U.S’ LNG Natural Gas Export Crisis in Europe – Russia to Come out Ahead

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EU – No sooner had the heating season started, as American LNG again became unprofitable for sale in Europe. Previously, rising gas prices in EU countries favored sales, but suppliers preferred a more premium Asian market. Now they have no choice. The gas price hike in the United States itself has made American LNG supplies to Europe unprofitable this winter, which opens up new opportunities for increasing Russian gas supplies to both the EU and the US.

In November, prices on the American gas exchange Henry Hub rose above $ 4 per MMBTU ($ 142 per thousand cubic meters) and at this level futures contracts with gas supply are being traded until March. Taking into account the liquefaction, delivery and regasification, the cost price of American LNG for European consumers exceeded $ 7 per MMBTU ($ 250 per thousand cubic meters). At the same time, the price of gas on the world market began to decline. At most used liquid European gas exchange TTF, it dropped to $ 250, and in Asia – to $ 355.

“Growth in domestic gas prices in the United States has not yet significantly affected LNG exports, since even with increased prices for Henry Hub, gas supplies to the APR (Asia-Pacific) remain profitable, although supplies to Europe are already becoming unprofitable,” the analyst believes Energy Center of the Moscow School of Management SKOLKOVO Alexander Sobko . The expert notes that for the American producers themselves LNG exports will remain profitable even with a further increase in domestic prices in the United States or a decrease in world prices, since the cost of liquefaction has already been paid by buyers.

Alexei Grivach , deputy director of the National Energy Security Foundation ( NESB),notes that the rise in gas prices for Henry Hub, to which the prices of American LNG are tied, especially amid falling oil prices and gas tied to it in Asia, returns American gas suppliers to the loss zone. “On the other hand, such prices within the United States are somewhat improving the economy of the mining industry in America, which is also under pressure due to lower oil prices,” says the Deputy Director of the NESB.

As the Economist notes, the price of Russian gas in Europe is $ 5 per MMBTU ($ 177 per thousand cubic meters). Therefore, it is still difficult for American LNG to compete with it. At the beginning of November, Gazprom announced that in 10 months gas exports grew by 4.4% to 164 billion cubic meters. Therefore, the Russian holding company has every chance to exceed last year’s record this year and step over supplies in the amount of more than 200 billion cubic meters of gas.

Therefore, it is no coincidence that representatives of Gazprom at a meeting with investors in New York compared the deliveries of American LNG to the European market with a few drops against the background of the volumes supplied by the Russian holding company through the pipeline. “Many of you start the morning with a cup of coffee. If we compare the volume of supplies of Gazprom to the European market with a cup of coffee, then the supply of American LNG will be just a few drops, ” said Kirill Polous , head of the Gazprom department 123 , Interfax reports.

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According to the US Department of Energy Information (EIA), American LNG supplies to Europe from January to August of this year amounted to no more than 800 million cubic meters – 166 times less than Gazprom’s exports to the EU during the same period of the year.

The media wrote a lot about the fact that because of rising gas prices in the United States, Russian LNG supplies across the ocean may be repeated. Experts confirm this possibility, but indicate that so far the current prices are not high enough and new conditions need additional conditions.

“Now prices in the US are not high enough, but in the case of severe frosts in the north-east of the country, a serious shortage and explosive price increase may again arise, which will attract supplies of free LNG, including from Yamal LNG,” said FNEB Deputy Director Alexei Grivach . Alexander Sobko, an analyst at the Energy Management Center of the Moscow School of Management SKOLKOVO, at the same time notes that the import of Russian LNG into American Boston was associated with a shortage of gas pipelines, which led to prices in the region exceeding $ 10 per MMBTU. “Of course, it is profitable to supply LNG from Yamal at such prices,” said the expert. “The United States itself cannot supply its LNG because of the ban on domestic shipments by ships built outside the United States.”

The global market has developed a shortage of LNG tankers for spot gas supplies and the cost of liquefied gas has increased to a maximum since 2012.

As reported by S & P Global Platts, since September, freight gas carriers have risen in price by 40%, and compared to last year – by 3.5 times. According to the agency, today there is a shortage of tankers for work in the Pacific and the Atlantic Ocean. Therefore, rates rose to $ 130 thousand- $ 140 thousand per day.

At the same time, the Yamal LNG project introduces new lines ahead of schedule and lacks the Arc7 ice-class tankers to deliver Russian liquefied gas. The consequence of this was the opening of a new transshipment point for Russian LNG in the port area of ​​the Norwegian city of Honningsvåg. There, the Arc7 ice-class tankers overload liquefied gas into gas carriers of a lower ice class and reduce their flight time from 7 to 3 days.

The American edition of The Wall Street Journal noted today that, in direct competition with American exporters trading in shale oil and natural gas, Russia has become a major player this year in the rapidly developing market of liquefied natural gas that is transported by sea through special vessels. “Meanwhile, the country continues to deliver natural gas through already existing pipelines to Europe at a record pace. As for the East, Moscow is preparing for the commissioning of an important pipeline that will allow it to supply natural gas to China — the fastest growing and one of the main natural gas markets, ” the article says,  Russia is flexing its muscles in the gas industry “.

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