Russia Could Fend off US LNG Plans for Europe
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 Today

The Maritime Industry's original and most viewed E-News Service

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


Deltamarin to Designs First LNG Handysize Bulk Carriers

Deltamarin Ltd proudly announces that it has signed a contract to design the world’s first LNG handysize bulk carriers, which will point the way towards greener shipping of commodities.

Swan Energy to Invest $845 mln for FSRU Terminal

Swan Energy Limited will invest around Rs. 5,600 crore ($845 mln) towards setting up of Jafrabad LNG Port project in Gujarat with one jetty-moored Floating, Storage and Regasification Unit (FSRU).

Alaska Buys TransCanada AK LNG Stake

The State of Alaska has finalized a deal with TransCanada to buy out the pipeline company's share in the proposed Alaska liquefied natural gas export project for nearly $65 million.


Henriksen Unveils Strongest SOLAS Boat Lifting Hook

H Henriksen of Norway has received SOLAS certification for a new off-load single-point boat lifting hook capable of holding up to 22.5-tonnes. The quick release

S&P Raises Steamship Mutual outlook to Positive

Poor’s has revised its outlook on Steamship Mutual to Positive from Stable. The A- financial strength rating has been reaffirmed. In their announcement Standard

SSA Welcomes Decision To Extend BEO

The Singapore Shipping Association (SSA) has welcomed the decision by Singapore’s Minister for Trade and Industry to extend the Competition (Block Exemption

Government Update

SSA Welcomes Decision To Extend BEO

The Singapore Shipping Association (SSA) has welcomed the decision by Singapore’s Minister for Trade and Industry to extend the Competition (Block Exemption

Moore Stephens Highlights Potential Tax Issues for Shipping

As part of the Government’s drive to encourage voluntary compliance with the tax rules, it will legislate to introduce a new requirement that large businesses

U.S. Ups Philippines Aid as South China Sea Turmoil Builds

The United States has raised its military aid to the Philippines this year to $79 million, the U.S. ambassador said on Wednesday, as tension rises in the region

Maritime Careers / Shipboard Positions Maritime Security Maritime Standards Navigation Offshore Oil Pipelines Pod Propulsion Ship Repair Ship Simulators Shipbuilding / Vessel Construction
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: 0.1012 sec (10 req/sec)