Due to competition from liquefied natural gas (LNG) and better market regulation, many European countries renegotiated their contracts for Russian pipeline gas supply in 2018, saving as much as US$8 billion on their Russian gas import bill, Fatih Birol, the Executive Director of the International Energy Agency (IEA), told Reuters on Friday.
"Because of the big challenge from LNG and better regulation, there was a lot of renegotiation of pipeline contracts and we estimate in 2018, Russian pipeline exports to Europe were $8 billion cheaper than they would have been with conventional oil indexation," Birol told Reuters on the day on which the Paris-based agency released its Gas 2019 report.
Russia says that its pipeline gas exports is cheaper than American LNG, but countries in central and eastern Europe, such as Poland and Lithuania, are eager to wean off the Russian gas teat, which, they say, comes with political leverage for Moscow.
The price of LNG that the United States is exporting to Europe will stay competitive with Russian pipeline gas supplies in the long term, U.S. Secretary of Energy Rick Perry said earlier this week.
"This idea that somehow ... LNG can't compete with pipelined gas is just false," Reuters quoted Secretary Perry as saying on the sidelines of a conference in Slovenia, as the United States is authorizing additional volumes of LNG exports, calling its LNG "freedom gas."
In its Gas 2019 report published on Friday, the IEA said that Europe's gas consumption is expected to remain flat in the coming years, but domestic production is forecast to drop at an average rate of 3.5 percent annually due to the phase-out at the Groningen field in the Netherlands and falling North Sea production.
"This structural decline in domestic production, combined with the expiry of several long term pipeline contracts, opens opportunities for new sources of supply, including LNG," the IEA said in the report.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. More