Russia Could Fend off US LNG Plans for Europe

MarineLink.com
Monday, March 10, 2014

By Oleg Vukmanovic and Henning Gloystein, Reuters

As Russia tightened its grip on Ukraine's Crimea region this month, U.S. and European Union officials were urging the Obama Administration to speed up approvals of more liquefied natural gas (LNG) export terminals.

Yet Russian exporter Gazprom's ability to swamp European natural gas markets with supply while depressing prices will make it difficult for as-yet unavailable U.S. supplies to displace Russian gas in Europe.

The EU is keen to diversify away from Russian gas imports, a stance hardened by Gazprom's decision to switch off supply to Ukraine during a pricing dispute in 2009 which curtailed supplies to EU member states, as well.

Yet U.S. LNG, exports of which are expected to ramp up beginning next year, are not a silver bullet in supply diversification for Europe.

State-controlled Gazprom sells most of its gas to Europe in long-term deals that are partly linked to the price of oil.

It has recently agreed major price reductions with most of its European customers, including Germany's E.ON and RWE, France's GDF Suez and Italy's ENI and Edison.

The move has helped defend its leading position in Europe, including from potential U.S. shipments, and industry sources say that Russia may agree to further discounts.

U.S. exports to Europe would barely break even at current spot market prices, as operating costs, fees and shipping rates would push the price of U.S. cargoes above European spot levels.

"Prices don't need to go down further to cap new 2020 supply," said Thierry Bros, senior gas analyst at Societe Generale, adding that such a fall would effectively rule out any significant role for American LNG in Europe.

Only a slight drop in Russian long-term prices or a rise in U.S. gas prices would see North American LNG cargoes to Europe pushed out of the market by Russian gas pipelines as well, Reuters research shows.

Asia is Better for LNG
European spot gas prices currently stand at around $10 per million British thermal unit (mmBtu), half of what Asian buyers pay. Because U.S. prices are below $5 per mmBtu due to the shale gas production boom, U.S. LNG exports have become attractive.

Although U.S. spot gas prices are low, however, forward curves show prices rising in North America while Europe's contracts come down.

That means even just slight further rebates by Russia or a move towards more EU spot market indexation would effectively push U.S. LNG out of the market in Europe.

"Lower European prices could make U.S. LNG profitable for the Asian market alone," said Thierry Bros.

Political Gas

Although the United States has overtaken Russia as the world's biggest gas producer, there's an important difference in the politics of energy between Washington and Moscow.

Private companies and market mechanisms determine U.S. trade flows, which make it difficult for the United States to wield energy as a tool to punish Moscow. That points to LNG cargoes steering away from Europe towards higher-value Asian and Latin American markets given current price trends.

Not so in Russia, where state-controlled Gazprom granted heavy price discounts to reclaim lost market share.

That policy allowed Russian gas exports to Europe last year to rise to record levels, while LNG suppliers or pipeline competitors like Norway's Statoil saw their European market shares shrink.

(Editing by Jason Neely)

Maritime Reporter August 2015 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

Tanker Trends

Joe Pyne Joins DHT Holdings’ Board of Directors

Crude oil shipper DHT Holdings, Inc. announced today that it has appointed Joseph H. Pyne to its board of directors, expanding the board from three to four independent directors.

Nigeria Ramps up Push to Eradicate Oil Theft

Nigerian authorities hope to put an end to rampant oil theft in eight months by increasing drone and naval monitoring of territorial waters and working with local communities,

TEN Charters Tanker at 20% Premium

Tsakos Energy Navigation Limited announces two-year charter renewal at a 20 percent premium to prior contract reflecting strong tanker market fundamental, oil price

News

Latest ShipConstructor Update Targets Offshore

With the release of ShipConstructor 2016 R1.1, SSI said it provides additional enhancement for the offshore rig construction market, particularly with regards to weld management.

Runaway Crane Barge Sinks on the Mississippi

The U.S. Coast Guard is working with a team of responders to recover a runaway crane barge that sunk near Convent on the Mississippi River.   The crane barge

Joe Pyne Joins DHT Holdings’ Board of Directors

Crude oil shipper DHT Holdings, Inc. announced today that it has appointed Joseph H. Pyne to its board of directors, expanding the board from three to four independent directors.

Government Update

Huntington Ingalls Cites Interest in Building US Icebreakers

Huntington Ingalls Industries Inc, which builds aircraft carriers and U.S. Navy warships, on Tuesday said it was keen to bid to build new icebreakers for the U.

Oil Exports Could Push US Gasoline Prices Lower

The price of U.S. gasoline could fall if Washington were to allow crude oil exports, an independent government report on Tuesday concluded, adding political firepower

Migrant Crisis Promts Call to IMRF for Help

Mediterranean Rescue Services are in urgent need of support because they are struggling to keep up with the replacement of equipment being used to rescue the increasing

 
 
Maritime Careers / Shipboard Positions Maritime Standards Naval Architecture Pipelines Pod Propulsion Port Authority Salvage Shipbuilding / Vessel Construction Sonar Winch
rss | archive | history | articles | privacy | contributors | top maritime news | about us | copyright | maritime magazines
maritime security news | shipbuilding news | maritime industry | shipping news | maritime reporting | workboats news | ship design | maritime business

Time taken: 0.3370 sec (3 req/sec)