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North-American LNG Could Weaken Russia’s Grip On Europe

North-American LNG Could Weaken Russia’s Grip On Europe

December 2015 could mark the dawn of a new era – Cheniere Energy is expected to start up the first train of its Sabine Pass LNG export facility, turning the U.S. into a global player in the LNG export market.

But Cheniere Energy has even more ambitious plans. According to Reuters, the Houston-based company has plans to supply Eastern Europe with LNG in just a few years, including a floating regasification terminal off the coast of Croatia. That would allow American-produced natural gas to reach Central and Eastern Europe.

Cheniere is considering floating regasification because an onshore LNG import facility would be expensive and “faces too many roadblocks to succeed,” according to Reuters. Related: Midweek Sector Update: China’s Stock Market Crash Looming Large Over Oil Prices

“LNG would allow these countries to participate in the fully global gas market,” a source told Reuters. “Cheniere's goal is not to squeeze out the Russians but to allow for a good mix on the market.”

That may not be Cheniere’s goal, but it could be a practical outcome of greater American LNG in Europe. Russia supplies Europe for about one-third of its natural gas imports, a share that European policymakers are looking to shrink, especially after the onset of the Ukraine crisis last year. Related: Has The E&P Industry Lost Touch With Reality?

“Clearly there is a business dimension here, and there is a political dimension,” another Reuter’s source said. “Cheniere's role is part of a wider Russian-American struggle.”

Russia has lost quite a bit of leverage in Europe in the past few years. The surge in shale gas production has freed up LNG from other sources around the world, rerouting shipments to Europe that might have otherwise gone to the United States. As a result, LNG prices for Europe are more accessible, offering a viable alternative to imported Russian gas. The collapse in oil prices has also undercut the price of LNG. Related: Top Factors Undermining Any Oil Price Recovery

Moreover, the antitrust case that the EU is pursuing against Gazprom could yet wring concessions out of the Russian gas giant. EU regulators allege that Gazprom has historically played a divide-and-conquer game in Eastern Europe using gas exports, charging different countries different prices depending on their willingness to cooperate with Moscow over other unrelated political matters.

But global LNG supplies are set to explode over the next few years, and not just from American shores. That could keep a lid on LNG prices for the short- to medium-term, undermining Russia’s ability to use gas as a political tool.

By Charles Kennedy Of Oilprice.com

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