The Five-Year Engineering Feat Germany Pulled Off in Months
Europe is racing to build natural-gas facilities to keep its economy afloat; ‘It’s a battle’
Europe is racing to build natural-gas facilities to keep its economy afloat; ‘It’s a battle’
WILHELMSHAVEN, Germany—In March, the German government asked energy companies to weigh a seemingly impossible engineering task. Could a new liquefied natural gas import terminal, which normally takes at least five years to build, be erected in this port town by year’s end?
At the headquarters of the company asked to build the pipeline portion, technical director Thomas Hüwener posed that question to his team. “If no, then it’s a no,” he told them. “If yes, then we have to commit, with all the possible consequences for our company.”
After three days deliberations, the company concluded that if everything went perfectly the project could be done by Christmas. Since then, it has had to contend with potentially toxic soil and environmental regulations protecting frogs and bats. When workers encountered high groundwater, they had to drain trenches, then backfill them.
Another company building a jetty for the floating terminal needed to scan the seabed for unexploded World War II-era munitions and scour construction sites across Europe for supplies.
“This project is really a race against time,” said pipeline project manager Franz-Josef Kissing. “It’s a battle.”
Cut off from most Russian natural gas, much of Europe is rushing to line up alternative energy sources and build the infrastructure needed for them. If the continent fails to shore up its energy grid, governments might have to resort to rationing fuel this winter, possibly leading to closed factories and more pain for manufacturers. Next winter could be even tougher if gas storage facilities aren’t replenished. The EU has estimated that ending its reliance on Russian fossil fuels will add at least 300 billion euros, or around $315 billion, in infrastructure costs, through 2030.
Since Russia stopped most natural gas exports to Europe this fall, gas flows from Russia to Germany have shrivelled from 55% of imports last year to zero. The three German liquefied natural gas terminals slated for completion for this year could cover at least 15% of the country’s gas demand. Berlin plans to install several more terminals next year and is working on more permanent installations. It has budgeted more than €6.5 billion for such terminals in 2022.
Dozens of liquefied natural gas, or LNG, facilities are slated for construction across the European Union in coming years, which would allow Europe to buy more gas from nations such as Qatar and the U.S.
Within days of taking on the job of building a 19-mile pipeline between the new Wilhelmshaven terminal and the natural gas grid, Mr. Kissing’s employer, pipeline builder Open Grid Europe GmbH, formed a team with specialists in everything from route planning and nature conservation to archaeology and law.
Cooling natural gas to minus 260 degrees Fahrenheit turns it into a liquid that can be shipped in oceangoing tankers to terminals, where it can be converted back to gas. A floating LNG terminal is a gas facility on an enormous specialised tanker that receives liquid gas from another tanker and returns it to a gaseous state.
The jetty that will be home to the floating Wilhelmshaven terminal is an especially complicated project because it has to withstand the force of two large, gas-filled ships pressing against it. For Niedersachsen Ports GmbH & Co. KG, which is building the jetty, the first challenge was finding materials—quickly. Ordering them from a factory would have taken months. Mathias Lüdicke, the company’s Wilhelmshaven branch manager, said the company had to scour Europe for construction materials, including the steel piles that would be driven into the seabed.
Niedersachsen Ports called suppliers in France, the Netherlands, Finland and the Baltics. It found 165-foot steel piles on an idle construction site in Lithuania. The original plan had called for smaller ones, so the company adjusted the blueprint.
To save time, much of the 3,000 cubic meters of concrete needed for the project was brought in the form of huge, semifinished blocks, which were assembled like Lego pieces.
“We needed stuff that’s ready,” Mr. Lüdicke said. “So we changed the whole planning process as we went along, based on what was available.”
Niedersachsen Ports idled other projects to focus on the job. Employees worked through Easter weekend to get the necessary documents ready. “Nobody paid attention to overtime because we all said, this has to work,” Mr. Lüdicke said.
The German bureaucracy made adjustments, too. The parliament passed an LNG Acceleration Act, speeding up procedures for reviewing, approving and awarding contracts for LNG projects.
“If there is a chance in this really terrible situation, it is that we shake off all this sleepiness and, in some cases, grouchiness that exists in Germany,” Economy Minister Robert Habeck said in March about speeding up the construction of LNG terminals.
