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Growing competition from natural gas and LNG exporters, and a decline in gas demand in Europe are threatening the market share of its single-largest supplier, Russian Gazprom, Fitch has warned on Tuesday.
The state-owned giant accounts for about a third of all natural gas supplies to the continent.
According to the ratings agency, the loss in market share – or a decline in profit margin – is pretty much unavoidable, but the degree of its severity will depend on Gazprom’s flexibility. The Russian company has low production and transportation costs on its side, as well as spare production capacity.
One of the measures the company is expected to take to offset the effects of the more intense competition and the sluggish demand (caused by oversupply) is separating the price of natural gas from the price of crude. It is also likely to offer its European clients more attractive trade conditions, which is the most logical thing to do in such an environment.
Among these, Sputnik reports, will be a reduction in the take-or-pay volumes and a removal of clauses requiring a specific destination for gas deliveries, which restricts overall export amounts.
Talk about Gazprom losing market share to the growing number of competitors, the U.S. included in the LNG segment, has been going on for some time. For now, however, the global LNG market remains oversupplied, which is pressuring prices and reducing the lucrative potential of exports to Europe.
Demand is stagnating, especially in the Asia-Pacific region, Fitch noted. The oversupply is seen by the agency to persist until at least 2021, and competition will only get more intense in Europe as suppliers fight for market share. Gazprom’s rivals are no less motivated to offer the best conditions to their clients to take a bite out of the Russia’s giant 33 percent share.
By Irina Slav for Oilprice.com
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Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.