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Gassy Geopolitics
What American LNG Could Mean for Europe

Fracking has unlocked a bounty of shale gas for the United States, driving down domestic prices well below what countries in Asia or Europe are paying. Europe has so far struggled to develop its own (smaller) shale resources, due to a combination of geologic, technical, and political difficulties. This leaves LNG as the continent’s best bet for diversifying away from Russian gas deals and the Kremlin strings that frequently come attached. The FT reports:

The protracted crisis in Kiev has revived memories of how Moscow cut gas exports through Ukraine as a political weapon in 2009, hitting supplies to 18 countries over an icy January. In total, Russia supplies 30 per cent of Europe’s gas.

Poland, eastern Europe’s leading economy, is also due to complete a large LNG terminal on the Baltic this year, building a €1bn facility near the beach resort of Swinoujscie. While Russia supplies about 9bn cubic metres a year of the country’s gas, the new terminal will have a capacity of 5bcm, which can be increased to 7.5bcm. Also on the Baltic, Finland and Estonia are squabbling over which of them should host a terminal. […]

The strategic merits of LNG terminals will become even more evident, they argue, when the US reaps the full benefits of its shale boom and exports its cheap gas (loaded on to tankers as LNG) to its Nato allies on Russia’s borders.

While central and eastern Europe continue to build out their LNG import infrastructure, the United States is slowly readying the liquefaction plants necessary to cool gas to a liquid for shipping. Most of that gas will head towards Asia, where countries like Japan are paying exorbitant prices for LNG. But Europe will get a slice of the American pie, too. While these new inflows might not fundamentally transform Europe’s energy mix, they will give countries like Poland and Lithuania greater leverage at the bargaining table with Russia’s Gazprom.

This is a best-case scenario for the United States. Liquifying and shipping natural gas adds $5-6 per million Btu, which means America will still retain a domestic price advantage even with significantly ramped up exports. Moreover, exporting American gas will give the United States a new lever in both Asia and Europe. That lever won’t match Russia’s, but it’s better than nothing.

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  • Fat_Man

    Making money is fun. Isn’t it.

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