29 / 04 / 22 - 14 minute read
In episode #3 of the PAT Cast, we learn about the small German village of Etzel, home to gas storage caverns that play a vital role in securing energy for Europe. We find out how Etzel plans to repurpose existing infrastructure as part of a test project called H2CAST. This expansion project will enable hydrogen storage, making the site sustainable and fit for the future. And we explore the implications of the war in Ukraine on the move to hydrogen and other forms of renewable energy.
Your host is Greg Langley, and on the panel we have:
PAT Cast #3: Europe’s Hydrogen Future with Etzel
Greg Langley 00:00
Green hydrogen is hailed as an alternative to fossil fuels. This energy transition is a mammoth and essential task if we are to avoid disaster. So how is a speck of a village in Northern Germany leading the way on the global stage?
David Bothe 00:15
The big advantage of Etzel is it is an established site, which is already an important part of our gas infrstructure. It is well connected to the natural gas system, and it provides quite a significant share of the natural gas storage in Germany and Europe.
Greg Langley 00:31
I'm Greg Langley, and a warm welcome to the PAT Cast, the podcast from PATRIZIA, the leading investment manager and partner in global real assets.
In this podcast, we offer you insights on hot topics from the real assets industry, from significant sector trends to key business developments and strategic decisions. Today we're visiting Etzel, a small German village playing a vital role in securing Europe's energy supply, both today and in the future.
Boris Richter 00:59
The future energy source for Europe will be hydrogen.
Greg Langley 01:02
That's Boris Richter, managing director of Storag Etzel, who joins our conversation alongside David Bothe, who you heard earlier.
David's a director at Frontier Economics and an expert on energy markets. Few people would have heard of Etzel, so many will be surprised to learn of its importance in securing energy. What makes Etzel so special? Here's Boris.
Boris Richter 01:24
Etzel is a quite small village in the Northwest of Germany. The village of Etzel is located on the top of a huge salt dome. We at StoragEtzel, we are the operator of the cavern field in this salt dome, and our caverns are manmade. In total, the cavern field has a working gas volume of approximately four PCM net gas. It's a sixth of Germany's gas storage volume here in Etzel located. In addition, we have here storage capacities for around 11 million cubic meters for crude oil. We have here in Etzel 75 caverns and the potential to 99 caverns.
We are one of those most importantand probably the largest storage location in Northwest Europe for oil and gas. Our customers and partners are oil and gas majors and also the European stock compulsory organisations. And finally we are connected to the major pipeline transportation network and also to Germany's only depp-water harbour in Wilhelmshaven.
Greg Langley 02:36
Thanks, Boris. So, to recap, what makes Etzel special is the salt that's lying underneath the surface, and you drill down into that and create these caverns where you store the oil and gas. Is that correct?
Boris Richter 02:47
Greg Langley 02:48
What makes salt such an ideal property to store gas and oil?
Boris Richter 02:52
First of all, I think it's important that you can store in salt caverns quite huge volumes of gas, net gas hydrogen in the future, but also products and crude oil. And it's a quite safe and efficient way to store energy. So, in comparison, you pay what it costs for storing crude oil in a salt cavern in comparison to tank storage; it's around a quarter of the storage fee. So, you have a huge advantage that you can store huge volumes sub-surface, and it's quite cheap. And in addition, it's very safe, and you have no impact on the environment. So, you don't have huge tank farms. You have everything sub-surface.
Greg Langley 03:46
My understanding is that you can also store 90 days worth of emergency oil and gas for Germany, the Netherlands and Belgium?
Boris Richter 03:54
Indeed, we are here, as mentioned, a strategic partner of the European stock compulsory organisations. And in the end, most of the reserves and strategic reserves of the Netherlandsand Belgium located here, but also part of the German oil strategic reserves.
Greg Langley 04:15
So, we've established what makes a perfect place to store energy. The small village of just 800 residents is already playing a role in securing energy, out of proportion to its size. But Etzel has even bigger plans. Boris explains a significant new project to do with hydrogen.
Boris Richter 04:31
We think that the future energy source for Europe will be hydrogen. And for this reason, we started with our R&D project H2CAST together with research partners, institutes, universities, but also with industry partners.
We want to demonstrate that we can transform the infrastructure, the assets from the old economy from the oil and gas industry, for the coming hydrogen economy. Following we will adapt and utilise it two existing oil and gas caverns and parts of the above ground infrastructure. We are quite confident that, energy storage caverns are and will become more essential in the context of European security of supply.
