Russia Just Won Big In The European Gas War

LNG carrier


There’s been a lot of talk on both sides of the Atlantic about the U.S. pivot and efforts at locking in natural as market share in Europe. Much of this comes amid President Donald Trump’s so-called American energy independence push as well as both U.S. and several EU members thrust to wean Europe off of geopolitically charged Russian gas.

In fact, Trump has pushed for U.S.-sourced LNG to become so much of the EU’s energy security that several European states, particularly Germany, have accused the president of playing energy geopolitics, cloaking American concern for European energy security under the guise and to the benefit of U.S. LNG producers.

Now, however, Trump and U.S. LNG exporters will have an even harder time convincing key EU members to offset overreliance on Russian piped gas with U.S. LNG.

Last week, Gazprom, the world’s largest gas producer, and the European Commission resolved a seven-year anti-trust dispute after the Russian state-controlled energy giant agreed to change its operations in central and Eastern Europe.

Per terms of the deal that was reached on Thursday, Gazprom will be banned from imposing restrictions on how its customers in central and Eastern Europe use gas. Meanwhile, Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland and Slovakia will no longer be banned from exporting gas to another country.

These countries originally sought to remedy over pricing problems for Russian gas. Going forward, customers in Bulgaria, Estonia, Latvia, Lithuania and Poland have the right to demand a price in line with those in Germany and the Netherlands.

Russian victory

It’s a win situation for Gazprom since its agreement avoids billions of dollars in penalties that could have been levied by the European Commission; while it also helps the firm solidify its hold on European gas markets.

It’s also a victory for Russia overall which has seen several LNG players, notably Qatar and the U.S., vie for market share at the expense of Russian gas producers. Even before the Gazprom deal, it would have been hard for U.S. producers to take significant market share in Europe away from Russia, mostly due to pure energy economics.

Commodities data provider S&P Platts Global said on May 11 that U.S. LNG was still a rare visitor to European shores despite low LNG stocks — especially in northwest Europe — and high European hub prices. Just three U.S. LNG cargoes have landed in Europe since the turn of the year.

Simply put, Russian pipeline gas is already a cheaper commodity for EU end users than imported U.S.-sourced LNG since liquefaction and transportation charges have to be added. However, U.S. LNG since is indexed to Henry Hub gas prices on the NYMEX it’s considerably lower than other LNG producers that want to enter Europe since most other LNG cargoes have a higher cost oil-price indexation formula.

The European Commission finding also comes as Washington turns up the heat on the EU to scrap Russia’s Nord Stream 2 gas pipeline project that could be operational as early as the end of next year.

The Nord Stream 2 pipeline has been a source of contention for over a year, pitting the U.S. and a small number of European countries, including Poland, the Ukraine, Lithuania and others, on one side against Russia and other major EU members, led by Germany.

Coming full circle

Full article: Russia Just Won Big In The European Gas War (OilPrice)

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