Other large construction projects have moved slowly in Germany. In 2020, Berlin opened its new airport nine years behind schedule. Stuttgart’s new railway station, under construction since 2010, is now scheduled to open in 2025, after years of delays and ballooning costs.
The state of Niedersachsen issued some of the necessary permits for the LNG terminal on May 1, the International Workers’ Day, a Sunday. “It’s not a day when you’d expect that to happen,” said Olaf Lies, the state’s economy minister. “We needed a new German speed.”
Similar projects elsewhere in Europe have faced opposition from activists who are against building new fossil-fuel infrastructure, and those who say such projects harm the local environment.
In Italy, a floating LNG terminal in the Tuscan port of Piombino is supposed to go into service next May. But several local groups have staged protests, claiming the project poses risks for residents and the environment. Italian Prime Minister Giorgia Meloni has said anchoring the new vessel in Piombino is vital for Italy’s economy and for national security.
In Germany, the new pipeline would cross the path of an annual migration of frogs. To keep the creatures from plunging into a ditch in which the pipe would be buried, Mr. Kissing’s team erected frog fences. In some cases, experts had to create new caves for bats.
When they started digging, they discovered another problem. The soil in the region contains high concentrations of sulphate acid, which could become toxic under some circumstances if exposed to oxygen for too long.
Also, the groundwater level was high. The trenches had to be dry to weld the pipes together.
To solve both problems, Mr. Kissing’s 800 workers worked in 400-foot increments, draining the trenches with pumps, then backfilling them.
“You may rush as much as you want, but soil is soil,” Mr. Kissing said while walking around the site on a recent rainy morning.
The groundwater also contained more iron than the norm. So the company had to build special de-ironing facilities to filter the water before dumping it back into nearby fields.
Connecting the new pipeline to the German gas grid presented another problem. It needs to link to an existing pipeline carrying gas from Norway, which has become essential for Germany and can’t be shut down for the linkup work to occur in the coming days. A bypass device had to be built to keep the gas flowing.
Before it could start building the jetty, Niedersachsen Ports first needed to search for unexploded World War II ordnance. Wilhelmshaven, Germany’s only deep-water port, was bombed heavily during the war. The company scanned the seabed and removed some smaller ordnance.
In September, with four months to go before the deadline, a problem cropped up that threatened to make it impossible to finish on time. The Wilhelmshaven sea lock—a structure in the port used for raising and lowering boats passing between stretches of water—had a mechanical failure, prompting the port to shut down the passage. The piles needed for the jetty, which were being welded together at the harbour, were stuck there.
Mr. Lüdicke met with officials from the waterway authority and German navy and devised a workaround. The port would allow the ships carrying the piles to pass through the lock with just one gate open, but only when the tides were such that the water levels were equal.
“It was a very fine balancing act, a lot of coordination,” Mr. Lüdicke said. “If we hadn’t managed to do that, we wouldn’t have been able to launch the terminal this year.”
In September, explosions damaged the Nord Stream pipelines running under the Baltic Sea a few hundred miles east of Wilhelmshaven, in what European authorities have called an act of sabotage. That sparked concerns across Europe about the vulnerability of energy infrastructure. The local police dispatched officers along the route of the new pipeline, and boats patrolled around the jetty.
Mr. Lüdicke is hoping for good weather as his team races toward the finish line. Bad weather could force delays, and heavy wind routinely halts work. There is still work to be done and tests to be carried out before the floating terminal, the 965-foot Hoegh Esperanza, can dock in Wilhelmshaven in the coming days and the gas can start flowing.
Utility Uniper SE, which the German state recently agreed to nationalize and which will operate the terminal, said that if all goes according to plan, the first tanker carrying LNG will arrive at the start of next year.
“If we have extreme weather, that could cause problems and delay things,” Mr. Lüdicke said. “We’re so close.”
—Margherita Stancati contributed to this article.
Americans now think they need at least $1.25 million for retirement, a 20% increase from a year ago, according to a survey by Northwestern Mutual
Equities are often seen as expensive after promising start to 2023
A new trading year kicked off just weeks ago. Already it bears little resemblance to the carnage of 2022.
