse of DG COMP. «

The NGO calls for introducing environmental conditionalities before approving state aid for LNG projects:

Member States should, for example, meet certain milestones to demonstrate hydrogen readiness before state aid is accepted by the Commission.

EU COMMISSION REJECTS CRITICISM
In response to EU Matters Media’s inquiry, the Commission’s spokesperson service dismisses the criticism from ClientEarth.

» The measure will contribute to the security and diversification of energy supplies in Germany and help end dependence on Russian fossil fuels in line with the REPowerEU Plan, « the spokesperson service writes in an email.

Additionally, the spokesperson service highlights that the state aid measure was assessed under EU State Aid rules and following the 2022 Guidelines on State Aid for Climate, Environmental Protection and Energy.

According to the assessment document of the Brunsbüttel LNG project, signed by former Commissioner for Competition Margrethe Vestager, the Commission was made aware of criticism from an unnamed third party.

The third party expressed concern about the technical challenges of converting the terminal for the use of ammonia or hydrogen. Thereby creating a risk of a fossil gas lock-in and potentially endangering national climate targets.

In the assessment document, German authorities react to the criticism, insisting that the German LNG Acceleration Act prohibits using the terminal for the import of LNG after 2043.

German authorities also explain that the terminal’s full capacity to import gas will not necessarily be utilized, depending on the demand for LNG.

The EU’s energy agency, ACER, has previously admitted to EU Matters Media that low utilization rates of terminals and potential overinvestment in LNG infrastructure could lead to increases in energy prices.

BIG INVESTMENTS NEEDED
German authorities acknowledge that substantial investments will be needed to convert the terminal for the import of hydrogen or ammonia.

These investments are expected to be financed by private investors.

The Commission’s assessment document explicitly names the Dutch network operator Gasunie and the German energy operator RWE as the likely investors, who will have the power to decide whether to pursue hydrogen, ammonia, or a third energy source.

The two corporations have signed an agreement to convert the terminal for the import of alternative energy by 2043 at the latest.

A detailed plan for the retrofit for alternative green gases, including costs, is to be completed by 2039 at the latest.

The consortium behind the onshore LNG terminal in Brunsbüttel consists of the German state-owned investment and development bank KfW (50%), Gasunie (40%), and RWE (10%).

In Brunsbüttel, preparations have already begun to ensure that the initial structural design of the storage tanks and their foundations is adapted to the higher density of ammonia, the consortium behind the terminal informs EU Matters Media.

Leave a comment