Pipeline Politics
Gazprom Gloats over Captive European Market

The state-owned natural gas supplier Gazprom has long enjoyed throwing its weight around in the European market, but that narrative seemed to be shift somewhat in recent years as countries like Poland started actively working to circumvent Russian supplies and the continent began looking hopefully westward as the United States assembled liquified natural gas (LNG) export infrastructure. But LNG hasn’t (yet) saved Europe from Gazprom’s clutches, and as Bloomberg reports, 2017 is shaping up to be a return to form for the Russian company:

A “conservative estimate” by the world’s biggest exporter is that Europe’s demand may increase by about 5 percent this year, [Gazprom] Deputy Chief Executive Officer Alexander Medvedev said Thursday in an interview in Hong Kong. The state-run company, which supplied record volumes to Europe last year and met more than a third of consumption, sees its 2017 shipments of “no less than in 2016,” he said.

The European Union’s gas demand increased in 2015 after four years of declines. After the coldest January in seven years and plunging output at domestic fields, the region is getting increasingly dependent on foreign supplies of the fuel mainly used in heating. And the low storage levels aren’t lost on Medvedev.

“We see a renaissance now, so the 5 percent growth is a realistic figure,” Medvedev said. “Meanwhile, the production is falling and will fall further.”

This is, in many respects, a problem of Europe’s making. Many European countries have snubbed their own domestic reserves of shale gas after being swayed by the cries of environmental activists. Europe has also been slow to avail itself of the rapidly growing global (LNG) market, though import terminals are coming online that will give the continent access to gas supplies from virtually anywhere in the world.

LNG imports could take on increased significance if Russia were to once again use its comfortable position as a major neighboring natural gas supplier as economic and geopolitical leverage. Europe should therefore make it a top priority to bulk up its capacity to buy LNG supplies from suppliers like the shale-rich United States, or Australia, or Qatar, to name just a few LNG heavyweights. That would help to loosen Gazprom’s leverage.

In the meantime, as long as Europe’s appetite for gas continues to grow and its recalcitrance to drill the cleanest burning fossil fuel out there persists, Russia is going to enjoy pushing around its hundreds of millions of captive customers.

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