David Bothe 05:21
I think it's fair to say, the underground storage of hydrogen is really one of the cornerstones, which we need for our past to establish a hundred percent carbon neutral energy system. Germany and Europe are dedicated to move away from fossil fuels, but unfortunately, Germany doesn't really have many renewable energy potential. It's mainly wind and solar and less of more plannable renewable sources, like for example, hydro-power. So the challenge is, wind and solar are not reliably available when we need the energy, which is in our climate region, particularly in winter, when we are, we will have a high heating demand. And also when our industry structure, which is very much based on reliable energy supply, will demand it. So we will only able to cover this demand profile we have through renewable energies from Germany and Europe when we manage to store large volumes of energy for quite some long time. Particularly for the heat demand, we have to store it over the summer and make it available in winter.
So we're talking about a large volume of energy for a long time, up to seasonal storage. And up to now, the only existing technology which allows for storage of renewable energy in such amount over such time is to convert the electricity to some form of energy carriers - and hydrogen is the easiest form of energy carrier - and store it in, for example, underground gas storage.
This project is providing one of the essential missing parts for this big picture, where we switch our energy system to close to a hundred percent renewables and particular unreliable, renewables, such as wind and solar.
Greg Langley 07:18
And without hydrogen, what will be the chance that we can achieve and net zero carbon future?
David Bothe 07:23
So hydrogen, first of all, it's just an energy carrier, which has some specific advantages and also some disadvantages. One of the disadvantages is that you have to create it. You have some conversion losses, but it brings many advantages. We already talked about the storability, so you can easily store it in an underground gas storage facility, like a cavern and have therefore large amount of energy available when you need it. Another big aspect is the transportability. Such as natural gas, hydrogen can be transported through pipelines, which provide quite a high energy density. So with a single pipeline, you can transport much more energy in the form of hydrogen, then you could be able to transport, for example, through an high voltage lines.
So when we need to transport energy over longer distances, it has a big advantage to make use of pipeline infrastructure either by repurposing the existing natural gas pipeline system and make it available for hydrogen or by building dedicated hydrogen pipelines. We also need this transport portability because while we still have quite some resources for wind and solar within Germany and within Europe, Germany and Europe very likely won't be able to become energy autonomous. So we will have to see, also in the long run, imports of renewable energy into the region and for this we need an energy carrier which can be used to transport large volume of energy across long distance. And again, that's where pipeline infrastructure and tanker infrastructure comes into play.
So hydrogen really has many advantages and is therefore very likely to be one part of the energy mix of the future, such as electricity and in the gaseous form, it will be then likely hydrogen.
Greg Langley 09:19
The critical phrase you used seems to be "existing pipelines". Do you have a ballpark figure of what a project like Etzel could provide in terms of savings, say as opposed to building an entirely new infrastructure?
David Bothe 09:32
The big advantage of Etzel is, it is an established site, which is already today an important part of our gas infrastructure. It is well connected to the natural gas system and it provides quite a significant share of the natural gas storage in Germany and Europe. And this comes obviously with a lot of existing infrastructure, which can be repurposed going forward by switching to a hydrogen. So we are already talking about switching pipelines, which in the past have been used for a special quality of natural gas, which isn't used any longer and use the existing infrastructure and move it to hydrogen. And that would create, instantly, capacity which would be available for this new energy carrier hydrogen, which doesn't need to be built. And my understanding is that Etzel in particular would be well-positioned within the gas grid and Northwest of Germany, close to the Netherlands, to benefit from the existing infrastructure.
Greg Langley 10:31
Boris, if I could turn back to you. Where is the project at the moment? Has it been implemented or you still seeking funding?
Boris Richter 10:38
So funding has been received beginning of this year, February, and currently we're working on the detailed engineering and the big milestone is the finalisation of the detailed engineering by near Autumn this year, and construction infrastructure will be done next year, and also in 24. And we will run all the tests and the scenarios in 25, so that we have as a target to be so-called H2 ready by end of 26. In total our project has project volume around 50 million euros. Thereof 20 million are assets we bring in to caverns I spoke about.
And partly this is public funded, and in comparison to other hydrogen R&D projects, it's a quite big one, and essential for us, and again, our target is to prove and to demonstrate that we can repurpose, that we can utilise the existing infrastructure of the oil and gas industry also, for the future energy source hydrogen.
Europe's over-reliance on Russian energy has become abundantly clear since the beginning of the country's war on Ukraine.
Sanctions on Russia have hamstrung in Europe's supply of fossil fuels. With the climate crisis in mind, we know we need to push towards more renewable energy sources. But how is the political landscape driving forward that change? And is there now a greater impetus on Etzel to forge on with their plans for H2CAST?
Boris Richter 12:15
First of all, I think it's important to mention that our thoughts are with the people off Ukraine, and we hope that this terrible war will end soon. This traumatic situation and this horrible war makes us maybe a little bit more aware that we need security of energy supply and also proper infrastructure and supply base for Europe. The Federal Government of Germany has decided to invest and build and support at least two LNG terminals in Germany to build up new infrastructure in order to import net gas from US, Qata or other locations.
