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Gazproblems
Russia Prepares to Battle US LNG for Europe

America’s shale oil and gas bounty has remade our energy landscape in a matter of years, not decades—a historically quick transformation—but thus far has mainly benefitted the U.S. and the U.S. alone. 2016 is the year that’s going to change that, though, as exports of America’s shale gas (in the form of LNG) have started making their way to foreign shores, while the lifting of a four decade long ban on crude exports has similarly seen oil cargoes sold to foreign buyers.

New supplies of American LNG are of special concern to Russia’s state-owned gas company Gazprom, whose grip on Europe (its most important market) is at stake. Now, as Reuters reports, Gazprom is digging in for a fight by offering up cushier contracts to its European customers:

Gazprom has managed to increase sales despite a push by the European Union to curb Russian energy imports, using discounts, renegotiation of unpopular oil-linked contracts and gas sales via auctions. Spurring Gazprom’s charm offensive is a looming showdown as a wave of U.S. gas is set to reach Europe’s shores beginning next year. […]

“We are at the start of a new chapter in European gas markets,” Fatih Birol, executive director at the International Energy Agency said recently, as U.S. and other supplies fight to gain access.

To be clear, Europe likely won’t be the most attractive or important market that American gas exporters target. Our first LNG cargoes went to Brazil, and because of its proximity (and its distance from other LNG power players like Qatar or Australia), Latin America seems an easy choice for companies looking to offload U.S. shale gas. Asia is another likely destination, thanks to its high demand—Japan is the world’s biggest importer of LNG—and history of paying a premium for the hydrocarbon.

But American LNG can still have significant impacts on the European gas market, both direct and indirect. Lithuania has already signed a contract to import U.S. gas supplies, and as Reuters points out, in three years America’s LNG exporters will be shipping out enough gas to meet “20 percent of Europe’s current annual gas needs.” While those supplies won’t be exclusively heading Europe’s way, they will be contributing to an LNG market that’s already brimming.

Moscow seems to recognize this, and so it’s protecting market share by discounting its prices and reworking its long-term take-or-pay contracts whose linkages to oil prices have long been points of contention on the continent. Before, Europe’s heavy reliance on Russian gas supplies meant it had to accept those onerous terms, however begrudgingly, but thanks to a quickly growing global LNG market, it has more leverage at the negotiating table. Let’s add bolstering European energy security to the long list of the U.S. shale boom’s impressive accomplishments.

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  • CaliforniaStark

    In the past, Russia used its position as the main supplier of natural gas to much of Europe to extort exorbitant prices, and often as a political weapon as well. Given this past, it makes sense for Europe to diversify its source of natural gas, so Russia will never be able to exercise that type of manipulative power again. Hopefully someday the Russian people realize Putin’s bellicosity has alienated nations he should be seeking to become his economic partners. It would not be surprising if not too long from now the U.S. will be providing 20% or more of Europe’s natural gas.

  • Pete

    I would think that Europe would be willing to pay a premium for U.S. natural gas over Russian gas for reliability and national security reasons.

    And if not, so what? It’s their decision to make if they want to be penny-wise and dollar foolish

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