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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Why U.S. LNG Can’t Win In Europe

When Washington imposed sanctions on companies, the move drew criticism not just from Russia but from Germany as well. The sanctions, targeting firms building the pipeline that will increase Gazprom’s export capacity for Europe, were seen as interference in Germany’s internal affairs while the legislators who approved them saw them as a tool for deterring Russia’s energy influence in Europe. For some, however, the reason for the sanctions was the U.S.’s own energy plans for Europe.

The Trump administration is following an agenda of energy dominance, and this dominance has to include Europe, which is one of the biggest markets for natural gas and, what’s more relevant to the U.S., liquefied natural gas. However, lessons from history, and that’s a history of Gazprom, would suggest that the energy dominance approach won’t work--not in Europe.

Bloomberg’s Liam Denning recently reviewed a book by an IHS Markit expert on Russian energy, Thane Gustafson, titled The Bridge. The Bridge, according to Denning, contains, among other things, a cautionary tale for U.S. gas ambitions in Europe. The gist of it is that the European gas market is a lot more open and transparent than it used to be, and while this has served to reduce the influence of Gazprom on the continent, it has also served to deter anyone else that might want to try to take Gazprom’s place.

The truth is that today, Europe has developed a continental gas network, and that network features LNG terminals. This means that many European countries are today a lot more flexible in their gas imports than they were 30 years ago, when Russia and Norway dominated the market. There is just one catch: the LNG has to be cheap enough to beat alternative supplies. Related:The Iran Crisis Is Far From Over

Poland is already buying U.S. liquefied natural gas. The country is ready and willing to pay more if it has to, in order to reduce its dependence on Russian gas for a number of historical reasons. Yet last year Bulgaria, too, bought two cargos of U.S. LNG from Cheniere’s Sabine Pass liquefaction plant. According to the head of the state gas operator, the cargos were priced at the level of local benchmark prices.

Even so, Poland and Bulgaria are small potatoes. Germany is the biggest gas market in Europe and it will become even bigger as the country aims to shut down all its remaining nuclear power plants by 2022. This is why Gazprom is building Nord Stream 2 with Angela Merkel’s blessing, after all. And this is why the U.S. is sanctioning it if we leave aside the ideology that every government uses to advance its purely pragmatic agenda.

Germany imported $14.6 billion worth of natural gas in the first half of 2019. That was 14.8 percent higher than a year earlier, but the increase in volume terms was even greater: these came in at 2.66 million terajoules, which was 20 percent higher than the year-earlier period. Historically, most of the imported gas has come from Russia, followed by Norway and the Netherlands. Now that the Netherlands is shutting down its flagship Groningen field ahead of schedule, Germany will need more gas from Russia and Norway. It could import U.S. LNG as per a EU promise to President Trump, as long as the price is right, as the EU Energy Commissioner said last year.

Yet because of the open and transparent nature of Europe’s gas market, Germany is also buying LNG from Russia. Just last month Novatek opened its first LNG fueling station in Germany. It is the first LNG station of the Russian company in Europe and could mark the start of a network.

This is why energy dominance is a challenging goal in Europe’s gas market. The fact that Germany and others are building new LNG terminals does not obligate them to use these terminals for U.S. LNG. Qatar is right around the corner, so to speak, and so are Nigeria and Algeria – both large LNG producers. Competition is intense and it’s out in the open. The victory that EU competition watchdogs achieved in their fight with Gazprom’s long-term contracts paved the way to the current competitive environment that leaves both Gazprom and U.S. LNG producers at the mercy of market forces.

By Irina Slav for Oilprice.com

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  • Kay Uwe Boehm on January 13 2020 said:
    Germany is buying already LNG from USA indirect over netherland with decreased own production 2017 but exporting more to germany imported using LNG terminal Rotterdam already
    but most important for LNG is build up of 1000bar CNG pebble tank exchange system connected in ISO container frame for worldwide selling without LNG ship, terminal and 50bar pipeline to home that way much more sellable for 700bar car CNG heating&electricity
    quickly everywhere without pipeline !
  • Kay Uwe Boehm on January 13 2020 said:
    Adding to text before
    About 1000bar CNG pebble tank can be filled up with LNG also from LNG terminal but directly shipped not sure more expensive see countries gas buy and local sell price at local pipeline and effort for cooling of tank ship and for limited capacity of LNG terminal if all cars, ships and airplanes should use 700bar CNG & heating+electricity.
  • Mamdouh Salameh on January 14 2020 said:
    US LNG can’t win in Europe for the simple reason that it can’t match the price of Russian piped gas supplied to the European Union (EU). Another reason is the openness and transparency of the EU’s gas market making it one of the most competitive gas markets in the world. Underpinning all this are some realities on the ground that could impede US LNG exports to the EU.

    The first reality is that Russia accounts for 40% of the EU’s growing gas market. Russia’s supremacy in gas supplies will be further enhanced by the completion early this year of Nord Steam 2 and the inauguration on the 8th of January of the completed Turk Stream gas pipelines both of which will be bringing more Russian gas supplies to the EU under the Baltic and the Black Seas respectively.

    The second reality is that despite claims by the United States that Nord Stream 2 undermines Europe’s overall energy security and stability, the Europeans see US opposition as a crude attempt to force them to buy US LNG.

    The third reality is that US LNG exports to the EU particularly Germany which is the biggest gas market in the EU could be seriously affected if Germany decides to shun US LNG exports altogether in retaliation against the United States’ interference in its energy affairs and the EU’s and buy instead Russian or Qatari LNG. Just last month the Russian gas company Novatek opened its first LNG fuelling station in Germany. It is the first LNG station of the Russian company in Europe and could mark the start of a network enhancing Russia’s position not only in piped gas but also in LNG.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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