One of those terminals, at least, will be built in Wilhelmshaven, and then we will also get now a net gas pipeline from Wilhelmshaven to Etzel, that will connect the cavern field in Etzel to the import hub. We are already linked to this import hub, import harbour, in the oil business, but not yet in the net gas business. And I think this is very important and this is essential for Northwest Europe to build up infrastructure in order to build up LNG sources here in Germany.
In addition, it has been made quite clear by minister Habeck and our minister, energy minister here in Lower Saxony, Minister Lies, that the infrastructure has to be ready for green gas. So the target is that we can later on repurpose this infrastructure also for a hydrogen economy in order to make this possible.
Greg Langley 14:00
David, how do you think the landscape has changed?
David Bothe 14:02
First of all, I can fully agree with Boris. So the ability to have a strategic reserve of critical input factors for economy certainly has gained an importance. And the relevance of, for example, gas storage has clearly been already addressed in the, in the recent political answers to the situation. So just to add, I think there's another lesson learned from the current situation, which is that we learn how vulnerable our economy has become because we have created unhealthy degrees of concentration in our energy system and thereby have created critical bottlenecks and potential single point of failures.
We always have been dependent on energy imports as has been the, the whole European Union. But what has happened over the last decade is that we have seen more and more concentration, both in terms of the energy carriers and technologies we rely on, as well as the sources we rely upon. So through our political objectives, to move away from nuclear energy, from fossil fuels and move towards energy, renewable energy sources, we have also increased our dependency on natural gas.
And at the same time have focused our natural gas resources on Russia with becoming like 50% of our sources. So I think one of the big lessons learned is that how diversity, also in energy sources and technologies, can help to create a more robust, a more resilient system. And in this regard, also the move towards hydrogen as an energy carrier, towards new sources like import from LNG, higher share of renewable electricity, that's all will help to create a more resilient more diverse energy system. And I think that's exactly what we need going forward so that we avoid any dependencies as we unfortunately are in right now.
Greg Langley 16:21
And you have no doubts that a project at Etzel could play an important role?
David Bothe 16:26
We have done one study for the potential of Etzel in regards to two hydrogen, but this was more from a commercial point of view, so less from a technical point of view. But what we've seen there is indeed that first of all, Germany and Northwest Europe as a general, even under very conservative assumption about how the hydrogen sector will ramp up, we'll quite early see a significant demand for hydrogen gas storage, which quite soon in the 2030s, 2040s might exceed the amount of storage volumes we currently have for natural gas.
So there is going to be huge demand for this type of storage. What we also see is that Etzel, both with regard to the potential as well, to as regard to the competitiveness, would be very well positioned to provide a significant share of this foreseeable demand for hydrogen storage. So from these analysis, I think we're quite positive that this is very likely to become a significant pillar of, of business activities in Etzel, based on underground gas storage.
Greg Langley 17:44
So, the Ukrainian conflict, how will that change the whole energy mix going forward, do you think?
David Bothe 17:49
I think it's manyfold. So one element is a stronger focus on local storage of energy sources as we have created, like for example, during the oil crisis in the seventies, where we started to develop a strategic oil reserve in Etzel. We had a discussion already quite 10 years ago, whether we should start doing something similar for natural gas, for example.
At that time, it didn't seem required. This is certainly something which is now revisited. But it also shows the need to diversify our energy sources and asset, for example, to move towards renewable energy sources, we need to compliment them with some format of an energy carrier which we can store, and hydrogen will be, in this regard, one enabler to have higher shares of renewable energy in there.
Also the development of a hydrogen backbone, a trans European hydrogen network system will certainly get some momentum from the current development and not least the LNG terminals, particularly at the north coast, will also change some flows from natural gas and bring new sources into the system. So there are two overall trends, maybe one is more storage and the other one is more diversification.
Greg Langley 19:15
And to an extent, both of these trends were evident before the Ukraine invasion, but it's certainly accelerated awareness of the issues.
Boris Richter 19:22
I think so, and to add on here, our supply portfolio was not really balanced in the past, and we have to rethink this. Maybe we have been a little bit too naive in the past and we have here to rethink some approaches to build up on new and additional resources in order to fulfill the demand we have. But on the other hand, we have also need to rethink about resources we have here in Europe, in Germany, like net gas and also crude oil production in order to secure our demand here in Europe.
Greg Langley 20:03
Thank you to our guests Boris Richter and David Bothe. And thank you for listening. I'm Greg Langley, and this is the PAT Cast from PATRIZIA. You can subscribe to the show on Apple Podcasts and Spotify or wherever you listen to your podcast. And don't forget to head over to our website, patrizia.ag, to find out more. Stay safe and healthy until next time.
This podcast is produced by OG Podcasts. Find out more at ogpodcasts.co.uk.