LNG Price Wars in Europe | Russell T. Rudy Energy LLC
Apparently Russia and Norway have taken a page out of Saudi Arabia’s playbook. “World Oil” reports that these two nations are increasing production and driving down natural gas prices in order to preserve market share. This strategy is aimed at containing the growth of Qatari Liquefied Natural Gas (LNG) imports into Europe and preventing U. S. LNG from competing in this market. The strategy seems to be working as natural gas prices in the U. K., Europe’s biggest market, have already fallen by 38% over the last year. The timing could not be worse for U. S. based Chenerie Energy Inc. which just started exports to Europe.
Just as is the case with Saudi Arabia in oil markets, denials abound. A spokesman for Russian giant gas exporter, Gazprom, maintains that they are merely responding to naturally declining European production which has created a need which his nation is filling. Elin Isaksen, with Norwegian state controlled producer, Statoil, contends that it is selling gas where it gets the best price, and an increasing market share is a by-product of this process and not a goal.
Sluggish European economic growth, and the mildest winter in the U. K. since 1772, have resulted in gas inventories above the 5 year average. Consequently, Fitch Group’s BMI Research predicts a 28% price decline this summer to as low as $2.88 per million British Thermal Units.
The dominance of Russia and Norway in the European natural gas market will make it difficult for other players to compete. The two nations have been the primary suppliers for the last four decades and currently provide over half of Europe’s needs. With the collapse of the ruble, Gazprom is understandably trying to maximize revenues via dollar denominated European gas sales contracts. Norway, the second largest supplier, has boosted production from its largest gas field, Troll, and plans to do so at its Kaarstoe and Kvitebjoern facilities as well.
Of course, lower prices are a boon to European utilities which provide gas for power generation and home heating. As Asian economies stagnate, LNG producers are drawn to the European market. Its liquidity, infrastructure, and stability are all additional attractions for suppliers. Given the relatively high costs of liquefaction, transportation and regasification, LNG is at a distinct cost disadvantage compared to pipeline gas from Russia and Norway. Nevertheless, Europeans are eager to diversify their sources of gas for both geopolitical and long term economic reasons.
To read the article in its entirety, please go to http://www.worldoil.com/news/2016/4/21/russia-and-norway-use-saudi-oil-strategy-in-europes-gas-market .
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