U.S. To Undermine Russia’s Gas Monopoly In Europe

The first U.S. LNG shipment will soon arrive in Europe, marking a new era for energy on the continent. Cheniere Energy’s newly completed Sabine Pass facility on the U.S. Gulf Coast recently sent a shipment of American liquefied natural gas, which should arrive in Portugal within a few days.

“LNG coming out of the U.S. is probably the single most important thing that will transform the future LNG market,” Melissa Stark, energy managing director at Accenture, told Bloomberg. “It heralds the arrival of a global market.”

U.S. LNG will have hard time competing with cheaper natural gas from Russia for the European market. Russia’s state-owned Gazprom said a few months ago that it wants to push gas exports to Europe to record levels and the company is confident that U.S. LNG won’t steal market share. Gazprom already supplies about one-third of European gas demand, and the Russian company wants to ramp up gas flows by 2 percent in 2016, with more increases coming in the years ahead. The vision is to continue to hold onto about 30 percent of the European market through 2035, according to a budget obtained by Bloomberg earlier this year.

Gazprom argues it can undercut U.S. LNG on price. “In a five-year perspective, the cost of U.S. LNG is seen higher than forward prices at the British hub NBP,” Alexander Medvedev, a top Gazprom official said in New York in January, referring to a benchmark natural gas price in the UK. “Imports of North American gas to Europe will be limited.”

Another strategy for Gazprom is to expand pipeline connections to secure more buyers for a longer period of time. The Russian gas giant, along with several international gas companies, is pushing the Nord Stream 2 pipeline, an expansion of the existing conduit that connects Russian gas to Germany via the Baltic Sea. The proposed project has become highly controversial, with its sponsors – including E.ON, Wintershall, Shell, OMV, and Engie – arguing that the pipeline expansion is purely about business. Some governments in Eastern Europe see a more sinister plot to keep them hooked on Russian gas while depriving Ukraine its leverage as transit hub. Ukraine’s state-owned gas company Naftogaz calls Nord Stream 2 a “Trojan horse.”

On the other hand, if the project meets all legal requirements and the companies want to move forward, European politicians may have a tough time trying to slow it down. Speaking at an event at The Atlantic Council in early April, Friedbert Pfluger a Nonresident Senior Fellow at the Washington DC-based think tank, rejected the argument that the Nord Stream did not make commercial sense. “Who decides this? Is it government? Politicians? Are we in a planned market society? Do we teach Gazprom and the Russians that we know better as politicians than companies what the future market share and consumption in certain fields are?” Pfluger said.

Full article: U.S. To Undermine Russia’s Gas Monopoly In Europe (OilPrice)

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