The gas liquification facility on the Norwegian island of Melkøya.
The ground is permanently frozen from the cold. Wind lashes at the workers's faces. Every tool they put down disappears under fresh snow within minutes. It's a trial of strength for each of the 2,500 men and women working here. Some of them swear by fatty fish oil capsules as a remedy against the constant darkness. Others spend their free time on the tanning bed. But it's precisely here, in this inhospitable region of all places, that the future of the European energy supply lies.
It is estimated that one-fourth of the world's oil and natural gas reserves lie hidden away in the Arctic. Some of them lie beneath the ocean floor, in the Barents Sea. At the end of this year, the Norwegian energy concern Statoil wants to begin extracting natural gas in the area.
Getting the resource from the ice desert to central Europe by pipeline would be too expensive. Pipelines more than 3,000 kilometers (1,864 miles) long aren't worth the cost, and the Barents Sea is simply too far away. That's why Europe's first major facility for the liquification of natural gas is now being built on the island off the port of Hammerfest. Once the natural gas has been liquified, it can be shipped all over the world by sea.
The production of so-called "liquified natural gas" (LNG) -- a clear, colorless, non-toxic liquid -- is becoming increasingly important in the energy business. LNG already accounts for a quarter of the global natural gas trade. Qatar, the country in the Persian Gulf that has the world's third-largest reserves, is investing massively in liquification technology, and Algeria, Indonesia and Malaysia are fast following suit. The entire market is expected to grow by about 8 percent a year until 2025 -- much faster growth than is expected from the pipeline business.
Until recently, Western European countries like Germany paid little attention to the trend. But ever since the Russian-Ukrainian dispute over natural gas prices in early 2006 and the more recent rift between Russian gas monopoly Gazprom and Belarus, concern has been growing in Berlin that Germany's dependence on Siberian natural gas reserves has become too great. Now LNG shipments could become one of the most important alternative sources of natural gas.
German energy provider E.on wants to build its first facility for receiving LNG shipments to the port of Wilhelmshaven -- some 30 years after plans for the construction of such a facility were first developed. The facility is expected to cost 500 million ($661 million) and is scheduled for completion in 2010. In technical terms, it's not a very ambitious project, but it is the security precautions that drive up the cost dramatically: Such a facility has to be able to withstand the impact of a jumbo jet.
An ambitious project
Still, the facility in Norway will be far more expensive than the terminal in Germany. Planners are expecting a final price tag of about 7 billion ($9 billion). "This is the most ambitious task that people in my industry can set for themselves," says Odd Mosbergvik, the Statoil manager responsible for the project.
The Barents Sea natural gas field the Norwegians are preparing to exploit is named "Snøvhit," or "Snow White." When exploitation begins -- or when the field goes "onstream" -- natural gas will come shooting out of the depths of the ocean floor at a temperature of about 90 degrees Celsius (194 degrees Fahrenheit) and with a pressure of about 250 bar. The plan is for the natural gas to be transported directly from its underwater source to Melkøya -- a distance of 140 kilometers (87 miles). The gas will travel through a pipeline 67 centimeters (26 inches) thick, without ever reaching the water surface.
Until recently, Melkøya was a barren island with little to show except rocks and shrubs. Then the construction work began: The island was virtually redesigned according to the needs of the engineers. They ordered a tunnel to be dug to the mainland. The quantities of rock that were dynamited and taken away from the island were so massive they could easily have filled up the inside of the Great Pyramid of Giza.
By the time the natural gas arrives in Melkøya, the ice-cold seawater has already cooled it down to 40 degrees Celsius (104 degrees Fahrenheit). It gets cooled further by a kind of giant refrigerator -- the so-called "Cold Box" -- which rises 62 meters (203 feet) into the sky above the island. The conglomerate Linde, based in Wiesbaden, Germany, assembled the complex facility in Antwerp, Belgium, and Cadiz, Spain -- ironically, Hammerfest's extreme climactic conditions made building the Cold Box there impossible. When the facility was transported north in several shipments, it looked as if a cathedral were being moved across the sea.
It's inside the Cold Box that the crucial processing operation will soon take place: There, the natural gas is cooled down to -163 degrees Celsius (-261 degrees Fahrenheit). As it turns into a liquid, the gas shrinks to one-six-hundredth of its former volume. Before this happens, the gas passes through a filter -- because even the most minor impurity could clog the facility during the cooling process.
That process requires enormous quantities of energy -- energy that is produced by the island's very own power plant, which is itself powered by natural gas. The power plant could provide the energy needs of a town with 40,000 inhabitants.
Linde CEO Wolfgang Reitzle believes that LNG projects like Hammerfest will be an important part of Linde's future business operations. "We're profiting from a global future trend that will provide us with business contracts for the next 15 to 20 years," he says. Reitzle has his eyes set on countries like Qatar and Iran, but also on Russia, which possesses enormous natural gas reserves in its own stretch of the Barents Sea.
Some rock piles on the edge of the island catch the eye. They're the remains of German gun emplacements from World War II. The Germans occupied Hammerfest at the time. When they withdrew from the port, they applied a scorched earth policy: Hardly a single home was left standing.
World War II legacy
The war victims rebuilt Hammerfest, making their living mainly from fishing and from tourists eager to visit the world's northern-most city. But now everything here is focused on the new mega project: The engineering firms building the plant and natural gas exploitation experts have set up containers and hotel ships for the construction workers to sleep in. Those with higher incomes rent apartments -- and pay record prices for them. A 55 square meter (592 square foot) apartment currently costs 1,500 ($1,918). Just a few years ago, an apartment of the same size could be had for one-third of that rent.
Expoitation of the "Snow White" field is expected to last for 30 years.
The trip to Maryland takes the freighters about 10 days. They need six days to get to Bilbao, Spain. Once the LNG has been taken to its destination, it's converted back into its original gaseous form and fed into the local natural gas network. Long-term delivery contracts have already been signed by the major utility companies in the United States and Spain.
In the past, the only serious customers for LNG shipments were countries like South Korea and Japan -- places so remote that delivery by pipeline was impossible. Japan alone disposes of 24 LNG terminals.
More competition in the gas market
Now all major energy consuming countries -- and first and foremost the United States -- are setting their stakes on the shippable alternative energy source -- all the more so as their own resource supplies dwindle. Seven LNG terminals are currently being operated in the United States; four more are being built and construction of a total of 59 new terminals is planned. Europe currently has 13 terminals; seven are being built and 19 are in the planning stages.
The LNG boom could upset the natural gas market and the price of the natural resource considerably. Traditionally, natural gas was purchased by long-term supply contracts. In Germany, the price of natural gas is linked to that of petroleum, with natural gas prices typically shifting six months after a change in the price of oil. The flexibility allowed for by LNG could lead to the gradual development of spot markets for natural gas, like the ones that already exist for petroleum: Prices would then be determined by supply and demand.
The expenses involved with LNG production still make the energy from northern Norway more expensive than natural gas from pipelines -- by about one-third. The production of a million British Thermal Units (BTUs) still costs about 3.50, according to internal calculations. The liquification process alone makes up for 1 out of this sum; the process of reconverting LNG to gas accounts for 0.35. But the higher costs have lost their deterrent effect ever since Russia's temporary disruption of its natural gas shipments to Ukraine raised doubts about how reliable Russia is as a natural gas provider.
The Norwegians know that time is on their side -- and on that of their energy source. If everything goes according to plan, the multi-billion-euro investment off the port of Hammerfest may well pay for itself within as little as two years. Afterwards, production is expected to continue for another 30 years.