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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing for news outlets such as iNVEZZ and…

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Russian LNG Cargo Sparks Doubts About U.S. Energy Dependence

Russia

The arrival of a tanker in Boston that contained liquefied natural gas (LNG) coming from a recently inaugurated Russian project grabbed a lot of media attention over the past two weeks.

The news immediately stirred controversy over Russians skirting U.S. sanctions on the one hand, and the U.S. unable to meet its own natural gas needs on the other hand, despite the ‘energy dominance’ narrative and the American natural gas boom thanks to the shale revolution.

A closer look at the circumstances and facts, however, reveals the underlying forces behind this first-ever U.S. import of Russian LNG—regional infrastructure and legislative restrictions within the United States, and the increasingly globalized LNG trade in which the gas is sourced from many producers and projects and shipped to the highest bidder without restrictions on destination.

Ten days ago, the Gaselys tanker carrying the first LNG produced by Russia’s LNG facility in Yamal arrived in Boston. According to French cargo trackers Kpler, a second Russian LNG cargo is due to arrive from Dunkirk in France around mid-February, again in New England.

It was in New England where the cold snap at the end of last year and early this year sent gas consumption and prices soaring. New England relies on imports of gas from pipelines from gas-producing U.S. states and LNG imports into the LNG terminals in the region. Pipeline and storage capacity in New England is not enough to meet surging demand on short notice in winter periods. Related: Utility Sues Nuclear Energy Institute For Extortion

Despite the abundance of natural gas from the U.S. shale patch, no LNG cargoes can be sent from the Gulf of Mexico to New England, for example, due to a century-old U.S. legislation—The Jones Act—which stipulates that goods shipped between U.S. ports must be transported on ships that are built, owned, operated, and flagged by the United States. Not a single tanker out of the world’s nearly 500-strong fleet currently meets the requirements of The Jones Act, Bloomberg notes.   

So it’s not that the U.S. doesn’t produce enough natural gas. The U.S. became a net exporter of natural gas on an annual basis for the first time in 2017, and the trend is expected to continue, with net natural gas exports expected to further increase this year and next. U.S. natural gas production is already transforming the global gas market, and the IEA estimates that the United States will be on course to challenge Australia and Qatar for global leadership among LNG exporters by 2022.

It’s regional and legislative constraints that make New England import LNG cargoes. And in the globalized trade, there have been Russia-produced molecules of LNG that ended up at the Boston terminal.

In December 2017, Vladimir Putin officially launched the US$27-billion Yamal LNG project in the Arctic—Russia’s second LNG plant and its push to challenge the dominance of Qatar and Australia, and the U.S. in the future, on the global LNG market.

The majority shareholder of Yamal LNG, Novatek, has been on the U.S. list of sanctions since 2014, and had turned to Chinese partners for financing to complete the multi-billion-dollar project. The shipping costs using ice-breaker tankers will be high, but Russia has granted the Yamal project a 12-year tax holiday from its mineral extraction tax, and Russia’s LNG exports will not incur export taxes.

According to Anna Mikulska, a nonresident fellow for the Center for Energy Studies at Rice University’s Baker Institute for Public Policy, “even though in a limited way, U.S. sanctions worked by burdening Russian government with infrastructure expenses and restricting the revenues that Yamal sales could otherwise bring into the Russian federal budget.”  

Related: The Shale Driller's Dilemma

As for the origin of the LNG in the cargo, it’s not clear how much Russian gas it contained, although it surely did, according to Bloomberg. France’s energy giant Engie bought the cargo from Petronas which had in turn bought it from Yamal LNG. The cargo that set sail from London was a mix of gas from a UK storage tank and from various countries, including Algeria, Trinidad and Tobago, and Qatar. Engie says the cargo complies with U.S. trade laws.

Referring to the impact of U.S. sanctions on Russian energy, Mikulska suggests in her article that “In this context, the U.S. should rethink its approach to Russia and sanctions; it should look for multilateral, broad commitments rather than unilateral and narrow measures.”

According to Agnia Grigas, an energy policy and security expert and non-resident Senior Fellow at the Atlantic Council, the U.S. should invest in gas pipeline and storage infrastructure in New England to bring New England’s high natural gas prices down and to reduce the reliance on foreign LNG imports. In the new globalized LNG market with new routes, supplies, and re-exporters, the U.S. should “also be aware that LNG from sanctioned projects could make it to the United States via the globalizing gas market,” Grigas wrote in a commentary for Reuters.   

By Tsvetana Paraskova for Oilprice.com

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