After languishing throughout last year, growth stocks have zoomed higher. Tesla Inc. and Nvidia Corp., for example, have jumped more than 30%. The outlook for bonds is brightening after a historic rout. Even bitcoin has rallied, despite ongoing effects from the collapse of the crypto exchange FTX.
The rebound has been driven by renewed optimism about the global economic outlook. Investors have embraced signs that inflation has peaked in the U.S. and abroad. Many are hoping that next week the Federal Reserve will slow its pace of interest-rate increases yet again. China’s lifting of Covid-19 restrictions pleasantly surprised many traders who have welcomed the move as a sign that more growth is ahead.
Still, risks loom large. Many investors aren’t convinced that the rebound is sustainable. Some are worried about stretched stock valuations, or whether corporate earnings will face more pain down the road. Others are fretting that markets aren’t fully pricing in the possibility of a recession, or what might happen if the Fed continues to fight inflation longer than currently anticipated.
We asked five investors to share how they are positioning for that uncertainty and where they think markets could be headed next. Here is what they said:
Cliff Asness, founder of AQR Capital Management, acknowledges that he wasn’t expecting the run in speculative stocks and digital currencies that has swept markets to kick off 2023.
Bitcoin prices have jumped around 40%. Some of the stocks that are the most heavily bet against on Wall Street are sitting on double-digit gains. Carvana Co. has soared nearly 64%, while MicroStrategy Inc. has surged more than 80%. Cathie Wood‘s ARK Innovation ETF has gained about 29%.
If the past few years have taught Mr. Asness anything, it is to be prepared for such run-ups to last much longer than expected. His lesson from the euphoria regarding risky trades in 2020 and 2021? Don’t count out the chance that the frenzy will return again, he said.
“It could be that there are still these crazy animal spirits out there,” Mr. Asness said.
Still, he said that hasn’t changed his conviction that cheaper stocks in the market, known as value stocks, are bound to keep soaring past their peers. There might be short spurts of outperformance for more-expensive slices of the market, as seen in January. But over the long term, he is sticking to his bet that value stocks will beat growth stocks. He is expecting a volatile, but profitable, stretch for the trade.
“I love the value trade,” Mr. Asness said. “We sing about it to our clients.”
For Richard Benson, co-chief investment officer of Millennium Global Investments Ltd., no single trade was more important last year than the blistering rise of the U.S. dollar.
Once a relatively placid area of markets following the 2008 financial crisis, currencies have found renewed focus from Wall Street and Main Street. Last year the dollar’s unrelenting rise dented multinational companies’ profits, exacerbated inflation for countries that import American goods and repeatedly surprised some traders who believed the greenback couldn’t keep rallying so fast.
The factors that spurred the dollar’s rise are now contributing to its fall. Ebbing inflation and expectations of slower interest-rate increases from the Fed have sent the dollar down 1.7% this year, as measured by the WSJ Dollar Index.
Mr. Benson is betting more pain for the dollar is ahead and sees the greenback weakening between 3% and 5% over the next three to six months.
“When the biggest central bank in the world is on the move, look at everything through their lens and don’t get distracted,” said Mr. Benson of the London-based currency fund manager, regarding the Fed.
This year Mr. Benson expects the dollar’s fall to ripple similarly far and wide across global economies and markets.
“I don’t see many people complaining about a weaker dollar” over the next few months, he said. “If the dollar is falling, that economic setup should also mean that tech stocks should do quite well.”
Mr. Benson said he expects the dollar’s fall to brighten the outlook for some emerging- market assets, and he is betting on China’s offshore yuan as the country’s economy reopens. He sees the euro strengthening versus the dollar if the eurozone’s economy continues to fare better than expected.
Even after the S&P 500 fell 15% from its record high reached in January 2022, U.S. stocks still look expensive, said Rupal Bhansali, chief investment officer of Ariel Investments, who oversees $6.7 billion in assets.
Of course, the market doesn’t appear as frothy as it did for much of 2020 and 2021, but she said she expects a steeper correction in prices ahead.
