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Russia sees a silver lining in the oil price collapse-it now believes that the oil price war will help it win the war for natural gas market share in Europe.   Russia's gas giant Gazprom, the single largest supplier of natural gas to Europe, has watched with apprehension the growing volumes of liquefied natural gas (LNG) from the United States that have arrived on European shores over the past two years.  

However, the coronavirus pandemic and the crash in oil prices-while negative for all gas sellers around the world-are likely to hit LNG exporters more than it would hurt Gazprom, Russian energy analyst Alexander Sobko argues in an article in Russia's state news agency RIA Novosti.

The "oil price collapse will not drag Russian gas down", Sobko argues, saying that the majority of long-term LNG contracts, especially older ones, are indexed to oil prices, compared to 32 percent of Gazprom's long-term contracts that are tied to oil prices.  

Crashing oil prices are set to lower the revenues and profits of LNG exporters whose contracts are indexed to the price of oil. The LNG glut amid depressed demand and economic slowdown (and outright recession in many mature markets) is likely to keep spot LNG prices lower for longer, eating into LNG producers' profits and potentially forcing them to defer final investment decisions on new LNG liquefaction and export projects. 

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At the same time, low natural gas prices in Europe are hurting Gazprom's sales revenues, too, and the pain could become worse in the coming months as European demand will likely fall off a cliff with major economies under lockdown and industrial activity significantly down. 

The U.S.-Russia Gas War In Europe

The U.S. strongly encouraged "molecules of U.S. freedom to be exported to the world," with U.S. LNG exporters selling growing volumes of the super-chilled fuel to a growing number of buyers in Europe who are willing to reduce their dependence on Russian pipeline gas.

Russia was the biggest supplier of natural gas to the European Union (EU), both in 2018 and in the first half of 2019, ahead of Norway, EU data show.

But the share of suppliers other than Russia, Norway, Algeria, Qatar, and Nigeria, rose from 4.8 percent in 2018 to 8.8 percent in H1 2019, at the expense of the market shares of Norway and Russia, as per Eurostat estimates.

Elena Burmistrova, Director General at Gazprom Export, said at Gazprom's investor day last month that the company's share in the gas consumption of Europe and Turkey was 35.6 percent in 2019.

At the European Gas Conference in Vienna in January, Burmistrova admitted that Gazprom's export volumes to Europe dropped in 2019 compared to 2018, but downplayed the "less than 1.5 percent decrease from record 2018 volumes." She argued that LNG had one main drawback, and this was its inability to quickly meet demand in peak periods of consumption. Gazprom's pipeline gas ensures stability and reliability in supplies to Europe, the Russian giant argues.

Some European customers, however, are looking to free themselves from the Russian stability and reliability, which often come with a political price attached.

This is the key sales pitch of U.S. LNG sales to Europe-"freedom gas" can help European countries to diversify their gas imports.

And Then The Black Swan Muddled The Market

A perfect storm of milder winter weather and new LNG supply from the U.S. and Australia led to a global LNG glut and crashing LNG spot prices at the end of last year. In March 2020, European gas storage is fuller than normal for this time of the year, and Europe will likely be unable to absorb the LNG volumes that Asia won't pick up as its demand growth is slowing.

As if this situation wasn't bad enough for LNG sellers and LNG projects slated for approval, the coronavirus pandemic spread another contagion on the gas markets-demand in China significantly slowed down and demand in Europe is taking a hit, too.

Italy, the country worst hit by the pandemic apart from China, has seen its power demand drop after it went into lockdown last week, Peter Osbaldstone, Research Director, Europe Power and Renewables at Wood Mackenzie, said on Thursday. Power generation dropped by 8.8 percent in the first week of the nationwide quarantine compared to the previous week, with gas-fired production-which accounts for over 40 percent of overall supply in the market - down by 5 percent, according to WoodMac.

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"Further demand reductions are expected across Europe as lockdowns become more widespread. Industrial and commercial demand is set to be particularly weak as economic activity slows," Osbaldstone said.

Winners and Losers

LNG imports into Europe may be hit hard, but Gazprom may not be as insulated from the current situation on the oil and gas markets as Russia wants to imply.

Gazprom's revenues from gas exports in January 2020 crumbled by 41.1 percent compared to January 2019 due to warmer weather and high inventories that countries had amassed in case Russia and Ukraine had failed to strike a transit deal at end-2019, Russian business daily Vedomosti reported last week, citing data from the Federal Customs Service of Russia. In January and February, Gazprom's exports are expected to have fallen by 20-25 percent, Sergei Kapitonov, natural gas analyst at Skolkovo Energy Center in Moscow, told Vedomosti.

With gas prices in Europe now below $3 per million British thermal units (MMBtu) before winter's end, the question is who will blink first, Mike Fulwood wrote in an Oxford Institute for Energy Studies comment this month. With prices so low, something has to give-it could be prices dropping further into the low $2s per MMBtu, or Norway cutting production in the summer, or Russia holding back exports especially if Gazprom's netback per MMBtu is lower than the one for its domestic sales, or LNG capacity could be shut in in significant quantities, Fulwood says.    

There won't be a clear winner in this war for gas market share in Europe - LNG imports to Europe will drop, but Gazprom's exports and revenues will too, and so will the revenues for the Russian state.

By Tsvetana Paraskova for

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Tsvetana Paraskova

Tsvetana is a writer for with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.  More