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

Tanker Trends

Container Ship and LPG Tanker Collide near Surabaya

LPG tanker Navigator Aries (23,333 dwt, built 2008), and containership Leo Perdana (33,423 dwt, built 2007) collided yesterday in waters off Gresik, nearby the Port of Tunjung Perak in Surabaya,

Hyundai Sees Mega Ships Leading Global Demand

As the demand for mega vessels has increased, Hyundai Heavy Industries Co. expects mega- sized container ships to lead global orders until early next year as shipping

Canada Slaps Sanctions on Russia Energy Firms

Canada slaps sanctions on Gazprom, other Russia energy firms   Canada is imposing economic sanctions against Russian energy firms such as natural gas producer

News

Activists Planning Protest Against Shell's Arctic Business

U.S. environmental activists said they planned to protest on Tuesday against the launch of the second of two oil rigs central to Shell's plans to drill for oil in the Arctic.

CMA CGM, Chinese Bank in Finance Deal

French container shipping group CMA CGM said on Tuesday it will sign a $1 billion financing agreement with the Export-Import Bank of China. Marseilles-based

Maersk: No Issue in Funding Greek Operations

Oil and shipping conglomerate A.P. Moller-Maersk said on Tuesday it was experiencing no problems funding operations in Greece or getting paid by Greek customers

Government Update

Activists Planning Protest Against Shell's Arctic Business

U.S. environmental activists said they planned to protest on Tuesday against the launch of the second of two oil rigs central to Shell's plans to drill for oil in the Arctic.

Protests Shut Channel Tunnel Again

The Channel Tunnel closed again on Tuesday due to protesting MyFerryLink workers, its operator Eurotunnel and French traffic supervision body Bison Fute said. The

CMA CGM, Chinese Bank in Finance Deal

French container shipping group CMA CGM said on Tuesday it will sign a $1 billion financing agreement with the Export-Import Bank of China. Marseilles-based

 
 
Maritime Careers / Shipboard Positions Maritime Security Port Authority Salvage Ship Electronics Ship Repair Ship Simulators 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: 0.1763 sec (6 req/sec)