The broad stock-market gauge recently traded at 17.9 times its projected earnings over the next 12 months, according to FactSet. That is below the high of around 24 hit in late 2020, but above the historical average over the past 20 years of 15.7, FactSet data show.
“The old habit was buy the dip,” Ms. Bhansali said. “The new habit should be sell the rip.”
One reason Ms. Bhansali said the selloff might not be over yet? The market is still underestimating the Fed.
Investors repeatedly mispriced how fast the Fed would move in 2022, wrongly expecting the central bank to ease up on its rate increases. They were caught off guard by Fed Chair Jerome Powell‘s aggressive messages on interest rates. It stoked steep selloffs in the stock market, leading to the most turbulent year since the 2008 financial crisis. Now investors are making the same mistake again, Ms. Bhansali said.
Current stock valuations don’t reflect the big shift coming in central-bank policy, which she thinks will have to be more aggressive than many expect. Though broader measures of inflation have been falling, some slices, such as services inflation, have proved stickier. Ms. Bhansali is positioning for such areas as healthcare, which she thinks would be more insulated from a recession than the rest of the market, to outperform.
“The Fed is determined to win the war since they lost the battle,” Ms. Bhansali said.
Gone are the days when tumbling bond yields left investors with few alternatives to stocks. Finally, bonds are back, according to Niall O’Sullivan of Neuberger Berman, an investment manager overseeing about $427 billion in client assets at the end of 2022.
After a turbulent year for the fixed-income market in 2022, bonds have kicked off the new year on a more promising note. The Bloomberg U.S. Aggregate Bond Index—composed largely of U.S. Treasurys, highly rated corporate bonds and mortgage-backed securities—climbed 3% so far this year on a total return basis through Thursday’s close. That is the index’s best start to a year since it began in 1989, according to Dow Jones Market Data.
Mr. O’Sullivan, the chief investment officer of multi asset strategies for Europe, the Middle East and Africa at Neuberger Berman, said the single biggest conversation he is currently having with clients is how to increase fixed-income exposure.
“Strategically, the facts have changed. When you look at fixed income as an asset class…they’re now all providing yield, and possibly even more importantly, actual cash coupons of a meaningful size,” he said. “That is a very different world to the one we’ve been in for quite a long time.”
Mr. O’Sullivan said it is important to reconsider how much of an advantage stocks now hold over bonds, given what he believes are looming risks for the stock market. He predicts that inflation will be harder to wrangle than investors currently anticipate and that the Fed will hold its peak interest rate steady for longer than is currently expected. Even more worrying, he said, it will be harder for companies to continue passing on price increases to consumers, which means earnings could see bigger hits in the future.
“That is why we are wary on the equity side,” he said.
Among the products that Mr. O’Sullivan said he favours in the fixed-income space are higher-quality and shorter-term bonds. Still, he added, it is important for investors to find portfolio diversity outside bonds this year. For that, he said he views commodities as attractive, specifically metals such as copper, which could continue to benefit from China’s reopening.
Ramona Persaud, a portfolio manager at Fidelity Investments, said she can still identify bargains in a pricey market by looking in less-sanguine places. Find the fear, and find the value, she said.
“When fear really rises, you can buy some very well-run businesses,” she said.
Take Taiwan’s semiconductor companies. Concern over global trade and tensions with China have weighed on the shares of chip makers based on the island. But those fears have led many investors to overlook the competitive advantages those companies hold over rivals, she said.
“That is a good setup,” said Ms. Persaud, who considers herself a conservative value investor and manages more than $20 billion across several U.S. and Canadian funds.
The S&P 500 is trading above fair value, she said, which means “there just isn’t widespread opportunity,” and investors might be underestimating some of the risks that lie in waiting.
“That tells me the market is optimistic,” said Ms. Persaud. “That would be OK if the risks were not exogenous.”
Those challenges, whether rising interest rates and Fed policy or Russia’s war in Ukraine and concern over energy-security concerns in Europe, are complicated, and in many cases, interrelated.
It isn’t all bad news, she said. China ended its zero-Covid restrictions. A milder winter in Europe has blunted the effects of the war in Ukraine on energy prices and helped the continent sidestep recession, and inflation is slowing.
“These are reasons the market is so happy,” she said.
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